Crimping shrimp: new tariffs are driving up importers' bonding expenses.

Ocean Blue Products Inc., an L.A.-based seafood importer, was accustomed to bringing in $1 million worth of black tiger prawns from Vietnam and Thailand each month. That was until this year.

"We quit," said owner Spencer Young. "It's just taking too much out of our income to do it. We're changing our focus now to sushi items, like tuna. It's changed our business."

Heavy tariffs that have triggered new customs bond requirements on overseas shrimp are hurting importers throughout Los Angeles--the leading port for Asian seafood--and causing some like Young to exit the business and others to cut back.

All of which is likely to result in sharp price hikes.

Anti-dumping tariffs on low-priced, farmed shrimp from China, Vietnam and several other countries meant to protect the Gulf Coast's shrimp fishery went into effect in January. The tariffs ranged from 10 percent to 113 percent and were expected to cut into business and raise prices. But even worse, according to importers, are new rules raising bonding requirements.

Importers must pay customs bonds to ensure that they have the funds to pay any fees, taxes or penalties associated with their cargo. Previously the U.S. Department of Customs and Border Protection required shrimp importers to post a flat, $50,000 annual bond. Now, importers doing business with the affected countries must also post a bond equal to the entire value of their prior year's shipments times the tariff rate, as well as additional bonds for each individual shipment.

So an importer who brought in $20 million worth of shrimp from China, which has the highest tariff rate, 113 percent, would have to post the original $50,000 bond and a $22.6 million bond, based on the value of its prior year's imports. Each shipment then would require an additional bond valued at the amount of shipment, also times the tariff rate.

The bonds cannot be cleared until customs processes all duties on a shipment, which can take as long as three years, requiring importers to post new bonds while others are still in effect. Importers say that the new rules are severely restricting their cash flow, available credit and their ability to buy new shipments.

"We're just enforcing the law," said Janet Labuda, a spokeswoman for U.S. Customs and Border Protection. "Anti-dumping and countervailing duties are an area of risk for duties revenues. "We're certainly not trying to put anyone out of business."

Wally Stevens, president of the American Seafood Distributors Association in Boston, expects that the rules will cut supply, raising the price of shrimp in the United States by more than 40 percent while cutting U.S. consumption by a third. The price hikes could hit as early as the spring.

"It sure boils down to higher shrimp prices," Stevens said. "It really will change who is going to import shrimp. The smaller ones will certainly be in danger of going out of business. With fewer people importing, it will affect shrimp supplies."

Bureaucratic regulations

Roughly 10 percent of the shrimp consumed in the U.S. is domestic, wild-caught shrimp and the rest, more than a billion pounds a year, is imported. That large supply has lowered the price of shrimp and made what 15 years ago was a luxury food, like crab or lobster, into the most consumed and fastest growing seafood.

China and Vietnam are the biggest exporters and have been hit with the highest tariffs, at 113 percent and 93 percent, respectively. Other countries also hit by the tariffs are Thailand, India, Ecuador and Brazil.

Complicating matters are surety companies that have tightened their credit criteria in response to the new rules. Importers who previously bought the $50,000 surety bonds for a small premium now must put up letters of credit and other collateral for the entire, larger bond amounts.

Attorney Susan Kohn Ross, a partner at Rodriguez O'Donnell Ross Fuerst LLP in Los Angeles, who represents shrimp importers in customs actions, says that the surety companies got scared after the high tariffs caused some importers to default on their bonds.

"The surety companies have completely changed their underwriting guidelines. Customs is saying they need much larger bonds, and they now say you have to fully collateralize your bonds," she said. "One bonding company is on the hook for $9 million because a bunch of importers couldn't pay the duties they owed."

Vernon-based Pacific American Fish Co. had been importing 12 million pounds of shrimp per year from Vietnam and India, both affected by the tariffs. It is now paying about $7.50 per pound for black tiger prawns from Bangladesh, which has no tariffs. That's 10 percent more than before the tariffs started and just a few cents under the price from India, which has the lowest tariff of the affected countries.

"They're not dumb," said the company's president Peter Huh, who prefers the quality of shrimp from India. "Bangladesh is now pricing everything on India's price, plus the tariff rate. We have sufficient cash to stay in business, but we're paying higher prices. We can't be as aggressive in our purchasing. Consumers are the ones ultimately paying for this."

Already, larger importers say they have heard that many small importers who may bring in just a few containers of shrimp per month have gone out of business. They also expect larger ones to consolidate over the next three years so they can increase their cash flow and liquidity to pay the bonds.

"Our viability is threatened, clear as day," said Brian Wynn, president and chief executive Los Angeles-based Rubicon Resources LLC, a major importer specializing in shrimp from countries targeted by the tariffs. "This is a commodity business with thin margins. It will be impossible to be a traditional shrimp importer. It will lead to immediate change with voluntary liquidation and company closures."