Navigating the tariff maze: Transhipment, origin risks, and shielding cross-border trade

“Stay vigilant and stay focused. This is just beginning.”  That powerful line, echoed by Pete Mento, a seasoned logistics and trade professional on LinkedIn, captures the growing anxiety across the global trade community in the face of escalating U.S. tariff enforcement, transhipment scrutiny, and origin verification crackdowns..

In this article, we unpack the impact of the United States’ enhanced tariff targeting mechanisms, the practical risks for importers and exporters, and how smart contract structuring, including selecting the right Incoterms®,  can serve as a critical buffer when duty expectations suddenly change..

Why is this a big deal now..??

The U.S. Customs and Border Protection (CBP) recently released updated guidance under its Cargo Systems Messaging Service (CSMS) that sharpens the spotlight on transhipped cargo and declared country of origin..

With mounting geopolitical tensions, particularly with China, and a growing preference for nearshoring or friend-shoring, the U.S. is aggressively ramping up scrutiny of shipments from regions like Southeast Asia, South Asia, and even traditionally safe trade partners like Mexico and Canada..

This is no longer about just checking the label..

What is transhipment and why does it matter..??

While the term transhipment has become ambiguous and a word of interest all of a sudden, in U.S. Customs compliance terms, Transhipment refers to the movement of goods through a third country to disguise or obscure the true country of origin, often to circumvent duties, quotas, or sanctions..

While transhipment is often legitimate, particularly in complex supply chains, it becomes problematic when it is used to mask the true origin of goods to evade duties, sanctions, or trade restrictions..

Herein lies the concern: goods originating in a high-tariff country but routed via a low-tariff one (e.g., from China to the U.S. via Malaysia or Mexico) may now be subject to retrospective tariff adjustments if CBP decides the origin was mis-declared or manipulated..

Risks for exporters and importers

Here is where the uncertainty gets very real..

For Exporters (outside U.S.) :

• Delayed payments: If goods are sold under DAP (Delivered at Place) or DDP (Delivered Duty Paid) terms and get stuck in customs or attract unexpected duties, the importer may refuse delivery, leaving the exporter unpaid
• Reputational risk: Even unintentional origin misclassification can lead to audits, fines, or blacklisting
• Loss of control: If customs seizes or rejects cargo, the seller may still be contractually obligated but without leverage as the goods are already in the U.S.

For Importers (inside U.S.) :

• Landed cost surprises: Unexpected tariffs due to CBP reassessing origin post-arrival could throw off financial models entirely
• Rejection and redirection costs: If goods are non-compliant, importers may have to re-export, destroy, or absorb loss
• Compliance burden: Importers are held to a “reasonable care” standard in ensuring the declared origin is accurate, even if based on supplier documents

Why origin determination is not as simple as it sounds

The origin of a product is governed by Rules of Origin (RoO) under trade agreements or WTO guidelines.. However, the U.S. applies additional tests under its Tariff Act, including “substantial transformation”, which is often open to interpretation..

In the case of transshipped goods:

• Did the product undergo sufficient processing in the transit country..??
• Or was it merely repackaged, relabelled, or consolidated..??

CBP’s growing use of AI and machine‑learning systems means that even minor anomalies, such as an unexpected transhipment route, unfamiliar supplier patterns, or documentation mismatches, can trigger algorithmic warnings.. These flagged shipments may then be held, inspected more closely, or face heightened scrutiny..

Incoterms® 2020: Which terms offer protection amid tariff risk..??

Now let us talk damage control.. While you cannot control policy, you can control contract structure.. This is where Incoterms® play a crucial role..

1. DAP (Delivered at Place) – Buyer risk

• Risk: The seller delivers to destination, but buyer bears the duty..
• If CBP reclassifies origin and raises the duty after delivery, the importer still bears the cost.. If they refuse to pay, the cargo may be stranded, with neither party winning..
• Recommendation: Use with caution. Ensure payment terms are not tied strictly to physical delivery, or include a clause for renegotiation if duties exceed a threshold..

2. DDP (Delivered Duty Paid) – Seller risk

• Risk: Seller is responsible for duties, even surprise tariffs..
• Could lead to loss-making shipments if duties are revised or added unexpectedly..
• Recommendation: Avoid unless you have absolute confidence in the origin declaration and robust documentation trail.. Add “duty escalation” clauses or cap the total duties covered..

3. CFR/CIF (Cost and Freight/Insurance) – Shared clarity

• Risk: Seller delivers to port, but buyer clears the cargo and handles import duties..
• Advantage: Allows buyer to manage tariff exposure and dispute directly with customs..
• Recommendation: Best suited for experienced importers with internal compliance capacity.. Document retention and supplier due diligence still apply..

4. EXW (Ex Works) – Maximum buyer responsibility

• Risk: All export, shipping, and customs duties are buyer’s job..
• Recommendation: Useful where seller does not want to bear any import-related risk.. But risky for buyers who lack robust compliance frameworks..

Mitigation Strategies: Stay ahead of the enforcement curve

Whether you are an exporter or importer, you cannot afford to be passive in this new era of enforcement-led trade policy.. Here is how you can prepare:

1. Document Everything

• Get Certificates of Origin (CO) from credible chambers
• Store supplier declarations, manufacturing records, and transit documents
• Maintain a defensible “origin audit trail”

2. Know your suppliers

• Screen for ownership links to high-risk countries, e.g., if a Vietnamese company is owned by a Chinese entity
• Require regular origin statements and updated HS code classification confirmations

3. Update contractual protections

• Add tariff reclassification clauses that allow renegotiation of price/payment terms if unexpected duties arise
• Include dispute resolution provisions in case of customs rejection

4. Work with trade specialists

• Consider hiring a customs broker or trade compliance advisor familiar with CBP practices
• For U.S. importers, use CBP’s Binding Ruling Requests to confirm origin/tariff classification in advance

Final thoughts: Stay proactive, not reactive

Trade friction is the new normal.. As AI-driven enforcement rises and governments grow more aggressive in protecting local industry, exporters and importers need to be smarter about how they structure deals, declare origins, and share risk..

The era of “good enough” compliance is over.. In a world where one wrong declaration could cost thousands, or block your goods altogether, it is far better to prevent than defend..

Contact us today to find out how you can navigate this tariff maze, mitigate origin risks, and shield cross-border trade..