Transshipment Risk: What Compliance Teams Must Verify

A $54 million settlement. That was the price one importer paid in 2025 for misclassifying goods, failing to mark country of origin, and masking the true origin of products through transshipment. The case wasn’t an outlier. It was a signal.

Transshipment enforcement has become one of the sharpest edges of trade compliance. Customs authorities aren’t just watching for obvious fraud anymore. They’re using AI-powered supply chain mapping, cross-referencing trade data across jurisdictions, and building cases that start with a pattern in your filing history. For compliance officers at freight forwarders, the question isn’t whether your shipments are clean. It’s whether you can prove they are.

Why Transshipment Enforcement Escalated in 2026

Several forces came together to push transshipment from a background concern to a front-page risk in 2026.

Tariff stacking created incentives to evade. With Section 301 duties, reciprocal tariffs, and antidumping orders layering on top of each other, the duty gap between a “correct” and “convenient” origin declaration widened. A product classified as Chinese-origin might face a combined duty rate above 50%. The same product, routed through a third country with minimal processing, could enter at single-digit rates. The financial incentive to misrepresent origin has never been stronger.

CBP invested in detection technology. In 2025, CBP awarded contracts to AI companies to map supply chains and detect transshipment patterns. Those tools matured through early 2026 and are now generating referrals. According to the Trade Task Force, enforcement actions are increasingly triggered by algorithmic analysis rather than random inspection.

Executive Order 14411 raised the stakes. Signed on June 3, 2026, this order directs DHS and CBP to strengthen importer-of-record eligibility requirements and enforcement across forced labor, misclassification, undervaluation, and illegal transshipment. The order treats these as interconnected problems, not separate compliance silos.

Compliance teams that treated origin verification as a check-the-box exercise are now finding that the box got a lot harder to check.

What Counts as Illegal Transshipment?

Not all routing through third countries is transshipment fraud. Goods move through intermediary ports for legitimate logistical reasons every day. The line is drawn at substantial transformation.

A product’s country of origin, for customs purposes, is where it underwent its last substantial transformation. Assembly, relabeling, repackaging, or simple processing in a transit country does not change origin. If raw materials from Country A are shipped to Country B for minimal assembly, then exported to the United States, the origin is still Country A. The routing through Country B is transshipment.

Compliance officers most often run into trouble in the gray areas:

Assembly that looks substantial but isn’t. Combining pre-manufactured components into a finished product may or may not constitute substantial transformation, depending on the complexity, value added, and change in tariff classification. CBP evaluates this case by case.
Mixed-origin supply chains. When a product contains components from multiple countries, determining the “last substantial transformation” requires tracing the manufacturing process, not just the shipping route.
Contract manufacturing opacity. Your supplier says the goods are made in Vietnam. But their raw materials come from China, and the “manufacturing” is final assembly. Without visibility into the supplier’s production process, you’re relying on declarations you can’t verify.

Since July 2025, CBP has imposed a 40% transshipment penalty on shipments found to have been routed through Vietnam to evade tariffs, with no mitigation or remission available. That’s not a fine you negotiate down. It’s a flat penalty on top of the correct duty rate.

How Does CBP Detect Transshipment Patterns?

CBP’s detection capabilities have moved well beyond random container inspections. The current approach is data-driven, and understanding what triggers scrutiny helps compliance teams anticipate where to focus their verification efforts.

Trade data anomalies. CBP analyzes import patterns across the entire U.S. entry dataset. A sudden shift in origin declarations, like a product that was consistently imported from China now arriving from Malaysia, triggers review. So does a spike in imports from a country that doesn’t have the manufacturing capacity for the declared product.

Bill of lading routing analysis. When a container’s routing shows it passed through a country for a suspiciously short time before being re-exported, that’s a flag. CBP cross-references vessel tracking data, port dwell times, and loading records to identify goods that were never actually processed in the declared origin country.

Supplier and factory verification. CBP and partner agencies conduct site visits to verify that declared factories actually have the production capacity to make the goods being imported. If your supplier claims to manufacture 10,000 units per month in a facility that can produce 500, the discrepancy shows up.

Cross-referencing with other agencies. CBP shares data with foreign customs authorities. If your export declaration from Vietnam doesn’t match what Vietnam customs recorded, that discrepancy surfaces. The ArentFox Schiff analysis notes that as AI-powered detection tools mature, a surge in inquiries and enforcement actions is expected through 2026 and 2027.

The companies most at risk aren’t the ones engaged in deliberate fraud. They’re the ones that don’t have the documentation to prove their shipments are legitimate when CBP asks.

The Origin Verification Gap in Freight Operations

Most compliance programs have an origin verification step. Few have one that actually holds up under pressure.

The typical process: the shipper provides a certificate of origin, the compliance team reviews it, and the declaration goes into the customs filing. The problem is that a certificate of origin is a statement, not proof. It tells you what the supplier says the origin is. It doesn’t tell you whether that’s true.

Where the gaps show up:

No independent verification. If your only source of origin information is the party that benefits from declaring a favorable origin, you have a conflict-of-interest problem. Most forwarders don’t have the resources to audit supplier factories, but they do have access to data that can flag inconsistencies.
Disconnected document review. The certificate of origin says “Made in Thailand.” The bill of lading shows the container was loaded in Shenzhen. The commercial invoice lists a Thai company, but the payment goes to a Chinese bank account. Each document passes individual review. Nobody cross-checks them as a set.
No historical pattern tracking. When the same product from the same supplier suddenly shifts origin countries, that’s worth investigating. But if your compliance records are spreadsheets filed by shipment, you’ll never see the pattern.
Reactive rather than preventive. Most teams verify origin at the point of filing. By then, the goods are already at the port, the carrier is charging demurrage, and the pressure to clear the shipment overrides the impulse to dig deeper. The verification that matters happens before the booking, not at the border.

A defensible compliance position often comes down to whether you can demonstrate a pattern of due diligence or just a collection of supplier-provided certificates. As we covered in our post on customs compliance programs, the structure of your verification process matters more than any single document.

Building an Origin Verification Workflow

A practical origin verification workflow doesn’t require factory audits or a team of investigators. It requires systematic cross-checking of data you already have.

Pre-booking verification

Before you accept a shipment, verify that the declared origin is plausible:

Check the HS code against the origin country. Does the declared origin country actually produce this type of goods at the declared volume? If you’re importing precision machinery classified under Chapter 84 from a country with no manufacturing base for that product, flag it.
Cross-reference the supplier’s history. Has this supplier’s declared origin changed recently? If they shipped from China for three years and now ship from Cambodia, ask for documentation of the production facility move.
Review the commercial terms. Who is the actual manufacturer versus the intermediary? If the commercial invoice comes from a trading company rather than a manufacturer, trace one level deeper.

Document cross-checking at filing

At the point of customs entry preparation, compare these data points across all shipment documents:

Origin on the certificate of origin vs. loading port on the bill of lading. A mismatch isn’t automatically a problem (goods can be transported domestically before export), but it warrants a note and, for high-risk products, an explanation.
Supplier details on the commercial invoice vs. shipper details on the B/L. Different parties handling the goods at different stages is normal. Different parties with no logical connection is a flag.
HS code on the commercial invoice vs. HS code on the certificate of origin. Discrepancies here often indicate that the origin determination was done independently of the classification, which means one or both could be wrong.

Post-entry monitoring

After clearance, track patterns across shipments:

Origin shifts by supplier. Build a simple log that tracks declared origin by supplier and product over time. Any shift should trigger a review.
Duty rate anomalies. If a supplier’s shipments consistently hit lower duty rates than competitors offering the same product, investigate why.
CBP notices and CF-28 requests. A Request for Information from CBP is an early warning. Treat it as a compliance review trigger for all shipments from that supplier, not just the one CBP asked about.

In the current enforcement environment, the forwarders that avoid penalties aren’t the ones with the most documents. They’re the ones with a process that connects those documents into a coherent picture. We explored how HS code reviews fit into this broader compliance workflow in a recent post.

The EU Dimension: Forwarder Liability Expanding

The EU reached a political agreement in March 2026 on a landmark reform of its customs framework. One of the most significant changes for freight forwarders: anyone acting on behalf of importers based outside the EU will be fully liable for customs and tax compliance.

If a foreign customer doesn’t have a branch in the EU, the freight forwarder assumes the role of importer and bears all the obligations of correct data reporting. That includes origin declarations. For forwarders handling cross-trade shipments where the consignee has no EU presence, this shifts the compliance burden entirely onto the forwarder’s shoulders.

That’s a materially different risk profile from the U.S., where the importer of record bears primary liability. In the EU’s reformed model, the forwarder is the importer. Your compliance exposure isn’t limited to the accuracy of what you file. It extends to the accuracy of what your customer tells you to file.

Forwarders operating in both jurisdictions now need origin verification workflows that satisfy two different liability models simultaneously.

Frequently Asked Questions

What is the penalty for transshipment violations in the U.S.?

Penalties vary by case but can be severe. CBP can assess liquidated damages, civil penalties under 19 USC 1592, and pursue criminal prosecution for intentional fraud. For Vietnam-routed goods, a flat 40% penalty applies with no mitigation. The Trade Task Force secured a $54 million settlement in 2025 for origin-related violations including transshipment.

How does CBP determine country of origin for customs purposes?

CBP uses the “substantial transformation” test. The country of origin is where the product underwent its last substantial transformation, meaning a manufacturing process that changed the product’s name, character, or use. Simple assembly, repackaging, or relabeling in a transit country does not qualify as substantial transformation and does not change the product’s origin.

What documents prove country of origin in freight shipments?

A certificate of origin is the primary document, but CBP may require supporting evidence including manufacturing records, bills of materials, supplier declarations, and production facility documentation. No single document is conclusive. In enforcement cases, CBP examines the full set of trade documents, shipping records, and financial transactions to verify origin claims.

Can a freight forwarder be liable for transshipment violations?

In the U.S., the importer of record bears primary legal liability for origin declarations. However, freight forwarders can face penalties for negligence, aiding and abetting, or knowingly filing false information. Under the EU’s 2026 customs reform, forwarders acting on behalf of non-EU importers assume full importer liability, including responsibility for origin accuracy.

What triggers a CBP transshipment investigation?

CBP uses data analytics and AI-powered supply chain mapping to identify transshipment patterns. Common triggers include sudden origin shifts for a product, import volumes that exceed a country’s production capacity, short port dwell times in transit countries, and discrepancies between export and import records across jurisdictions. A CF-28 Request for Information is often the first indicator of increased scrutiny.

How Tier2 Cargo Supports Origin Compliance

The origin verification workflow described above depends on connecting data across documents that most freight systems store separately. Tier2 Cargo’s AI document extraction pulls data from commercial invoices, bills of lading, certificates of origin, and packing lists into a single shipment record, where discrepancies between fields like loading port, declared origin, and supplier details surface automatically rather than requiring manual cross-checks.

Because every shipment flows through the same system from quote to settlement, compliance teams can track origin patterns by supplier, product, and trade lane over time. When a supplier’s declared origin shifts or when routing patterns change, the data is already connected. You don’t need to pull files from three different systems to spot the anomaly.

For forwarders operating across U.S. and EU jurisdictions, having a unified record of every shipment’s documentation chain provides the audit trail that both regulatory environments increasingly demand.

See how it works or talk to our team.

What to Do This Week

Don’t wait for a CF-28 to find out whether your origin verification holds up. Pull your last 90 days of shipments from your top five suppliers. Compare the declared origin on each certificate of origin against the loading port on each bill of lading. If you find mismatches you can’t explain with a documented domestic transport leg, you’ve found where to start strengthening your process.