Section 122 expires July 24: how to structure your Incoterms before the deadline

The clock you should be watching

Every apparel importer I talk to right now has the same question: what happens after July 24?

The Section 122 tariff expires after 150 days, which lands on July 24, 2026. Congress can extend the duration, but the President cannot do so unilaterally. The administration has signaled it will pursue replacement tariffs through Section 232 and Section 301, but successor scenarios include Congressional extension, Section 232 sectoral expansion, or no successor at all.

Three scenarios. Three different landed cost outcomes. And your Incoterms structure either protects you or leaves you exposed.

What Section 122 actually means for apparel right now

Let me put numbers on this.

Section 122 of the Trade Act of 1974 authorizes the President to impose a temporary tariff surcharge of up to 15% ad valorem on all imports for up to 150 days. The current surcharge took effect February 24, 2026 at 10%, raised to 15%, and expires automatically July 24, 2026 unless Congress acts.

For apparel specifically, this 15% stacks on top of your existing HTS duty rate. A women's knit cotton top (HTS 6106.10.00) with a base MFN rate of around 20% now carries a combined rate of 35%. If you're sourcing from a country still subject to Section 301 tariffs, add another layer.

A Chinese-origin product that faced 145% under IEEPA now faces a combined rate of roughly 33.9% (Section 301 plus Section 122). The constraint is duration: without Congressional action, Section 122 tariffs must end by late July 2026.

Three scenarios you need to model

Before you can pick the right Incoterm, you need to understand what you're hedging against.

Scenario A: Congress extends Section 122

Probability: low to moderate. An extension vote carries political costs. If it happens, your current 15% surcharge continues. Your landed cost model stays stable, but at higher rates.

Scenario B: Section 232 or 301 replacements land before expiration

The administration has initiated several Section 301 investigations to address trade practices by multiple partners. At their conclusion, these investigations are likely to result in more enduring tariffs to replace the time-limited Section 122 tariffs. Apparel could face anything from 10% to 46% depending on origin.

Scenario C: No successor. Tariff vacuum.

If neither Congress acts nor a Section 232 substitute lands, Section 122 expires and global tariffs revert to MFN baselines for non-Section 232, non-Section 301 goods. For apparel from countries not covered by Section 301, this could mean a sudden drop from 35% combined to 16-20% MFN. That is a 15-point margin swing.

How Incoterms allocate tariff risk

For apparel importers, the three terms you encounter most often are FOB, CIF, and DDP. Each one draws a different line for who pays duties and who absorbs tariff volatility.

FOB: You own the tariff exposure

Under FOB, the seller handles export clearance and gets goods to the named port. Risk and cost transfer to you once goods are loaded onto the vessel. You pay ocean freight, insurance, and all import duties.

Upside in Scenario C: If tariffs drop, you capture the savings immediately. A shipment clearing customs on July 25 at MFN rates instead of July 23 at Section 122 rates saves you 15 points.

Downside in Scenario B: If replacement tariffs land higher than expected, you absorb the increase. No negotiation, no pass-through.

FOB is the most widely used Incoterm in product sourcing because the export port is a natural handoff point. Freight forwarders operate from major ports, third-party inspection happens there, and the seller handles all activities within their own country.

CIF: Shared exposure, misaligned incentives

CIF (Cost, Insurance, and Freight) means the factory pays for freight and insurance to your destination port. But you still pay duties, customs clearance, and inland delivery.

From a tariff standpoint, CIF puts you in the same position as FOB: you pay duties at the port. The difference is operational convenience, not risk allocation.

One nuance: CIF value is the customs basis in many jurisdictions. If your factory inflates the CIF price to pad their margin, you pay duties on that inflated value. Watch your commercial invoices.

DDP: Factory owns the tariff exposure

DDP (Delivered Duty Paid) flips the equation. The factory handles everything: freight, insurance, import clearance, duties, and delivery to your door. No risk or responsibility transfers to you until goods arrive at the designated destination.

Upside: Tariff volatility is the factory's problem. If rates spike on July 25, you've locked in a price.

Downside: If rates drop, the factory captures those savings. And they've already priced in worst-case risk, so your DDP quote is higher than FOB plus realistic duty estimates.

"DDP sounds attractive but creates problems. Factories quoting DDP to US destinations often use grey-channel freight arrangements or undervalue customs declarations to minimize duty. Those practices create legal risk for the buyer."

If your factory is undervaluing customs declarations to hit a DDP price, you're the importer of record. The CBP audit lands on your desk, not theirs.

The timing trap: orders shipping June through August

Sea freight from China to the USA typically takes 18-25 days to the West Coast and 30-40 days to the East Coast.

If you ship FOB Yantian on July 1, your container clears LA customs around July 20. You pay Section 122 rates.

If you ship FOB Yantian on July 10, your container clears LA customs around July 28. You might pay MFN rates, or you might pay whatever replacement tariff exists.

This is a four-day difference in sailing date that could swing your duty by 15 points.

Practical guidance by scenario

If you believe Section 122 expires without replacement (Scenario C)

Use FOB. Control your customs entry timing. Work with your broker to hold containers at the port for a few days if it means clearing after July 24 at lower rates. The holding cost is less than 15 points of duty.

If you believe replacement tariffs will be higher (Scenario B)

Consider DDP for orders shipping June through early July. Lock in your landed cost now, even if the DDP price feels high. The factory's risk premium is your hedge against a worse outcome.

But vet your factory's compliance practices. Ask how they handle customs declarations. Ask who files the entry. If they're using a freight forwarder you've never heard of, that's a red flag.

If you have no idea what happens (the honest answer)

Split your exposure. Use FOB for orders shipping before June 20 (clearing before July 24) and DDP for orders shipping after July 5 (clearing in the uncertainty window). This caps your downside on both ends.

The contract language that actually matters

Incoterms tell you who pays. They don't tell you what happens when the rate changes mid-shipment.

If you're using DDP, add explicit language:

• Duty rate lock: "DDP price assumes applicable duty rate of [X]%. If actual duty rate at time of customs entry differs by more than 2 percentage points, price shall be adjusted accordingly."

• Entry timing: "Seller shall file customs entry within 48 hours of vessel arrival. Buyer may request delayed entry, at Buyer's cost, if tariff conditions warrant."

If you're using FOB, add language protecting against supplier delays that push your shipment into a higher-tariff window.

Freight mode considerations

Your Incoterm choice intersects with your freight mode decision.

Ocean freight costs 5-8x less than air freight per unit. But if you need to control customs entry timing precisely, ocean freight's variability works against you. Carriers are overloading active vessels, sometimes forcing unplanned discharges at intermediate ports like Busan.

If your July order absolutely must clear before July 24 to avoid potential replacement tariffs, consider air for high-value items. Standard air freight between China and the US takes around 8-10 days. That's predictable enough to time your entry.

At Ohzehn, we've been running hybrid strategies for clients with critical delivery windows: ocean for the bulk, air for the margin protection.

Country-of-origin considerations

The Incoterm question connects to your sourcing geography.

After the Supreme Court ruling and Section 122 implementation, Vietnam dropped from 46% to 10%, making it competitive again. Bangladesh's reduction from 37% to 10% similarly restored its position for basic garments. The uniform 10% Section 122 rate eliminated the tariff-driven distortions that had reshuffled global apparel supply chains.

If Section 122 expires, those country-specific rates from Section 301 investigations snap back. Your Incoterm strategy needs to account for which origin countries you're sourcing from and what their post-July rates might be.

The temporary nature of Section 122, expiring July 2026, creates planning uncertainty. Brands are hedging by maintaining dual sourcing from both Asian and Western Hemisphere factories.

What to do this week

1. Audit your orders in transit and pending shipment. Map each PO to its expected customs entry date relative to July 24.

1. Model three scenarios for each order: Section 122 continues, replacement tariffs land, or tariffs drop to MFN. Calculate your landed cost range.

1. Review your Incoterms on June and July orders. If you're on FOB and believe rates will rise, negotiate DDP conversions now. If you're on DDP and believe rates will fall, you may be overpaying for risk transfer.

1. Talk to your customs broker. Understand your options for timing customs entries. Some brokers can hold entries for a few days; others file immediately.

1. Add contract language to new orders that addresses tariff volatility explicitly. Don't rely on the three-letter Incoterm to answer questions it was never designed to answer.

The July 24 deadline is not a surprise. It's been on the calendar since February. The importers who plan for it will protect their margins. The ones who assume continuity will absorb whatever comes next.