This document serves as an introduction to shipping from China, and customs regulations in the United States. However, before you start, you must read and understand the following:
This document consists of 4 parts:
- Part 1: Shipping
- Part 2: Import Duties and Taxes
- Part 3: Checklist
- Part 4: Contact Details
Part 1 and 2 serve as an introduction, to the various terms and processes. Part 3 provides a practical step-by-step checklist, that you shall use before, during and after the shipping process. Part 4 provides contact details to relevant authorities.
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Table of Content
- FCL and LCL
- Shipping Costs
- Freights Documents
- Restrictions and Regulations
- Export Packaging
- Common Frauds
- Air freight
- Customs Value
- Customs Duties
- Product Classification
- Other Taxes and Fees
- Customs Broker
- Customs Bond
- Anti-Dumping Duties
- Process Guide
- Relevant Authorities
Always consult your freight forwarder and contact local authorities
Regulations are subject to frequent change, and the procedures differ between industries and member states. In fact, shipping procedures and customs regulations are subject to personal interpretation by individual employees, working for private logistics companies, and officials in service for customs and other relevant authorities. Thus the content in this guide is to be considered as for reference only.
We strongly advise you to apply the checklist provided in this document, and get confirmations from your freight forwarder, and all relevant authorities, before you attempt to import goods from China.
This document applies broadly to shipping, customs and tax procedures, when importing general commodities and consumer goods from China. This document does not take the following into consideration:
- Shipment of chemicals, explosives, weapons, pharmaceuticals and other sensitive types of cargo, that may be subject to specific regulations.
- Product specific regulations, such as toy safety standards and electronic product certification requirements
- Shipments from countries that are facing international sanctions, such as North Korea and Iran.
- Regulations in Individual member states, which may differ from the broad US wide standards and regulations.
The information presented in this report is primarily derived from official government websites. The procedures explained in this document, is largely based on those previously applied by our partners.
o U.S. Customs and Border Protection: www.cbp.com
o U.S. International Trade Commission: www.usitc.gov
o International Air Transportation Association: www.iata.org
While we have endeavored to provide you the most up-to-date information available in this guide, rules and regulations are subject to change on a regular basis and without public broadcast of such changes. Therefore, we cannot and do not accept any liability for changes to the laws, rules or regulations highlighted in this guide. To ensure that you have the most up-to-date information, please visit the sites listed above or contact an import specialist in the United States.
Limitation of our liability
This document shall not be considered as legal advice – and we do not offer insurance, or any other form of compensation, in case of loss, IP theft, damage, injury or death resulting, as a result of the information in this document being incorrect, erroneous, misleading, ambiguous, incomplete, outdated or modified.
Regulations, taxes and shipping procedures are subject to change, and it is within the limits of reason to assume that we may have misinterpreted one or more of the regulations, and processes, described in this document.
International shipping involves a confusing tangle of terms, and relatively complex procedures. As such, the first chapter of this Buyer’s Guide, gives you a basic understanding for the terms and options involved, when shipping goods from China:
- FCL and LCL
- Shipping Costs
- Freight Documents
- Restrictions and Regulations
- Export Packaging
- Common Frauds
- Air Freight
An Incoterm is a three letter code that specifies at which stage the cargo is transferred from the seller to the freight forwarder (appointed by the buyer), and finally, from the freight forwarder to the buyer. Incoterms differ, primarily, on the following factors:
- Is transportation from the factory warehouse to the Port of Loading (i.e., Shenzhen) included?
- Is export clearance (in the exporting country) included?
- Is the freight charge (from port to port) included?
- Is the freight insurance included?
- Are the local port charges in the Port of Destination (i.e., Amsterdam or New Jersey) included?
- Is inland transportation, from the Port of Destination to your address, included?
EXW (Ex Works)
EXW does not include transportation. Hence, you must arrange delivery from the factory floor to the Port of Loading. Further, you may also face complications if your cargo is inspected by the local customs authorities, as EXW doesn’t include export clearance.
Sometimes, export clearance can be managed by the freight forwarder, but not always. While EXW looks cheap, you may end up paying more than you should.
FOB (Free on Board)
FOB is the most common Incoterm, when buying from Asia. The supplier is responsible to ensure safe delivery to the Port of Loading (i.e., Shanghai or Shenzhen), where your forwarder receives the cargo. As FOB also includes export clearance, the supplier is also responsible for this part.
This Incoterm gives you a lot of flexibility, as you can from this point arrange shipping according to your own needs, dealing directly with the forwarder.
CIF (Cost, Freight and Insurance)
CIF includes shipping (and insurance) to the Port of Destination (i.e., Amsterdam or New Jersey). However, CIF does not include local charges, which are billed in the Port of Destination. Hence, it’s common that buyers accept (seemingly) cheap CIF prices, only to end up paying four to five times more in local charges, when the cargo arrives.
DAT (Delivered at Terminal)
DAT includes shipping to the Port of Destination, and local charges. Hence, you can avoid unpleasant surprises.
DAP (Delivered at Place)
DAP includes everything that is included in DAT, and forwarding from the Port of Destination, to the buyer’s address. Hence, DAP takes your cargo from A to Z.
|Incoterm||1. Export Clearance||2.Delivery to Port of Loading||3. Sea Freight Charges||4. Local Charges (Port of Destination)||5. Inland Transportation|
In international trade, all prices are based on an Incoterm. For example, a price quotation can be based on EXW, which includes no transportation at all. The cargo is simply left for the buyer to pickup in the factory warehouse.
At the opposite end of the spectrum, the supplier can also quote a DAP price, which includes transportation to the buyer address, regardless of where in the world the buyer is located.
Obviously, a DAP price is therefore more expensive than an EXW price – as the former includes freight from A to Z, while the latter does not. Without a specified Incoterm, you cannot assess whether you are quoted a reasonable price.
We advise you to ship according to FOB terms, and contract one of the freight forwarders listed in this Buyer’s Guide – or a local freight forwarder, with agents in China. If you rather let your supplier handle the shipment, we advise you to buy according to DAP terms.
We advise you to avoid buying according to EXW and CIF terms, as it’s harder to get a pricing overview. In addition, importing products according to CIF terms, directly from the supplier, may also cause the following issues:
- Very few Chinese suppliers are aware of mandatory packaging regulations (i.e., ISPM 15)
- Many suppliers are not aware of the document requirements in the destination country
- Increase fraud risk (as described later in this document)
FCL and LCL
Sea freight is not exclusive to companies importing of large volumes. Volumes as low as just one cubic meter (cbm) can be shipped together with cargos owned by other importers (consignees). Hence, we introduce you to the following terms:
- FCL Shipping: Full Container Loads
- LCL Shipping: Less than Container Load (i.e., shared container)
|FCL||✔ Lower price per cubic meter compared to an equivalent volume or weight of cargo shipped by Air Freight or LCL Sea Freight.
✔ More convenient to optimize your quantity and export packaging to maximize the space usage inside a 20” or 40” container.
✔ Higher level of security and lower risk for damages due to less handling (Loading, Temporary Storage, Unloading) of your cargo.
|✘ Not cost viable if the cargo volume is below 12 cbm.|
|LCL||✔ Offers a moderately affordable trade off for cargo too heavy for Air Freight, but insufficient in volume or weight to make FCL shipment cost efficient.||✘ Higher price per cubic meter compared to FCL shipments.
✘ Often a non-viable shipping option for cargo volumes above 12 cbm (cubic meters) due to higher loading, unloading, handling & freight costs per cubic meter compared to FCL.
- If the cargo volume is smaller than 10 cbm, ship LCL
- If the cargo volume is larger than 10 cbm, ship FCL
Types and volumes
|Type||Internal volume||Internal dimensions||Maximum load|
|20’’||33.1 cbm||5.71 m (L) x 2.352 m (W) x 2.385 m (H)||28,200 kg|
|40’’||67.5 cbm||12.192 m (L) x 2.352 m (W) x 2.385 m (H)||26,600 kg|
|40 HQ||75.3 cbm||12.0 m (L) x 2.311 m (W) x 2.650 m (H)||26,580 kg|
Ordering by container volume
The shipping cost is often a lot easier to reduce than the product price. While a reduction in the product price is often accompanied by a quality reduction, the shipping costs can be lowered without such a compromise.
The easiest way of doing this is by ordering full container loads. While it’s possible to ship smaller volumes, using LCL shipping, the shipping companies often charge 2 – 3 times as much per cubic meter, compared to FCL shipping.
Most international shipping lines, such as China Shipping, Maersk and MSC, offer online tracking. This means that you can track the location and estimated arrival date of your container shipment from China. While most companies have their own container tracking system in place, tracking websites, such Searates.com, helps you track containers shipped by several lines.
However, small businesses importing from China are not dealing directly with the shipping lines. Instead, the shipping is contracted to a freight forwarder, which in turn orders the shipment from the shipping line.
In order to track a container, you need to know which shipping line is transporting your cargo, and the container number, booking number and/or document number (any of them is normally enough to track the cargo). You should find this information on your Bill of Lading.
Shipping costs are mainly calculated based on the following three factors:
- Oil price (current)
Below follows an overview:
|Cost||Cost Range (Sample)||Comment|
|Export Clearance||$100 – $300||Included in FOB (and above)|
|Delivery to Port of Loading||$50 – $480||Included in FOB (and above)|
|Sea Freight Charges||n/a||Depends on location, volume (LCL / FCL) and Incoterm|
|Local Charges (Port of Destination)||n/a||Depends on location, volume (LCL / FCL) and Incoterm|
|Inland Transportation||n/a||Depends on distance|
|Cost||Cost Range (Sample)||Comment|
|Freight Insurance||$5 – $10||Included in CIF|
|Document Delivery||$30 – $60||The Bill of Lading, Packing List and Commercial Invoice are sent by post|
|Customs Bond / Clearance||$100 – $450||1. Single entry: $100 – $200
2. Continuous: $250 – $450
Example Costs (For reference only)
|Volume||Type||Shanghai – Los Angeles||Shanghai – New Jersey|
|40 Feet (HQ)||FCL||$1200||$1900|
Estimating Shipping Costs
There is no simple formula that you can use to estimate your freight costs. However, there are various useful online freight cost calculators that you can use:
Reducing Shipping Costs
|1. Ship by Sea||High||Air freight is faster, but several times more expensive than shipping by sea. As such, plan a head to avoid situations where you are forced to urgently ship cargo by air freight.|
|2. Ship FCL||High||LCL shipping can be several times more costly, per cubic meter, compared to FCL freight. To avoid LCL freight, many importers base the ordered quantity on the volume of an FCL 20’’ or 40’’ container. Hence, the freight cost is divided on a maximum number of shipped units.|
|3. Coordinate LCL shipments from several suppliers (to FCL)||High||One main reason why LCL cargo is more expensive, per shipped unit, is due to administration. The administrative work for freight forwarder, and all parties involved, is just as high when shipping LCL, as FCL – which in turn is reflected on the price.
Importers that buy products from several suppliers, perhaps in different cities across China, can therefore save a lot of money, by coordinating all these LCL shipments, into one or more FCL shipments. This can be achieved, if you coordinate your suppliers to ship to the same Port of Loading (i.e., forwarder warehouse) in China.
Bill of Lading
The Bill of Lading is the primary freight document, that specifies the shipping company, exporting company (seller), consignee (buyer), product description, volume, weight and incoterm. The Bill of Lading is mandatory and shall be delivered (along with the Commercial Invoice and the Packaging). This document is normally issued by the supplier or freight forwarder.
The Commercial Invoice declares the value of the goods. This document is the basis for the customs clearance process. The Commercial Invoice is mandatory and shall be delivered (along with the Bill of Lading and the Packaging List). This document is normally issued by the supplier or freight forwarder.
The Packing List specifies the quantity per SKU, and the number of different SKUs. The Packing List is mandatory and should be delivered (along with Bill of Lading and the Commercial Invoice). This document is normally issued by the supplier or freight forwarder.
Importer Security Filing (ISF)
The Importer Security Filing (ISF) is mandatory for all shipments to the United States. The ISF requires that the buyer provides information about the manufacturer, buyer, destination, container loading location, country of origin, HS code and more.
The arrival notice is issued by the freight forwarder, to notify the importer of their incoming shipment.
Country of Origin Certificate
The Country of Origin certificate declares the location of the manufacturer. As different duty rates apply to different origin countries (some may receive a reduced duty rate), the Country of Origin certificate is required. The Country of Origin Certificate is normally issued by the supplier. We advise you to request a scanned copy, with the supplier’s signature and stamp, before the shipment departs.
Product Compliance documents, such as test reports, technical documentation, declarations of conformity and product certificates, show that a product is manufactured according to applicable product safety standards and regulations, in your target market.
While such compliance documents are not ‘freight documents’ (i.e., your freight forwarder has nothing to do with this aspect of your business), the customs authorities in your market, may request compliance documents upon arrival. This is especially common when importing products in (but not limited to) the following categories:
- Children’s products and toys
- Electronics and electrical equipment
- Cosmetics and chemical products
Restrictions and Regulations
Permits and Licenses
Normally, US businesses do not need to obtain import licenses or import permits. There are, however, certain exceptions. We advise you to always contact your local authorities to confirm if any license or permit is required for your product. Especially if you import products in any of the following categories:
- Agricultural products
- Cattle food
- Food supplements
Wooden Packaging Materials
In order to control potential tree pests, specific regulations apply to wood packaging. In case of non-compliance, your cargo may be seized, or even destroyed, by the customs authorities in the port of destination. These regulations apply to all sorts of wood packing, including:
- Freight pallets
- Load boards
- Frames and pieces used to fix cargo inside the container
Wood packaging materials are not banned. But, they must comply with International Standards for Phytosanitary Measures 15 (ISPM 15). However, most Chinese suppliers are not aware of ISPM 15 – nor can they be relied upon to procure the right sort of pallets. Hence, we advise you to only purchase pallets via an international freight forwarder.
The other alternative is to avoid wood packaging altogether. You can, for example, use plastic or plywood pallets. That said, regulations may differ between individual states and are ultimately subject to interpretation by the customs authorities.
Importers may also be requested to provide a Fumigation certificate, by the customs authorities in the destination country. Hence, this must be obtained from the freight forwarder, before the cargo is loaded.
- Only order ISPM15 pallets through your freight forwarder, not your supplier. Instruct the forwarder to also provide a Fumigation certificate.
- Choose non-wood packaging (i.e., plastic), or wood packaging that is not restricted.
Batteries and Battery Operated Products
Lithium and Lithium-ion (Li-Ion) batteries are classified as dangerous goods, and there are IATA restrictions applicable to air and sea transportation of Lithium and Lithium Ion (Li-Ion) batteries, and products containing them. The IATA restrictions cover the following:
- Number of units per package
- Packaging materials and separation
- Pre-Approvals and Documents
These regulations are relatively new, and subject to change. As such, we advise you to contact your freight forwarder and ask the following questions:
✔ How should the units (i.e., Lithium batteries or battery powered devices) be packed?
✔ Do you need to obtain a Pre-Approval?
✔ Do you need to obtain documentation from the supplier?
✔ How should the packaging be marked?
- IATA: Lithium Batteries
- UPS: International lithium battery regulations
- UPS: Shipping Batteries or Devices with Batteries
While a freight insurance may compensate your business for the value of the damaged products, the insurance does not compensate the lost sales – as if your goods are damaged during the shipment, you will need to wait several months for a replacement shipment. The measure to prevent damaged cargo is high quality export packaging. Many buyers take for granted that their suppliers ensure that the cargo is safely packed. This is, however, not the case.
Many Asian manufacturers use cheap, and substandard, export packaging, which often results in severe cargo damages during transportation. Hence, you must provide explicit instructions for how the cargo shall be packed:
Common Cargo Transportation Damages
|Damage Type||Our Recommendation|
|Water and/or mold||Add a protective layer of plastic to the export cartons|
|External cut or pressure damage||a. Add a styrofoam frame to the corners
b. Ensure that the units are packed in inner cartons (min. 3 layers)
c. Ensure that the inner cartons are packed in outer cartons (min. 5 layers)
d. Tie down the cartons to a pallet
|Internal cut or pressure damage||a. Don’t pack too many units in the inner cartons (to reduce internal pressure)|
- Inner cartons: 3 layers or 5 layers
- Outer cartons: 5 layers, wrapped in plastic sheets and strapped to the pallets (if any)
- Pallets: May be required (if heavy cargo that cannot be manually unloaded)
- Styrofoam frame: May be required
|✔ 5 layer export quality cartons
✔ Plastic wrapping
✔ Wooden pallet
✔ Reinforced sides
✘ Plastic straps
The freight remark (printed on the outer cartons) is primarily used for the buyer, to identify the different SKUs / product articles. It’s also used to help the freight forwarder keep track of the cargo. The sample below illustrates a common template:
|Company Name||The Watch Company|
|Product Name||Stainless Steel Quartz Watches|
|Destination: City, Country||Destination: New Jersey, United States|
|Net Weight: XX.X kg / Volume: X.X cbm||Net Weight: 43.5 kg / Volume: 0.45 cbm|
|Country of Origin||MADE IN CHINA|
Heavy cargo cannot be manually loaded and unloaded, and must the refore be stacked on freight pallets. If you determine that pallets are necessary, you must instruct your supplier, or freight forwarder, to procure pallets. Normally, a supplier or freight forwarder charge you around $10 to $15 per pallet. In addition, you must provide the supplier with the following specifications:
- Pallet type (GMA Pallet)
- Dimensions (i.e., 40 x 48 Inches)
- Material (i.e., Wood)
There are many types of standardized pallets. However, many suppliers are not aware of overseas pallet standards. Hence, we advise you to order pallets through your freight forwarder, rather than the supplier.
Freight insurance normally covers transportation damages. There are, however, a variety of factors that you must be aware of:
- Insurance normally only covers the FOB value of the cargo. Hence, it does not cover shipping costs.
- Insurance only covers transportation damages. It does not cover quality issues, compliance issues, defects or damages caused by the supplier.
- Insurance does not cover lost profits, due to delays to procure new products
Obtaining insurance is normally very simple, as you must only instruct your freight forwarder to include freight insurance, when you book the shipment.
The cost is normally based on the cargo value, according to the following equation :
(Y + 0.1Y) x 0.5% = Insurance Cost
Y = Cargo Value
Filing a claim
If your cargo is damaged up on arrival, you must immediately provide the following material to your freight forwarder:
- Photos showing the damages
- Value of the damaged cargo
- Freight bill (or other receipt proving that you have received the cargo)
Notice that you can only file a compensation claim if you have ordered and paid for insurance prior to the shipment.
The scammers exploit the Bill of Lading
Most importers buy according to FOB (Free on Board) terms, which means that their Chinese supplier takes care of export clearance and delivery to the Port of Loading (i.e., Shanghai or Shenzhen).
The importer then assigns a freight forwarder, with an office in China, to forward the cargo from the Port of Loading to the Port of Destination, in the importer’s country. Once the products are shipped, the Bill of Lading, and other relevant shipping documents, shall then issued by the freight forwarder.
After the Bill of Lading and other relevant freight documents are issued, the original documents are sent by express mail to the importer. The importer must give local port authorities (directly, or indirectly through a customs broker) access to the original Bill of Lading, and other documents.
Without the Bill of Lading, the importer cannot prove ownership of the arriving cargo, and will therefore not be able to pass through customs procedures, in order to access the cargo. This is exactly what is being exploited by the shipping scammers.
How are buyers being scammed by freight forwarders?
All reports we’ve received follow the same pattern. The importer purchase items from their Chinese supplier according to FOB terms, which then ships the cargo to a freight forwarder in China. This freight forwarder is selected by the buyer, not the supplier (but note that a similar situation could also arise even when the supplier choose the freight forwarder).
The cargo arrives, and the buyer pays the freight forwarder for the shipping (usually according to CIF terms) to the Port of Destination. The freight forwarder ships the cargo, and this is also when it get’s interesting. While the cargo is not stolen, but actually shipped to the buyer, the original Bill of Lading is never delivered. Roughly a month later, the cargo arrives, and the buyer is expected to provide the Bill of Lading, and Commercial Invoice, to the customs authorities.
Around the time of the arrival, or perhaps a few days before, the freight forwarder suddenly demands more money from the importer. If the buyer refuses to pay, they with hold the Bill of Lading, and other freight documents. We’ve seen scammers demand additional payments ranging between US $11,000 to US $25,000.
As a result, the buyer cannot clear the cargo through customs, there by facing a total loss. However, things get even worse: if the buyer has not picked up, or contracted a local forwarder to pick up, the cargo within a few days, the buyer must pay a daily ground rental fee, ranging between US$50 to US$100. This fee is charged for each day the cargo remains in the Port of Destination, there fore putting even more financial stress on the defrauded importer.
Are the local port and customs authorities offering any help?
No, in all cases reported to us, the carrier and the local authorities have simply stated that it’s the importer’s responsibility to provide the original Bill of Lading, Commercial invoice and Packing List. Without this, they remain in a deadlock and cannot get access to their cargo.
What sort of entities are behind these scams?
These scams seem to be carried out by various small freight forwarders, advertising on various B2B sites, or sending targeted marketing emails to importers. In the reported cases, the importer found the freight forwarder on online supplier directories, but by the time they realized they were being defrauded and reported the occurrence to Alibaba, the freight forwarder had already deregistered from the supplier directory and disappeared.
That said, Alibaba did take swift action once the case was reported, and we don’t think any other B2B supplier directory could have done much more to avoid the situation.
As Alibaba.com, and other B2B platforms, are open supplier directories, it is impossible to regulate every single company, email conversation and transaction. These, so called, freight forwarders are most likely not even properly licensed in China, and only set up as temporary “fly by night operations”, to bring in as much money as possible – only to hide well before the local authorities are aware of what’s going on.
However, we would expect that these freight forwarders offer prices below the market rate. This tactic is also commonly used by other scammers, often claiming to sell branded goods.
How can I protect myself from shipping scams?
If a quoted shipping price seems too good to be true, it probably is. An established freight forwarder, Chinese owned or not, would never apply such scam methods.
Also, before choosing a given freight forwarder, make sure to request buyer references, and check their company name in Google, or other search engines.
The procedures explained in this Buyer’s Guide are primarily relevant for sea freight. However, we designate this section to Air Freight, explaining what you need to know about costs, tracking and more.
Product Samples and Documents
Small deliveries, such as product samples and documents are always delivered by air. However, there is a base cost, that is often set at around $30 per delivery – regardless of weight and volume. Hence, even small deliveries (i.e., a few A4 pages or a small material sample) is rather costly to send from China.
Larger air deliveries are rarely cost efficient. There are, however, a few exceptions when air freight makes sense from an economic perspective:
- Urgency: The delivery time is normally only 7 to 10 days, as compared to around 30 days to most destinations in Europe and the Americas.
- Small Volumes: If you ship cargo with a weight less than 200 kgs, and a volume lower than 1 cbm, air freight may cost less than sea freight.
Air freight can be quoted in two different ways, by the kilogram or based on the volumetric weight (also called DMI weight, Dimensional weight and Cubed weight). The volumetric weight is based on the volume of the cargo, if the volumetric weight is larger than the actual weight of the cargo – the volumetric weight is applied.
Many importers get confused when they are billed for a (Volumetric) weight that is much higher than the actual weight. The volumetric weight is calculated by multiplying the volume in cubic meters with a volumetric factor (150 or 200).
Case Study A (Actual weight applies)
- Dimensions: 0.82 x 1.2 x 0.65 m (Equals: 0.6396 cbm)
- Weight 171 kg
- Volumetric factor: 200
- Volumetric weight: 0.6396 cbm x 200 = 127.92 kg
- Rate: 4.6 USD / kg
- Result: The actual cargo weight is higher than the volumetric weight and thus the actual weight is applied.
Total price: 4.6 USD x 171 kg = 786.6 USD (equals 4.6 USD per kilogram)
Case Study B (Volumetric weight applies)
- Dimensions: 0.82 x 1.2 x 0.65 m (Equals: 0.6396 cbm)
- Weight 91 kg
- Volumetric factor: 200
- Volumetric weight: 0.6396 cbm x 200 = 127.92 kg
- Rate: 4.8 USD / kg
- Result: The actual cargo weight (91 kgs) is lower than the volumetric weight (127.92 kg) and thus the volumetric weight is applied
Total price: 4.8 USD x 127.92 = 614.016 USD (equals 6.747 USD per kilogram)
Volumetric factors examples
- (Less than) 5000 cm3 per kg = 200 kg per cbm
- (Less than) 6000 cm3 per kg = 167 kg per cbm
- (Less than) 7000 cm3 per kg = 143 kg per cbm
Air Freight Companies
Note: The supplier must issue a Commercial Invoice, stating the value of the products, when you import goods by air freight. The freight forwarder (i.e., Fedex) will also issue an Airway bill.
2.Import Duties, Taxes & Customs Procédures
This chapter is an introduction to relevant customs and tax regulations. In this second part of the Buyer’s Guide, you find the following information:
- Customs Value
- Customs Duties
- Product Classification
- Other Taxes and Fees
- Tax ID
- Customs Bond
- Anti-Dumping Duties
- Case Study: Customs & Tax Calculation
The Customs Value is the value from which duties and other taxes are calculated from. In the United States, the customs value is based on the FOB (Free on Board) price, which primarily includes the following costs:
- Unit cost (as declared on the Commercial Invoice) Additional costs (also called ‘assists’) may also include the following:
- Tooling costs
- Services necessary to produce the product (i.e., design and development) that are undertaken outside of the United States (including those provided by the supplier)
- Paid product samples
- Paid services (i.e., design services paid to the supplier)
Note: Tooling costs (i.e., injection molds) are also part of the customs value, even if the tooling is not transported from China to your market. Hence, you must either include the entire tooling cost value on the first shipment, or divide it among several shipments.
Imported products are subject to duties. The duty rate depends on the product, and its origin – and is normally a percentage. In some cases, duty rates have fixed lower and upper limits. Below follows two examples:
- Percentage: X%
- Percentage and lower / upper limit: X% (min. $Y / max. $Y)
The Customs Duties are calculated based on the Customs Value, as explained below. Hence, the duty can be calculated as following:
Y x X% = Import Duty
Y = Customs Value, X = Duty Rate (%)
In the US, tariffs are harmonised. This means that the same duty rates apply in all US states, when importing from foreign countries. Each product is classified according to a 6-digit HS code, which combined with the origin of the country, determines the applicable duty rate. The following resources can help you classify your product:
- US Harmonized Tariff Schedule (2016 HTSA Basic Edition)
Other Taxes and Fees
Merchandise Processing Fees
Merchandise Processing Fees (MPF) apply to all air and sea shipments, and are based on value of goods. This fee is
0.3464% with the following minimum and maximum values:
- Min: US$25
- Max: US$485
Harbor Maintenance Fees
Harbor Maintenance Fees (HMF) are applicable on all sea freight shipments. The HMF is set at 0.125% of the value of the goods, with the following minimum and maximum values:
- Min: None
- Max: None
To import goods valued above $2,500, the individual or business must have a Tax ID (or EIN). This is assigned by the IRS to US citizens, and companies. The Tax ID must also be provided to the Customs Broker.
As a US based importer, you need to find a Customs Broker. The role of the Customs Broker, is to file entries and submit documents to the US customs authorities, on behalf of the importing company. Many freight forwarders also act as Customs Brokers, but you shall not take this for granted. You must find a Customs Broker, and obtain a Customs Bond, before you import products from Asia.
In order for a Customs Broker to service an importer, the importer has to sign a power of attorney, authorizing the Customs Broker to clear the cargo on your behalf.
Through the Customs Broker, you can buy a Customs Bond. There are two types:
- Single Entry Customs Bond (Valid for one shipment only)
- Continuous Entry Customs Bond (Valid for a set time duration, for example 1 year)
The Customs Bond must be purchased before the cargo departs from the Port of Loading (i.e., Hong Kong or Shenzhen). That said, Customs Bonds are only mandatory, if the goods are valued at US$2,500, or above. Then a Formal entry is needed, in which case the Customs Bond is mandatory. You may choose to buy a Customs Bond even if the goods are valued less than that amount. However, in this last case it’s not mandatory.
As mentioned, you buy the Customs Bond from your Customs Broker. To do so, you must provide the Customs Broker with the following:
- Tax ID
- Sign a Power of Attorney
Anti-Dumping Duties can be imposed on the following:
- An entire industry, in a certain country
- One or more suppliers, in certain industries and countries
The purpose of Anti-Dumping Duties is to protect the domestic industry from unfair competition. According to the World Trade Organisation, unfair competition includes practices involving subsidies and other state support to private industry, with the purpose of underbidding foreign competitors.
Suppliers that are targeted by such Anti-Dumping Measures, must be avoided at all cost. Anti-Dumping Duties often range between 50% to 100%. As you will be charged accordingly, upon cargo arrival in the Port of Destination, you must ensure that your supplier is not sanctioned, before you place an order.
US International Trade Commission: Finding Non-Tariff Duties
Case Study: Customs & Tax Calculation
|Unit Price (FOB)||$20 x 1000 pcs||$20,000||Included in Customs Value|
|Tooling||$0||$0||Included in Customs Value|
|Shipping Costs (Non-US)|
|Freight Cost (CIF)||$400 x 1.2 cbm||$480||Not Included in Customs Value|
|Insurance||($20,000 + 0.1 x $20,000) x 0.5%||$110||Not Included in Customs Value|
|Shipping Costs (US)|
|Local Charges||$350 x 1.2 cbm||$420||Not Included in Customs Value|
|Inland Transportation||$200||$200||Not Included in Customs Value|
|Import Duty||$20,000 x 2%||$400||Duty rate at 2% assumed|
|Merchandise Processing Fees (MPF)||$20,000 x 0.3464%||$69.28||0.3464% (Max: $485)|
|Harbor Maintenance Fees (HMF)||$20,000 x 0.125%||$25||0.125%|
|$20,000 + $0 + $480 + $110 + $420 +
$200 + $400 + $69.28 + $25
3.Shipping and Customs Checklist
The shipping and customs process (i.e., document requirements) is often subject to interpretation by individual logistics professionals, and customs officials. As such, there is no document or software that can accurately predict the exact procedure. In addition, the process also depends multiple factors, which also includes the product, and even the supplier.
With this in mind, we created a Checklist, helping you to prepare your shipment, and understand how the process works, from pickup on the factory floor, to final delivery in your warehouse.
|1. Buyer Preparations||✔ Licenses and Permits: Do your products need any sort of license or permit?
✔ Freight Forwarder: Select a Freight forwarder
✔ Customs Broker: Select a Customs Broker (may be the same company as your freight forwarder) and a sign a Power of Attorney
✔ Customs Bond: Order a Single entry or Continuous use Customs Bond from your Customs Broker
✔ Choose mode of transportation: Air Freight or Sea Freight
✔ FCL or LCL: Which is the most cost effective in your case? (If Sea Freight)
✔ Anti-Dumping Duties: Are there any anti-dumping measures targeting your product and/or supplier?
✔ Tax Calculation: Assess which HS code applies to your product, and estimate the duty and tax rate accordingly.
|2. Supplier Checklist (Pre-Production)||✔ Incoterm: Communicate if you intend to buy according to FOB terms (or another Incoterm).
✔ Payment terms: Will you pay the balance to the supplier before, or after, they transfer the cargo to the freight forwarder?
✔ Contact person: Ask your supplier for the contact details of the person responsible for logistics. The name, phone and email address of this person must be provided to the freight forwarder.
✔ Freight Forwarder: Provide your supplier with the contact details of your freight forwarder’s local agent (in China) and their warehouse address (in the Port of Destination).
✔ Insurance: Instruct your supplier to obtain insurance for the transportation from the production facility, to the Port of Loading (in China).
✔ Export Packaging: Provide clear export packaging instructions, and inspect the cargo prior to delivery to the Port of Destination. This will help you prevent transportation damages. In many cases, the packaging is substandard, and a repacking is required.
✔ Cargo Volume: Your freight forwarder cannot provide you with a quotation, unless you give them the estimated cargo volume. While the supplier cannot confirm the final cargo volume until the goods is manufactured and packed, they should at least be able to provide an estimation. Based on this, the forwarder can then provide an estimated quotation.
|3. Freight Forwarder Checklist (Pre-Production)||✔ Incoterm: Your freight forwarder needs to know if you purchased your cargo according to EXW or FOB terms. You must also confirm whether you want them to arrange forwarding to your market, according to CIF, DAT or DAP terms.
✔ Customs and Taxes: Ask your Customs Broker how they can help you arrange customs clearance and other import tax related procedures.
✔ Supplier: The freight forwarder needs the name, phone and email address of your contact person, working for the supplier.
✔ Insurance: Communicate to your freight forwarder that you want the cargo to be insured.
✔ Destination: Provide the address of your warehouse or office, for final delivery.
✔ FCL or LCL: Confirm if you want to ship LCL or FCL.
✔ Estimated completion date: When are the products manufactured and estimated to be delivered to the Port of Destination?
✔ Cargo restrictions: Confirm if your products need any special permits in either China, or your market. However, freight forwarders cannot answer questions related to product compliance.
✔ Freight documents: Confirm if your freight forwarder has all the information they need to issue the Bill of Lading, the Commercial Invoice and the Packing List.
|4. Shipping Process A (FOB terms assumed)||1. Supplier arrange transportation to the freight forwarder warehouse in the Port of Destination
2. The freight forwarder receives the cargo and confirms whether the packaging is undamaged, and the next available departure date.
3. The freight forwarder confirms the cargo volume and sends the invoice to the buyer.
4. The cargo is loaded and shipped to the buyer’s destination
5. The freight forwarder and/or the supplier prepares all necessary documents, which are then delivered by airmail to the buyer. These documents may or may not be delivered to local customs authorities and/or the freight forwarders office in the buyer’s country.
6. The Cargo arrives in the Port of Destination and the buyer is notified (forwarder may send the Arrival notice).
|5. Shipping Process A (DAP terms assumed)||The Cargo is unloaded in the Port of Destination
The Cargo is cleared for customs and the buyer can normally choose to pay import duties, and other taxes, directly through the freight forwarder and/or Customs Broker.
The Cargo is forwarded to the Buyer’s Address and unloaded
|6. Final Cargo Inspection||✔ Export Packaging Damages: Check the cartons and pallets for damages.
✔ Transportation Damages: Check the products for transportation damages.
✔ File Insurance Claim: Contact you forwarder and provide the required material to file an insurance claim, in case of transportation damage.
|U.S. Customs and Border Protection||Contact Form (External link)||www.cbp.gov|
|U.S. International Trade Commission||Contact Form (External link)||www.usitc.gov|
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