The shipping and customs clearance process is preferably managed by a freight forwarder. That said, it’s essential for importers to understand how to calculate freight costs, manage risks and understand import duties and other taxes.

Objectives
  •  Understand shipping terminology, costs, and processes

  • Book ocean freight and air freight

  • Calculate import taxes, VAT/GST and other fees

 

 

 1 Incoterms

 

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?

Common Incoterms

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.

Comparison Table

Incoterm 1. Export Clearance 2. Delivery to Port of Loading 3. Sea Freight Charges 4. Local Charges (Port of Destination) 5. Inland Transportation
EXW
FOB
CIF
DAT
DAP

Pricing

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 at a reasonable price.

Recommendation

We advise you to ship according to FOB terms and contract one of the freight forwarders listed in this module – 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)

2 FCL and LCL Shipping

 

Sea freight is not exclusive to companies importing 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)

Comparison

Type Advantages Disadvantages
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.

Recommendation

  •   If the cargo volume is smaller than 10 cbm, ship LCL
  •   If the cargo volume is larger than 10 cbm, ship FCL

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.

Container tracking

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.

 

3 Shipping Costs

 

Shipping costs are mainly calculated based on the following three factors:

  •   Incoterm
  •   Volume
  •   Destination
  •   Oil price (current)

Below follows an overview:

Primary Costs

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

Secondary Costs

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
1 cbm LCL $200 $250
5 cbm LCL $470 $750
10 cbm LCL $600 $1000
20 Feet FCL $800 $1300
40 Feet (HQ) FCL $1200 $1900

Estimating Shipping Costs

Feel free to ask a free quote

Reducing Shipping Costs

Option Impact Description
1. Ship by Sea High Air freight is faster, but several times more expensive than shipping by sea. As such, plan ahead 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.

 

4 Freight Documents

 

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.

Commercial Invoice

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.

Packing List

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.

Arrival Notice

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.

Compliance Documents

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
  •   Vehicles
  •   Machinery
  •   Cosmetics and chemical products

 

 5 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
  •   Animals
  •   Cattle food
  •   Chemicals
  •   Petroleum
  •   Pharmaceuticals
  •   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
  •   Crates
  •   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.

Recommendation
  •   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.
Read More
  •   Frequently Asked Questions on Wood Packaging Materials (Link)
  •   National Wooden Pallet & Container Association (Link)

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
  •   Markings
  •   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?
Read More
  •   IATA: Lithium Batteries (Link)
  •   UPS: International lithium battery regulations (Link)
  •   UPS: Shipping Batteries or Devices with Batteries (Link)

6 Export Packaging

 

While a freight insurance may compensate your business for the value of the damaged products, the insurance does not compensate for 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)

Packaging Materials

  •   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

Sample

Image Checklist
5 layer export quality cartons

 Plastic wrapping

 Wooden pallet

 Reinforced sides

Plastic straps

Freight Remark

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:

Template Sample
Company Name

Product Name

HS Code

Destination: City, Country

Net Weight: XX.X kg / Volume: X.X cbm

Country of Origin

The Watch Company

Stainless Steel Quartz Watches

91022900

Destination: New Jersey, United States

Net Weight: 43.5 kg / Volume: 0.45 cbm

MADE IN CHINA

Pallets

Heavy cargo cannot be manually loaded and unloaded, and must therefore 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 standardised 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.

 

7 Insurance

 

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.

Cost

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 upon 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.

 

8 Air Freight

 

The procedures explained in this module 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) are rather costly to send from China.

Air Cargo

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.

Cost Calculation

Airfreight 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

Note: The supplier must issue a Commercial Invoice, stating the value of the products, when you import goods by air freight. The freight forwarder (Sino Shipping) will also issue an Airway bill.

  

9 Import Duties: US

 

Customs Value

The Customs Value is the value from which duties and other taxes are calculated. 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.

Read More

US Customs: What Every Member of the Trade Community Should Know About: Customs Value (Link)

Customs Duties

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 (%)

Product Classification

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 (Link)

Relevant Authorities

Agency Contact Details Website
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

 

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

Tax ID

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.

Customs Brokers

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.

Customs Bond

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

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 costs. 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.

Read More

US International Trade Commission: Finding Non-Tariff Duties (Link)

Relevant Authorities

Agency Contact Details Website
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

 

 10 Tax Calculation: US

 

Cost Calculation Sub Total Comment
Product Costs
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
Taxes
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%
Total $20,000 + $0 + $480 + $110 + $420 + $200 + $400 + $69.28 + $25 $21704.28

  

11 Import Duties: EU

 

Customs Value

The Customs Value is the value which duties and other taxes are calculated from. In the European Union, the customs value is based on the CIF (Cost, Freight and Insurance) price, which includes the following costs:

  •   Unit cost (as declared on the Commercial Invoice)
  •   Insurance cost
  •   Freight cost (to Port of Destination)

Additional costs (also called ‘assists’) may also include the following:

  •   Tooling costs
  •   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.

Customs Duties

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 EUR / max. Y EUR)

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 (%)

Product Classification

In the EU, tariffs are harmonised. This means that the same duty rates apply in all EU states, when importing from non-EU countries. Each product is classified according to a 10-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:

  •   EU Duty Rate Databank (TARIC Consultation) (Link)

Relevant Authorities

Country Agency Website
European Union European Commission Link
United Kingdom HM Revenue & Customs Link
Germany German Customs Authority Link
Netherlands Customs Administration of The Netherlands Link
France French Customs Authority Link
Italy Italian Customs Authority Link
Spain Spanish Customs Authority Link
Sweden Tullverket Link

 

12 Other Taxes and Fees: EU

 

Value Added Tax (VAT)

VAT is charged by businesses in all EU member states. When importing from non-EU countries, the importer must pay VAT, on based on the total of the Customs value added on the Import Duty.

(Y + Import Duty) x VAT Rate (%)

Y = Customs Value

Anti-Dumping Duties

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 costs. 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.

Read More

Anti-Dumping Measures in the European Union (Link)

Customs Clearance Options

There are various ways to clear customs when importing from a non-EU country. Below follows a few examples:

  •   Self Declaration: You can submit a customs declaration directly to the customs authorities, prior to the arrival of the cargo. The specific procedures may differ between each member state. However, you normally have the following two options:
  1. Online declaration (May require pre-registration)
  2. Paperwork submission
  •   Forwarder Declaration: For a small fee ($50 – $100), you can let your freight forwarder handle all customs clearance procedures, upon arrival in the Port of Destination. This way, you don’t need to interact with the authorities and can pay duties and VAT directly to the freight forwarder.

Relevant Authorities

Country Agency Website
European Union European Commission Link
United Kingdom HM Revenue & Customs Link
Germany German Customs Authority Link
Netherlands Customs Administration of The Netherlands Link
France French Customs Authority Link
Italy Italian Customs Authority Link
Spain Spanish Customs Authority Link
Sweden Tullverket Link

 

13 Tax Calculation: EU

  

Cost Calculation Sub Total Comment
Product Costs
Unit Price (FOB) $20 x 1000 pcs $20,000 Included in Customs Value
Tooling $0 $0 Included in Customs Value
Shipping Costs (Non-EU)
Freight Cost (CIF) $400 x 1.2 cbm $480 Included in Customs Value
Insurance ($20,000 + 0.1 x $20,000) x 0.5% $110 Included in Customs Value
Shipping Costs (EU)
Local Charges $350 x 1.2 cbm $420 Not Included in Customs Value
Inland Transportation $200 $200 Not Included in Customs Value
Taxes
Import Duty ($20,000 + $480 + $110) x 2% $411.8 Duty rate at 2% assumed
VAT ($20,000 + $480 + $110 + 411.8) x 20% $4200.36 VAT rate of 20% assumed
Total $20,000 + $0 + $480 + $110 + $420 + $200 + $411.8 + $4200.36 $25,822.16 Includes VAT

 

14 Import Duties: Australia

 

Customs Value (CVAL)

The Customs value (CVAL) in Australia is based on the FOB (Free on Board) price. This includes the following:

  •   Unit price
  •   Transportation to the Port of Loading (Included in FOB)
  •   Export Clearance Cost (Included in FOB)

The following items are not included in the CVAL:

  •   Shipping to Australia
  •   Shipping Insurance

Additional costs (also called ‘assists’) may also include the following:

  •   Tooling costs
  •   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.

Customs Duties

Imported products are subject to duties. The duty rate depends on the product, and its origin – and is normally a percentage.

  •   Percentage: X%

The Customs Duties are calculated based on the Customs Value (CVAL), as explained below. Hence, the duty can be calculated as following:

Y x X% = Import Duty

Y = Customs Value, X = Duty Rate (%)

Product Classification

Australian importers are expected to make a self assessment of the goods. However, this may be difficult for new products that are not explicitly classified.

Option A: Self assessment:

Follow the link in the resources below (Current tariff classification)

Option B: Contact Australia Home Affairs:

Use the contact form (see below) to request a product classification.

Resources

  •   Customs Duty Calculation Routines (Read More)
  •   Tariff classification of goods (Read More)
  •   Current tariff classification (Read More)
  •   Home Affairs: Contact Form (Link)
  •   Home Affairs: Import Declarations (PDF)
  •   Home Affairs: Importing by post or mail (Link)

15 Other Taxes and Fees: Australia

Goods and Services Tax (GST)

Goods and services tax (GST) is payable when importing most products to Australia. This applies regardless of whether your company is GST registered. At the time of writing, the GST is set at 10%.

Calculation

GST (10%) is calculated on top of the sum of the following:

  •   Customs Value (FOB Price)
  •   Customs Duty
  •   Shipping to Australia
  •   Shipping Insurance
Example
  •   Customs value (FOB Price) = AUD 10,000
  •   Customs Duty = 5% x AUD 10,000 = AUD 500
  •   Shipping = AUD 1,000
  •   Insurance: AUD 20
  •   GST = 10% x (AUD 10,000 + 500 + 1,000 + 20) = AUD 1152

Import Processing Charge

The Import Processing Charge is based on the customs value.

However, unlike the Customs duty rate, the Import Processing Charge is not calculated as a percentage on the Customs value – but instead a fixed cost.

FOB Value ≤ AUD 1,000
  •   None
FOB Value: AUD 1,000 to 10,000
  •   Manual Declaration: AUD 90
  •   Electronic Declaration: AUD 50
FOB Value ≥ AUD 10,000
  •   Manual Declaration: AUD 192
  •   Electronic Declaration: AUD 152

Import Licenses and Permits

Import licences or special permits are generally not required for most consumer products. However, there are strict requirements in place for importing animals, plants, controlled substances and certain equipment.

Anti-Dumping Duties

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 costs. 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.

Resources

  •   GST and imported goods (Read More)
  •   Anti-Dumping Commission (Read More)
  •   Dumping Duty and Countervailing Calculations (Read More)
  •   Home Affairs: Import Declarations (PDF)
  •   Home Affairs: Importing by post or mail (Link)

16 Tax Calculation: Australia

 

Cost Calculation Sub Total Comment
Product Costs
Unit Price (FOB) $20 x 1000 pcs $20,000 CVAL = FOB
Tooling $0 $0
Shipping Costs (To Australia)
Freight Cost (CIF) $400 x 1.2 cbm $480
Insurance ($20,000 + 0.1 x $20,000) x 0.5% $110
Shipping Costs (In Australia)
Local Charges $350 x 1.2 cbm $420
Inland Transportation $200 $200
Taxes & Fees
Import Duty $20,000 x 5% $1000 Duty rate at 5% assumed
GST ($20,000 + $480 + $110 + 1,000) x 10% $2159 GST 10%
Import Processing Charge $152 $152 Electronic submission assumed
Total $1000 + $2159 + $152 $3,311 Includes GST

 

17 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 on 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.

a. 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 (it 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.

b. 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 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 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 are manufactured and packed, they should at least be able to provide an estimation. Based on this, the forwarder can then provide an estimated quotation.

c. 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 to forward 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.

d. 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).

e. Shipping Process B (DAP terms assumed)

  1. The Cargo is unloaded in the Port of Destination
  2. 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.
  3. The Cargo is forwarded to the Buyer’s Address and unloaded

f. 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.