Incoterms Definitions

Incoterms (International Commercial Terms) are a series of international sales terms widely used throughout the world. They define monetary transaction and role responsibilities for both sides of the international trading buyer and seller transaction. The purpose of standardized incoterms is to determine export and import clearance responsibilities, who is owning the risk for the condition of the products at each stage in the transport process, and who is responsible for paying for what.

Here is the shortlist of Incoterms and definitions from the International Chamber of Commerce that you should be familiar with:

EXW “Ex Works”

The seller delivers when he places the goods at the disposal of the buyer at the seller’s premises or another named place (i.e. works, factory, warehouse, etc.) not cleared for export and not loaded on any collecting vehicle. This term thus represents the minimum obligation for the seller, and the buyer has to bear all costs and risks involved in taking the goods from the seller’s premises.

FCA “Free Carrier”

The seller delivers the goods, cleared for export, to the carrier nominated by the buyer at the named place. It should be noted that the chosen place of delivery has an impact on the obligations of loading and unloading the goods at that place. If delivery occurs at the seller’s premises, the seller is responsible for loading. If delivery occurs at any other place, the seller is not responsible for unloading. This term may be used irrespective of the mode of transport, including multimodal transport.

“Carrier” means any person who, in a contract of carriage, undertakes to perform or to procure the performance of transport by rail, road, air, sea, inland waterway or by a combination of such modes.

If the buyer nominates a person other than a carrier to receive the goods, the seller is deemed to have fulfilled his obligation to deliver the goods when they are delivered to that person.

FAS “Free Alongside Ship”

The seller delivers when the goods are placed alongside the vessel at the named port of shipment. This means that the buyer has to bear all costs and risks of loss or damage of the goods from that moment. The FAS term requires the seller to clear the goods for export.

FOB “Free on Board”

The seller delivers when the goods pass the ship’s call at the named port of shipment. This means that the buyer has to bear all costs and risks of loss of or damage to the goods from that point. The FOB term requires the seller to clear the goods for export. This term can be used only for sea or inland waterway transport. Many people use either FOB or CIF and aren’t sure of the exact differences. SourceJuice wrote an article To FOB of CIF That is The Question which may be of assistance.

CFR “Cost and Freight”

The seller delivers when the goods pass the ship’s rail in the port of shipment. The seller must pay the costs and freight necessary to bring the goods to the named port of destination but the risk of loss of or damage to the goods, as well as any additional costs due to events occurring after the time of delivery, are transferred from the seller to the buyer. The CFR term requires the seller to clear the goods for export.

CIF “Cost Insurance and Freight”

The seller delivers when the goods pass the ship’s rail in the port of shipment. The seller must pay the costs and freight necessary to bring the goods to the named port of destination, but the risk of loss of or damage to the goods, as well as any additional costs due to events occurring after the time of delivery, are transferred from the seller to the buyer.

However, with CIF the seller also has to procure marine insurance against the buyer’s risk of loss of or damage to the goods during the carriage. Consequently, the seller contracts for insurance and pays the insurance premium. The buyer should note that under the CIF term the seller is required to obtain insurance only on minimum coverage. Should the buyer wish to have protection of greater coverage, he would either need to agree as much expressly with the seller or to make his own extra insurance arrangements.

The CIF term requires the seller to clear the goods for export. This term can be used only for sea and inland waterway transport. If the parties do not intend to deliver the goods across the ship’s rail, the CIP term should be used.

CIP “Carriage and Insurance paid to…”

The seller delivers the goods to the carrier nominated by him but the seller must in addition pay the cost of carriage necessary to bring the goods to the named destination. This means that the buyer bears all risks and any additional costs occurring after the goods have been delivered. However, in CIP the seller also has to procure insurance against the buyer’s risk of loss of or damage to the goods during the carriage.

Consequently, the seller contracts for insurance and pays the insurance premium. The buyer should note that under the CIP term the seller is required to obtain insurance only on minimum coverage. Should the buyer wish to have the protection of greater cover, he would either need to agree as much expressly with the seller or to make his own extra insurance arrangements.

“Carrier” means any person who, in a contract of carriage, undertakes to perform or to procure the performance of transportation by rail, road, air, sea, inland waterway or by a combination of such modes.

If subsequent carriers are used for the carriage to the agreed destination, the risk passes when the goods have been delivered to the first carrier. The CIP term requires the seller to clear the goods for export.

CPT “Carriage paid to…”

‘Carrier” means any person who, in a contract of carriage, undertakes to perform or to procure the performance of transport, by rail, road, air, sea, inland waterway or by a combination of such modes.

If subsequent carriers are used for the carriage to the agreed destination, the risk passes when the goods have been delivered to the first carrier, The CPT term requires the seller to clear the goods for export.

DAF “Delivered at Frontier”

The seller delivers when the goods are placed at the disposal of the buyer on the arriving means of transport not unloaded, cleared for export, but not cleared for import at the named point and place at the frontier, but before the customs border of the adjoining country. The term “frontier” may be used for any frontier including that of the country of export. Therefore, it is of vital importance that the frontier in question be defined precisely by always naming the point and place in the term.

However, if the parties wish the seller to be responsible for the unloading of the goods from the arriving means of transport and to bear the risks and costs of unloading, this should be made clear by adding explicit wording to this effect in the contract of sale.

DES “Delivered Ex Ship”

means that the seller delivers when the goods are placed at the disposal of the buyer on board the ship not cleared for import at the named port of destination. The seller has to bear all the costs and risks involved in bringing the goods to the named port of destination before discharging. If the parties wish the seller to bear the costs and risks of discharging the goods, then the DEQ term should be used.

This term can be used only when the goods are to be delivered by see or Inland waterway or multimodal transport on a vessel in the port of destination.

DEQ “Delivered Ex Quay”

The seller delivers when the goods are placed at the disposal of the buyer not cleared for import on the quay (wharf) at the named port of destination. The seller has to bear costs and risks involved in bringing the goods to the named port of destination and discharging the goods on the quay (wharf). The DEQ term requires the buyer to clear the goods for import and to pay for all formalities, duties, taxes and other charges upon import.

If the parties wish to include in the seller’s obligations all or part of the costs payable upon import of the goods this should be made cear by adding explicit wording to this effect in the contract of sale.

This term can be used only when the goods are to be delivered by sea or inland waterway or multimodal transport on discharging from a vessel onto the quay (wharf) in the port of destination. However if the parties wish to include in the seller’s obligations the risks and costs of the handling of the goods from the quay to another place (warehouse, terminal, transport station, etc.) in or outside the port, the DDU or DDP terms should be used.

DDU “Delivered Duty Unpaid”

The seller delivers the goods to the buyer, not cleared for import, and not unloaded from any arriving means of transport at the named place of destination. The seller has to bear the costs and risks involved in bringing the goods thereto, other than, where applicable, any “duty” (which term includes the responsibility for and the risks of the carrying out of customs formalities, and the payment of formalities, customs dudes, taxes and other charges) for import in the country of destination. Such “duty” has to be borne by the buyer as well as any costs and risks caused by his failure to clear the goods for import in time. However, if the parties wish the seller to carry out customs formalities and bear the costs and risks resulting there from as well as some of the costs payable upon import of the goods should be made clear by adding explicit wording to this effect in the contract of sale.

DDP “Delivered Duty Paid”

The seller delivers the goods to the buyer, cleared for import, and not unloaded from any arriving means of transport at the named place of destination. The seller has to bear all the costs and risks involved in bringing the goods thereto including, where applicable, any “duty” (which term includes the responsibility for and the risks of the carrying out of customs formalities and the payment of formalities, customs duties, taxes and other charges) for import in the country of destination.

Whilst the EXW term represents the minimum obligation for the seller, DDP represents the maximum obligation. This term should not be used if the seller is unable directly or indirectly to obtain the import licence. However, if the parties wish to exclude from the seller’s obligations some of the costs payable upon import of the goods (such as value-added tax : VAT), this should be made cear by adding explicit wording to this effect in the contract of sale. If the parties wish the buyer to bear all risks and costs of the import, the DDU term should be used.

To help you find the appropriate Incoterm for your situation, have a look at BusinessLink’s interactive guide.

July 15, 2008 | Filed Under Landed cost | 1 Comment

VAT Rebates Coming Back for Textiles and Garments

While not announced yet by China, The South China Morning Post today has an article stating that VAT Rebates are coming back for textile and garment exports. This is a bit of a surprise move and is welcome news to those in the China textile and garment industries and for buyers seeking relief from higher prices.

For those unfamiliar with VAT rebates and their place within China sourcing, please have a look at this SourceJuice article Reminder: Understand VAT Rebates to Bargain More Effectively.

According to the article:

Various industry sources and tax experts say the mainland is finalizing a plan to raise VAT rebates on textiles and garments as much as 4 percentage points to 15 per cent. Generally, exporters are paying a value-added tax of about 17 per cent.

The plan also would increase rebates on viscose fiber - a key raw material in making fabric - as much as 1- percentage points to 15 per cent.

The plan signals a rescue of the country’s pillar industry, which is undergoing an unprecedented consolidation exacerbated by a United States-led global economic slowdown, a sinking US dollar and sourcing costs of raw materials, labour and crude oil.

When the VAT rebate returns, be sure to get the discount on your next purchase order!

July 10, 2008 | Filed Under Landed cost | 2 Comments

Reminder: Understand VAT Rebates to Bargain More Effectively

At the beginning of the year, SourceJuice wrote an article 4 Reasons Sourcing from China will be More Expensive in 2008 with one of the main reasons for price increases listed as the change in VAT rebates. Today while reading the Spend Matters blog post Keeping Track of China’s Export Tax Rates and Rebates, we were reminded of the importance of understanding what the VAT rebates are and how to use this knowledge to bargain more effectively.

As Spend Matters points out:

One of the secrets to unlocking the total cost savings secrets of global sourcing is to understand where the profit margin from suppliers is coming from (hint: in China, historically it’s often come from a VAT rebate that is theoretically payable after to the trading or export company after goods hit the water).

So as a recap for our readers: What is the China VAT tax and why do you need to know about it?

When a factory purchases raw materials, either domestically or internationally, they pay a VAT tax. For those not familiar with the term, it’s basically a sales tax. However, if the materials are used to make a final good FOR EXPORT, then the Chinese government will issue a rebate of this tax. This rebate can be as high as 25+% on some items, so this is not insignificant.

Therefore, when a factory comes to you and wants to raise the cost of a product or you are beginning a new negotiation, one of the most common reasons the factory will give for higher costs is because of the decreased VAT rebate.

So… if you can prepare yourself with the correct information on what products have changes to the VAT rebate, and in general what your product’s VAT rebate is, you are that more empowered during the negotiation process.

Our friends over at MFG.com have put together a very solid PDF, which translates all the VAT rebates into English.

April 1, 2008 | Filed Under Landed cost | 2 Comments

Digging Deeper - Actual Landed Costs Examined Part 2 of 3

Sometimes when we dig deeper we only skim the surface. SourceJuice strives to write some great articles, but even the best content sometimes needs a summary of relevant parts. Digging Deeper continues by putting together the pieces of the import puzzle with this week’s “Actual Landed Costs Examined - part 2″.

As a recap from part 1 we will dig a little deeper into examining the different categories that make up your actual landed cost.

Ocean freight : Ocean freight can be quoted a number of different ways depending on your level of import comfort and expertise. Manufacturers many times have resources available to handle logistics for your shipment. Logistics Forwarding and Customs Brokerage houses also have partnerships with ocean carriers and freight lines. You can also go to the source and get quotes directly from ocean freight carriers. Before contacting ocean freight lines, review part 1 of this Digging Deeper article. FreightWorld has a list of ocean freight carriers categorized by region. In relation to ocean freight, one should also weigh the value of purchase terms in using FOB or CIF for their shipments. SourceJuice article “To FOB or CIF, That is the Question” is a quick read and a great source of information.
Customs clearance fee : Entry fees cover customs clearance and processing services relating to your container of goods entering the US, based per entry.
Customs Single Entry Bond : There is substantial information about customs bonds at the bottom of part 1 of SourceJuice’s Digging Deeper article.
Courier/postage : In international trade, there is an incredible amount of document transference both domestically and internationally. Original documentation including bill of lading must come from the factory in China to your customs broker for clearance. US domestic shipping will include communicative documents to and from your customs broker (such as Power of Attorney) and from them to other entities including ports and logistics companies.
Delivery order/coordination fee: These fees are typical customs broker coordination fees.
Customs Duty/ fees : Check out an early SourceJuice article to help you figure out customs duty fees on your shipment, “The Nitty Gritty of United States Import Duty Rates“.
Customs Exams : There are a number of exams that customs and other agencies will require to ensure the safety of US citizens, wildlife and natural resources. If you are new to importing expect an X-RAY examine from Homeland Security to check for contraband and other potentially dangerous items. If you are using wood packaging materials, expect an exam from the USDA. A recent SouceJuice article details this exam best, “Wood Pallets, Crates or Boxes? Avoid Unexpected Costs at the Border!“

Another Examination
In part 1 of this article, we illustrated the import costs of a successful 2007 pre-fabricated granite import. For more information on the incredible profit margins available on fabricating and importing granite from China, check out SourceJuice article “Let’s Talk Granite - Pre-fabricated Granite Import Guide“. Suffice it to say, the numbers are incredible.

For our next trick, we will flip the tables and show how the numbers do not always produce favorable outcomes. Some of the most vital insight comes by learning from your mistakes. Below are some actual figures from a failed 2007 marble tile import venture.

At the time the product was purchased, Floor & Decor was selling the below 12×12x3/8″ marble tile for $1.73 per square foot.

A Chinese supplier was selling an identical marble tile for 63 cents a square foot. 7,500 square feet of marble tile was ordered.

Invoiced Marble (7,500sf)…………………. $4,725
Import Duty fees, steam ship & railroad transportation…………………. $4,989.44
Domestic Delivery (cross-dock, flatbed delivery)…………………. $2,035
USDA Exam…………………. $500
X-Ray Exam…………………. $400
On-site storage container…………………. $1,300

TOTAL $13,849.44
per SF $1.84

Upon review of the concluding landed costs, it was determined that the venture was not cost effective because of the following reasons:

Due to budget requirements for the import, the container was only filled to 75% capacity.
No loading dock availability
Excessive exams
Storage
Large US marble suppliers purchase product in high volume. Supplier product cost at 63 cents a square foot could have been even cheaper if more product was purchased.

Dylan Blankenship signature
dylan@sourcejuice.com // Dylan Blankenship

February 2, 2008 | Filed Under Landed cost | 1 Comment

Digging Deeper - Actual Landed Costs Examined. Part 1 of 3

I am straight shooting numbers man. I like less talk and more actual figures from which to base my decisions. Sourcing/importing is a risky game and you will be ever the wiser with the more data you accumulate. We have tapped the brains of experienced importers to give you the numbers behind their successful and failed import ventures. Get prepared with the actual figures of which you can take the ball and run with.

Each import venture is different and there are many variables to contend with. Let’s first examine the actuals, highlight missing incidentals and then analyze/detail each category that will affect your landed cost.

The Actuals
The following are actual figures from a 2007 import.

The shipment was a 20ft container FOB Xiamen to Doraville, Georgia (US). Contents of the container included pre-fabricated granite, stainless steel kitchen and vanity porcelain sinks.

Ocean freight…………………………..$2990
Customs clearance fee ……………….$125 per entry
Customs Single Entry Bond……………..$45 (min. fee - based on value of shipment)
Courier/postage ………………..$425
Delivery order/coordination fee…………$20
Customs Duty/ fees…………………..$1100 (Duty is based on total invoice of $26,273.8: SSteel Sinks; Porcelain Sinks; Granite counter tops; Granite back splash)
Truck from Atlanta to Doraville………$330 *(Includes current 25% fuel surcharge)
Customs X-RAY Exam…………………………..$400

UNKNOWN Incidentals

Customs Exam (storage; exam; moving to exam site, etc.); (MAY/MAY NOT BE EXAMINED)
Additional incidentals (Fed-Ex; Special courier, etc);
Any deviations from pro-forma invoice total value (i.e. invoice changes or additional items to be classified)
Additional time needed to unload container (after 2 hours free time…$60/hour thereafter).
Demurrage calculates differently depending on the port but ranges around $100 a day that the container sits in a holding facility.

Back in November SourceJuice reported on the 9 Costs That Can Affect Your Landed Cost. Keeping with the nature of our latest article we will dig a little deeper into some of these costs with supporting information, data and links.

Invoice Price: FOB rate means that the factory pays trucking, customs clearance, etc (all fees) associated with getting the container from the factory on board the vessel at the port. Once the container is on vessel, you are responsible for all costs to the final destination. This is typical FOB terms, but it is still good business to clarify the terms of sale. Clarify what charges are the responsibility of each party, factory and purchaser/importer.

Shipping Cost: VIP treatment, it’s everywhere and if you do a lot of business or know the right people you can get past the import velvet ropes much cheaper. Ocean freight providers ship two ways: quoting rates by the shipment with current rates or on a contract basis with huge discounts.

If you plan to ship a large volume of containers, use a single ocean freight company and negotiate a contract. This will lock in low rates and sometimes help to avoid fuel and other surcharges.
If you are a smaller importer then consider going with the big boys! That’s right, search your contacts and your contacts’ contacts for a large importer or logistics/freight or forwarding company. You can often times negotiate to ship containers under a big players existing contract. You are still paying, but not as much and you are helping to meet your new partner’s shipping quota (make sure to remind them of that when negotiating the contract). Note: Many times your customs broker can put you in touch with the big players. Thought we’d leave you hanging without a link? Not a chance, try: Triple Eagle

Insurance: Marine Cargo Insurance, Freight Forwarding Insurance and Cargo Insurance are the main/most common types. These various insurance types protect the importer from unforeseen disasters such as the ship sinking, fire, accidents, pirates, etc.

Customs Bonds: A customs bond or surety bond is a guarantee from a bonding company to the United States government that the importer will faithfully abide by all laws and regulations governing the importation of merchandise into the United States.

What you should know about U.S. customs bonds
“U.S. customs regulations provide that a customs bond be posted for each importation of merchandise entering the United States. When goods are imported into the United States, the importer is responsible for making the goods available to the U.S. Customs Service for inspection, ensuring that labeling and packaging requirements have been met, making transaction records available for audit and paying estimated or additional duties and fees, where applicable. The surety company issuing the bond guarantees that the importer will comply with U.S. customs regulations.” -Livingston International

Here is the gist: there are single entry and continuous use transactional bonds.

Continuous Use Transactional Bond: If you are going to import multiple containers this year then getting the continuous use bond is your ticket to import savings. A continuous bond is normally obtained by importers who have a large number of entries and/or imports through several ports of entry during a given year. It has a term of one year and is automatically renewed each year. For importers, the minimum continuous bond amount is $50,000 or 10 percent of the total taxes and fees paid in the previous 12-month period whichever is greater. Please note that all bond amounts will be rounded up to the next whole dollar amount in multiples of $1,000.
Single Entry Bond: Single Entry Bond amounts are set by the port director who accepts the bond. The bond amount for a single entry bond generally is not less than the total entered value plus all duties, taxes, and fees. If merchandise is subject to other federal agency requirements or is restricted merchandise, the bond amount set is not less than three times the total entered value of the merchandise.

Monetary Guidelines For Setting Bond Amounts are on the CBP website: http://www.cbp.gov/linkhandler/cgov/toolbox/legal/directives/3510-004.ctt/3510-004.txt.

Ok, I got it! Now where do I get it? Where can I get a bond?
Treasury Department Circular 570, which is published annually, is a list of Treasury approved, certified surety companies. The most current list of Treasury authorized companies is available through their Website at http://www.fms.treas.gov/c570.

Delivery: No loading dock to unload your container upon arrival? - This is a big one, if you don’t have the tools or facilities of the trade it will cost you.

Warehouse storage……………………………………………………$350.00
L & D fees for unloading container and re-loading on a flatbed………………………………$635.00
US domestic interstate flatbed delivery ……………………………………………………………….$1030.00
Customs broker delivery order/coordination fee/warehouse/flatbed company…………$25.00
Destination unloading: forklift, delivery & operator for 2 hours……………..$500.00

Dylan Blankenship signature
dylan@sourcejuice.com // Dylan Blankenship

January 17, 2008 | Filed Under Landed cost | 4 Comments

4 Reasons Sourcing from China will be More Expensive in 2008

China has been trying to stem an ever growing trade surplus, manage domestic inflation, move development from the coastal areas to the inland areas and decrease its dependence on heavily polluting industries.

Because of these objectives, manufacturing in China is becoming more expensive as China adds in hidden (and sometimes not so hidden) costs into the sourcing equation.

Here are the top 4 reasons you can expect costs to continue to rise in 2008:

1. Reduced VAT Refund

When Chinese manufacturers purchase goods domestically for use in manufacturing, they pay a VAT (value added tax). For people in the United States or others who are not familiar with the term VAT, it’s essentially a sales tax. Historically, the Chinese government allowed for generous VAT refunds if the final manufactured product is for export. However, as of July 1, 2007, China has changed its refund formula. Many products have had their VAT refunds completely eliminated and many others have been reduced. Since Chinese factories typically take these VAT rebates into account when calculating profit margins, the reduction or elimination of them is likely to raise prices (or drastically shrink profit margins).

There is an excellent set of PDF files created by mfg.com which detail exactly the products that have had VAT changes as well as those that are duty free altogether. They have all been translated into English. Since these are PDF files, they may load slowly depending on your internet connection.

Please find them here:

2. RMB Currency Appreciation vs USD

Until mid-2005, China maintained a peg on the RMB to the USD at 8.27. This provided an element of stability and took the currency risk out of the sourcing equation. However, over the past year and a half, China has begun appreciating the RMB against the dollar. As of this blog article, the current conversion is 7.26. Furthermore, many experts are estimating the rate to dip well into the 6’s over the next year.

Here is a chart from Yahoo Finance showing the USD vs. RMB trend:

While nobody knows for sure what the ‘final’ trading range will be, there are a few interesting commentaries out there. This article from Bloomberg quotes Jim Rogers, chairman of Beeland Interests Inc. and a former partner of George Soros, saying the RMB may quadruple in the next decade.

The currency has advanced 10.5 percent since the government scrapped a peg to the dollar in July 2005, gains that U.S. officials say are insufficient to reduce a trade surplus that swelled to $23.9 billion in September. Jim Rogers, chairman of Beeland Interests Inc. and a former partner of George Soros, said yesterday the yuan may quadruple in the next decade.

The yuan is “the best currency to buy right now,” Rogers told investors in Amsterdam, adding that he is shifting all his assets out of the dollar and into yuan. China is “going to be the most important country in the 21st century.”

The currency climbed 0.16 percent to 7.4926 per dollar as of the 5:30 p.m. close in Shanghai, according to data compiled by Bloomberg. Non-deliverable forward contracts show traders are betting the yuan will reach 7.0070 in 12 months, a gain of 6.9 percent from the spot rate, and 6.95 by the end of 2008.

On a side note, if you’re importing to Europe, the Euro has actually been appreciating against the RMB, so for now you guys are ok! Check out a recent Yahoo Finance chart showing the Euro vs RMB trend.

3. Increased Costs Associated with Importing Raw Materials

China said on July 23^rd, 2007 that it would begin requiring that exporters put down a deposit for half the amount they spend importing 1,853 raw materials. A quote from this People’s Daily article summarizes the policy.

Enterprises which are engaged in the production of these products are required to have guarantee deposits in the Bank of China, the designated bank of China Customs, for a contracted period of time, according to the statement jointly released by the Ministry of Commerce (MOC) and China Customs.

If these enterprises fail to sell their products within the time scale dictated by the contracts, the customs will ask the bank to keep their deposits and interest for taxation.

“We are striving to improve the development of China’s processing trade in a bid to promote trade balance and reduce trade surplus,” said Wei Jianguo, vice minister of commerce.

These new regulations will require a larger cash outlay for large contracts by Chinese factories. Therefore, it’s more likely that they will need to borrow money to meet this requirement. Borrowing money costs money and that cost is likely to be passed along.

4. Labor Costs Continue to Rise

Labor, once assumed to be endless in China, has been ‘drying up’ for a number of years now. China’s factories depend on a constant supply of new migrant laborers coming from the countryside. Typically every Chinese New Year, as many people return to their home town as can afford to do so. And each year, some old and many new laborers come to the cities in search of work after the holidays.

However, as villages have become more prosperous, with more family members making and sending money back home, this endless supply of new labor, has began to shrink. Because of this and other factors, labor costs continue to rise. China’s National Bureau of Statistics reported that in the first half of 2007 wages were up 18.5% compared to the year earlier period alone!

In addition, China as of January 1, 2008 enacted new labor laws that allow for much more worker protection, but of course at a cost. Global Labor Strategies has an article with many links to other blogs and newspaper articles discussing the reaction worldwide to the new law.

January 9, 2008 | Filed Under Landed cost | 9 Comments

The Nitty-Gritty of United States Import Duty Rates

Customs Logo

United States Customs and Border Patrol has a duty rate for importing virtually any item on the planet. There are however, a number of things you might want to consider before calculating your landed cost based upon a particular rate. Here is your intro guide to deciphering tariff schedules, rulings and trade agreements. The Harmonized Tariff System (HTS) is a reference manual roughly the size of an unabridged dictionary containing duty rates for virtually any item in existence. Just as a dictionary has an order for organizing words (and their definitions) so does the HTS. Goods are arranged in categories or numbered chapters with similarly typed items. For instance, Chapter 89 is where duty rates for ships, boats and other marine or floating structures can be found.

Classification experts spend years learning how to properly classify import items. This schedule of rates will enable you to get an approximate/general rate for a particular product. An important fact to remember is that the United States Customs and Border patrol make the final determination on the correct rate of a particular good and not the importer. I would recommend contacting a customs brokerage house when in doubt. It is important to begin working with a customs broker in the early stages of your import venture. Aside from utilizing them to strictly clear your goods through customs, many times they can arrange logistics and be an essential resource for many aspects of the import process. I have worked with Encore Forwarding (Jacksonville, FL) for a number of years and can say nothing but great things. http://www.encfor.com/

To review the Harmonized Tariff Schedule by Chapter please visit the United States International Trade Commission at: http://www.usitc.gov/tata/hts/bychapter/index.htm

The U.S. International Trade Commission also has an interactive and searchable database that can help in determining rates of your goods at: http://dataweb.usitc.gov

Ruling Letters / Binding Rulings are requested as a means to confirm a particular items duty. Additionally the importer may need additional information regarding a particular transaction, definitive interpretation of applicable law or any other additional information. Requests for tariff classifications can be made in the form of a detailed letter to any service port office or:

Director, National Commodity Specialist Division
U.S. Customs and Border Protection
Attn: CIE/Ruling Request
One Penn Plaza-10 Floor
New York, NY 10119

Alternatively, information on electronic ruling requests can be found here: http://www.cbp.gov/xp/cgov/toolbox/legal/Rulings/eRulingRequirements.xml

Customs Rulings Online Search System (CROSS) It is possible that in-fact you may not be the first person to inquire for or about a particular ruling/situation. You should search and review the Customs and Border Patrol website’s CROSS database for information on past rulings: http://rulings.cbp.gov

Reduced Duty Rates by Country Consider that not all countries are treated equally and are sometimes covered under international trade agreements. To obtain a current list of countries that are eligible for reduced duty rates or duty-free treatment under an international trade agreement (such as NAFTA, GSP or CBI), please visit the International Trade Commissions website at : http://www.usitc.gov/tata/hts/bychapter/0702gntoc.htm

Be aware, not all goods manufactured, produced and exported from an eligible country or international trade agreement are eligible for reduced or duty-free treatment.

Dylan Blankenship signature
dylan@sourcejuice.com

December 12, 2007 | Filed Under Customs, Landed cost | 1 Comment

9 Costs That Can Affect Your Landed Cost

Landed Cost Calculation

Importing product internationally has it’s challenges but the rewards and profits can be sweet! Your attention to detail when calculating all the costs involved can make or break your profit potential. The larger your quantity the less these extra costs will affect your per unit cost. Here are the top 9 costs to watch out for when calculating your final landed cost.

1. Invoice price
Assuming the factory is quoting you an FOB cost, your invoice price will only include the cost of the products from the factory and may not include the costs listed below.

2. Shipping Costs
Depending on whether you choose air freight or sea freight will be a determining factor when calculating your shipping costs. Sea freight will likely be much cheaper but will also take longer. International air freight can be quite expensive but is sometimes necessary depending on your time to market commitments.

3. Delivery
Particularly with sea freight, delivery from the port of entry to your final destination is sometimes an overlooked cost for new importers. While it is usually possible to pick up product yourself from the port of entry, there are also many “last mile” providers that deliver to yoru final destination.

4. Import Taxes (Duties)
You’ll need to calculate and pay appropriate duty costs on your items by classifying your product with an HTS code. Depending on the type of product, duties can add significantly to your landed cost.

5. Insurance
As with standard domestic shipping, various insurance options are available to choose from, typically costing more depending on the amount you’ll need to insure against.

6. Handling
Ports and other parties that “touch” your cargo en route may charge a handling or processing fee.

7. Banking Fees
Banks typically charge fees for financial services provided inlcuding outgoing and possibly incoming wire transfer fees, letter of credit fees etc.

8. Commissions
If you’ve used a trading company or other intermediary parties, they may choose a flat cost or % commission that you’ll need to include in your landed cost calculations.

9. Consulting Fees
Have you used third party providers for quality assurance or other services? These costs should also be included in your landed cost calculations.

November 16, 2007 | Filed Under Landed cost | 3 Comments