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.
- Understand shipping terminology, costs, and processes
- Book ocean freight and air freight
- Calculate import taxes, VAT/GST and other fees
Table of Contents
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 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
- 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 | LCL | $800 | $1300 |
| 40 Feet (HQ) | FCL | $1200 | $1900 |
Estimating Shipping Costs
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. 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. |
| 3. Coordinate LCL shipments from several suppliers (to FCL) | High | 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
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:
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.
- 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.
- 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?
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 a. Add a styrofoam frame to the corners b. Ensure that the units are packed in inner cartons (min. 3 layers) |
| External cut or pressure damage |
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
- 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 | The Watch Company |
| Product Name | Stainless Steel Quartz Watches |
| HS Code | 91022900 |
| 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 |
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 = 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).
- 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)
- 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)
- (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 (HAI International Holding) 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.
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 = 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 (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 (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.
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 |
| 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 | NotIncluded in Customs Value |
| Shipping Costs (US) Local Charges | $350 x 1.2 cbm | $420 | NotIncluded in Customs Value |
| Inland Transportation | $200 | $200 | NotIncluded 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 = 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 = 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.
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:
- Online declaration (May require pre-registration)
- 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.
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.
Anti-Dumping Measures in the European Union (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 |
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 | Not Included in Customs Value |
| Insurance Shipping Costs (EU) | ($20,000 + 0.1 x $20,000) x 0.5% | $110 | NotIncluded in Customs Value |
| Local Charges | $350 x 1.2 cbm | $420 | NotIncluded in Customs Value |
| Inland Transportation Taxes | $200 | $200 | NotIncluded in Customs Value |
| 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
The following items are not included in the CVAL:
- 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 = 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
- Tariff classification of goods
- Current tariff classification
- Home Affairs: Contact Form
- Home Affairs: Import Declarations
- Home Affairs: Importing by post or mail
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%.
GST (10%) is calculated on top of the sum of the following:
- Customs Value (FOB Price)
- Customs Duty
- Shipping to Australia
- Shipping Insurance
- 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.
- None
- Manual Declaration: AUD 90
- Electronic Declaration: AUD 50
- 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
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 (Non-EU) Freight Cost (CIF) |
$400 x 1.2 cbm | $480 | |
| Insurance Shipping Costs (EU) | ($20,000 + 0.1 x $20,000) x 0.5% | $110 | |
| Local Charges | $350 x 1.2 cbm | $420 | |
| Inland Transportation Taxes | $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)
- Supplier arrange transportation to the freight forwarder warehouse in the Port of Destination
- The freight forwarder receives the cargo and confirms whether the packaging is undamaged, and the next available departure date.
- The freight forwarder confirms the cargo volume and sends the invoice to the buyer.
- The cargo is loaded and shipped to the buyer’s destination
- 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.
- 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)
- 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
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.
