July 17 2013 08:13 PM

Recently I have worked with four different companies that had a shipping team that was experienced at getting shipments out the door or in the door, and perhaps some compliance basics, but did not have the time to work on logistics management. In this article I present a few ideas on how a wise business owner might assess his or her business practices for international shipping compliance and cost savings. 

Revenue guidelines: The bottom line is the first thing you must start with. What is the level of revenue involved in importing and/or exporting your products to and from foreign countries? If you are just getting started, you do not want to invest a lot of time and money on a lot of details, but failure to review some compliance basics could result in fines and penalties and extra expenses you do not want to incur! 

At the beginning, you need to obtain solid consulting help to ensure that you are doing things right. This is what I would call level A of import/export compliance and transport management. If you have been shipping for a while and have a predictable revenue stream above $100,000 a year –level B- you need to consider internal import/export compliance training and internal policies/procedures for your team. If you are doing more than a million dollars per year in export/import sales-level C- you need to have some thoroughly trained and experienced people on your team and probably an experienced logistics manager. Some companies use a 3PL or 4PL service to meet level C shipping needs of compliance and cost savings management. In the end, it is the shipper or importer who is responsible, so careful review of the following elements is important. 

Who are you selling to or buying from and what is the commodity? 
Though many items are not restricted from import or export, there are some companies and or countries you cannot do business with and some commodities that you cannot or should not import or export. If you are importing a restricted commodity or shipping to an entity that is on a restricted trade list, your shipment could be seized and your company could pay a stiff penalty. One of our customers called us in distress when they received a bill from US Customs for antidumping duties on plastic bags they had imported not knowing that the vendor had failed to respond to an antidumping inquiry from the US Department of Commerce. The US Bureau of Industry and Security would be happy to provide you a list of the companies who have paid large fines for lack of export compliance!

What are the terms of sale? In international trade it is important to determine who takes responsibility for the shipping costs including documentation, duties, and taxes. It is usually best to have the consignee pay the duties and taxes since they know the local rules and can apply for a refund if they wish to re-export the merchandise. The terms of sale should be clearly listed on your shipment invoice. One of our customers failed to make clear that the invoice amount included freight charges so their customer was billed for taxes of 19% times the invoice value plus the freight charges. They paid $570 more in taxes than they legally should have paid for the shipment. 

What is the classification of the merchandise? On the import side, the harmonized classification of the merchandise will determine the amount of US Customs duty you will have to pay. On the export side the harmonized number will determine what duties your foreign customer will pay. Your Commerce Control List number-CCL number is also important to assure you do not need a license to ship your product. Getting this information correct is critical for compliance. One of our customers had to pay a large amount of additional duties to Customs because they had been using the wrong import classification number. 

Are there any special document requirements? On the import side you might need a free trade agreement certificate for duty free entry and on the export side you might need a consularized invoice to assure your goods can be released from Customs. US Customs requires a bond to import goods valued over $2,500 and import records must be kept for five years after the date of importation. A $10,000 penalty can be assessed for failure to maintain US import documentation. If you are a non-resident importer (NRI) in Canada you must maintain the records for six years. 

What are you reporting on the Customs invoice? Your Customs invoice must accurately present the value of the goods (price paid or payable) and the description of the goods with harmonized classification. If you provide equipment or foreign engineering that assists the manufacturer of the product you are importing, you must add the value of the “assist” to the import value or dutiable value of the goods. Another customer forgot to note on the invoice that his goods were exempt from taxes entering Canada. They paid an additional $10,000 in Canadian taxes last year than was necessary. 

Freight costs: It is very important to use the right transport mode for the business need and to negotiate for a competitive price for the service. Many of our customers have failed to control key aspects of their freight costs and paid a premium for services they used. One large importer was paying freight charges based on dimensional weights that were overstated by the forwarder. Another large shipper had many different shipping accounts and had never gotten all their shipment volume together to negotiate a corporate pricing agreement with the carrier. Still another was importing large shipments using an express carrier when an air freight forwarder eventually saved them a lot of money.

Summary: Logistics/supply chain/compliance management is a key skill in today’s business world. Failure to understand the basics of compliance and freight cost management can lead to stiff penalties and premium freight costs that could be avoided. A wise shipper includes plans for investment in import /export compliance and freight rate negotiation skills in his/her plans expansion of their business. 

Thomas M. Stanton