Whether you are a first-time importer or a seasoned pro, understanding these common mistakes and how to avoid them could save you a lot of time and money.
- Not asking for the proper Incoterms
Many importers fail to ask for the proper Incoterms while negotiating a contract for sale. If you do not ask for a specific Incoterm, your supplier will most likely quote you an Ex Works (EXW) term. That means you will be responsible for all costs of transportation, cargo insurance, and customs clearances in both the county of export as well as the U.S. Buyers should, at a minimum, ask for an FOB term. Better yet, become familiar with all the Incoterms in order to protect your purchase and lower your landed price. To learn more about Incoterms, click here.
- Allowing suppliers to arrange your shipments
Many importers naively believe that when their supplier arranges their shipments, the supplier is pre-paying all the charges into the U.S. The unsuspecting importer is then hit with a host of local charges. By working with an experienced freight forwarder, the importer will know in advance the true landed price.
- Shipping via ocean for small shipments
For shipments weighing less than 330 pounds, it is generally less expensive to ship via air. Importers should be asking their logistics partner or supplier to provide quotes for both air and ocean options when arranging small shipments. A true comparison might just show that the costs of exam, forklifts, and local devanning with ocean shipments will often make the air option less expensive.
- Not purchasing a Continuous Bond for multiple shipments
A Customs Bond (sometimes called a Surety Bond) is an insurance policy that assures U.S. Customs & Border Protection (CBP) that the importer will fulfill any financial responsibilities for Customs duties, penalties, and other obligations. Customs Bonds which sufficiently covers potential duties, taxes, and fees are required for all import entries valued at $2,500 or more.
Importers who expect to have multiple shipments within a twelve month period may save money by purchasing a Continuous Bond instead of a Single Entry Bond.
- Not insuring the shipment
Many shippers try to save a little money by not insuring their cargo, but statistics show that one ship sinks every day and $30 billion in cargo theft occurs every year. There is also the potential for loss or damage to your cargo due to the perils of extreme weather, rough handling, and many other unforeseen occurrences. Should you decline insurance coverage for your shipment, you are not only taking the risk that you will not be able to seek repayment for your lost or damaged shipment, but you would also have to pay more for replacement goods.
For others, there is a common misconception that their goods are automatically covered against damage, loss, or theft by the carrier (steamship line, airline, or trucking company). Carriers offer limited liability coverage in order to deliver competitive rates, which are limited to $500 per container for steamship lines, $0.50 per pound for domestic airlines and truckers, and $9.07 per pound for international air carriers.
- Not providing a compliant Commercial Invoice
Commercial invoices are used by CBP to determine admissibility, classification, and valuation for all goods entering the U.S. It is the importer’s responsibility to ensure invoices prepared by their vendors are complete, accurate, and compliant. Review your commercial invoices to ensure they adhere to the following requirements:
- Provides the commercial invoice in English
- Lists the names of both the buyer and seller for the items sold
- Lists the names of shippers and receivers for consigned goods
- Provides a complete, generic description of the merchandise that includes a list of components used in its production
- Lists the country of origin in English and details where the product was manufactured and what country it was made in
- Lists the quantity of goods in the shipment, including weights and measurements
- Lists the purchase price for goods sold, including rebates, drawback and any bounties in the currency sold
- Lists the intended use of the merchandise
- Not listing the correct Country of Origin
Do you know where your imports are coming from? Did you know that the country of origin may not be the same as the country of purchase? Determining the proper country of origin is a significant and growing challenge for international trade. In today’s global economy, manufacturers are souring materials and components from all around the world, and it may be more difficult than you think to determine the COO for Customs purposes.
So how can you know that the country of origin is correct? Depending on the complexity of your products, you may choose to visit your supplier to observe their manufacturing process. If a site visit is not feasible, investigate the country of origin of the components and raw materials which make up your product, or compare the purchasing, invoicing, and shipping records with the product itself. When in doubt, defer to CBP, who is authorized to issue country of origin determinations to trade and interested parties. The process for requesting a determination are detailed under 19 CFR §177.
Be aware that CBP is ever alert to country of origin marking violations and frequently imposes large criminal and civil penalties, whether the for violations where unintentional or not.
- Not determining the correct Tariff Code
The Harmonized Tariff Schedule determines the duty rate for your imported products. Make sure you are using the correct code so that your import process runs smoothly and you are not overpaying or underpaying Customs duties and taxes.
There are many ways to determine the correct tariff codes, some more reliable than others:
- Self determination
- Online tariff lookups
- Hire a licensed Customs Broker to classify the goods for you
- Apply for a binding ruling from CBP
If you are unsure which tariff code to use, a member of OCEANAIR’s Customs Brokerage Department would be happy to assist you in determining the proper classification.
- Not declaring the proper value to U.S. Customs
Importers are required to declare the legally correct value of their imported goods to Customs, since the bulk of import tariffs are assessed based upon the value of the goods. Be sure to calculate any deductions or additions and support any adjustments with the proper documentation at the time of entry.
There are a number of import scenarios where value may easily be under-reported, including:
- The value declared does not reflect pre-payments, indirect payments, or future payment obligations, etc.
- Conducting business with related suppliers, whereby the relationship affects the price (e.g., purchasing a product from a subsidiary in Europe at cost). Be aware that related party transactions must be declared as such on Customs entries.
- Cost of “assists” that are not reflected in the value declared to Customs (e.g., the importer provides tools or materials to the foreign supplier or pays for engineering/design services in exchange for a lower purchase price).
- Not registering your patents, trademarks, or copyrights in China (when buying from China)
China is a “first to file” country, which means that the first company or individual to file a patent, trademark, or copyright in China gets it – even if you have been manufacturing your product in China for years. If another company registers the trademark first, they have the right to stop your shipment because it violates their trademark. Remember to also register the copyright in catalogs, packaging, and promotional materials.
For more information on protecting your IP right in China, click here.