Subscribe to Join our Mailing List

Don’t Forget Your Passport!
A Pocket Dictionary for Cross-Border Shipping
Don’t Forget Your Passport!
A Pocket Dictionary for Cross-Border Shipping
June 21, 2021


S
ending goods across borders is a huge step for your business. It signals growth, brand awareness, and value outside your region of the world. Some readers may have a general idea about what it takes to cross international borders, having been through customs on that family vacation, or a business trip.

What is the process for a package to take the same journey? We could spend several blogs answering this key question, due to the complexity of regulation and compliance. Rather than an exhaustive checklist, the goal in today’s short read is to get you speaking conversationally in cross-border shipping. Let’s take a look at some vocabulary.

Tariffs, Taxes, and Duties

The first entry in our pocket dictionary is a combination of terms that are often used interchangeably. They each have a common goal of protecting a country's “economy, residents, jobs, environment, financial transactions…etc., by controlling the flow of goods, especially restrictive and prohibited goods, into and out of the country.” (Customs Duty Information | U.S. Customs and Border Protection)
However, note the slight variations in application and meaning.



  • Consumption Tax: collected when goods that were purchased abroad enter the country. Think of this as sales tax.

  • Duty: an indirect tax imposed on goods entering or leaving a country. Common types are import duties and excise duties (intrastate fees on transactions).

  • Tariff: a direct tax imposed by the local government, paid on a particular class of imports or exports. Each country has specific tariff rates that fluctuate.


Cross-border shipments may be subject to one or all of these fee types.

Value Added Tax (VAT)

Roughly 168 (~85%) of United Nations registered countries use a Value Added Tax (VAT). You can compare the purpose of VAT to sales taxes in the United States. To successfully navigate this topic, a business should know their value chain inside and out, because VAT is a system intended to ensure equitable weight is carried by each organization adding value to the product or service on its journey to the consumer. Reference the United States Council for International Business for Value Added Tax Rates by Country.

Definitionally, a few things can be said about VAT, according to the European Union:



  • VAT is paid to the revenue authorities by the seller of the goods, who is the "taxable person", but it is actually paid by the buyer to the seller as part of the price. It is thus an indirect tax.

  • VAT is levied throughout the supply chain, starting with the raw materials and running through manufacturing, wholesale, and retail.

  • VAT does reduce, exempt, or “zero-rate" certain goods, including safety products for children in the last category. This offsets the cost to ensure vital goods do not become out of reach.

  • VAT is not the sales price, but a percentage calculation based on the customs value of your goods, which comprises the cost of goods, plus duties, transportation, insurance, commission, and so on.

  • When it comes to paying import VAT, it is important for sellers to be upfront with their customers about who is footing the bill, and the total landed cost of the product at its destination.

  • It is recommended that sellers consider registering for a VAT ID in the country of import and handling the VAT themselves.


Several changes are happening with VAT. Check for updates in our news feed: 2021 VAT Regulation Changes


International Commerce Terms (Incoterms)

Incoterms refer to "the set of 11 internationally recognized rules which define the responsibilities of sellers and buyers. Incoterms specify who is responsible for paying for and managing the shipment, insurance, documentation, customs clearance, and other logistical activities.” More on Incoterms from Trade.gov.

Let’s illustrate one of the eleven Incoterms, Delivered Duty Paid (DDP).

Consider all authorizations, taxes, tariffs, and duties along the shipment's route. One of the parties will be responsible for bearing these requirements, and the customer experience can suffer if transparency is not achieved. In the case of DDP, the seller takes full responsibility for the shipment from its origin through to a pre-determined destination in the buyer’s country. This includes gaining customs clearance, all duties and taxes, up until the process of unloading goods after the final mile.

Similar to the case with Value Added Tax (VAT), sellers are encouraged to register for proper identification in destination countries, which can expedite the process in many cases.

At the other end of the risk spectrum, an agreement may require the buyer to assume all responsibility, such as with Ex Works (EXW), a situation in which the seller is only tasked with preparing and packaging the product adequately for its journey, and delivering to an agreed upon location. The buyer is responsible for all transport costs.

Consolidation & Declaration

These terms might be familiar to those who ship within the United States, but they have an especially important use for cross-border. Due to the expense of shipping internationally and the duties imposed on valuable products, sellers often seek out efficient and cost-effective strategies.

In simple terms, Parcel Consolidation refers to the bundling of a large lot of packages, typically in a pallet form. These bulk pallets are shipped through customs, then broken down at the local distribution center and delivered just as a domestic package would be. Other than efficiency, benefits include the simplification of electronic trade documentation and decreased brokerage fees for gaining clearance to the destination country, since the carrier will often handle the administration.

A related term, Declaration, refers to the legal affirmation of contents, value, documentation, etc. International customs will delay shipments suspected of dishonest declaration, so the accuracy of statements is of utmost importance. Also beneficial to the cross-border process is appropriate packaging. For example, a declaration of $15 in value on a package headed to Canada should fall below the de minimis threshold, the commodity value at which a country begins charging duties and taxes. However, that same value package stamped with a high-end luxury brand logo may raise red flags.

Embargo

Due to the interwoven nature of the global economy, local regulations have a wider impact than the cost of taxes and duties. The concept of an Embargo revolves around local political and economic climates, which might discourage, sanction, or outright prevent commerce or exchange to, from, or within a given country. Be sure to stay updated on each country’s current restrictions.

Colloquial Considerations

Now that you have a few conversation starters for your organization’s cross-border shipping strategy, a few reminders. It is always advised to consider market conditions and laws in the countries you are shipping to, as these will affect not only the shipment but the overall supply chain and product viability. Consider other costs and operational differences, especially if your shipment is destined for another business that will continue the value chain abroad. Consider trademark and infringement laws that may affect your brand reputation. Due diligence is key to ensure your promises of quality and price are kept, all the way to the final consumer.

Looking to simplify your shipping, quickly make decisions based on international destinations, ensure compliant labels? ConnectShip and our partner community are ready and willing to help. Contact us!

As always, look for more from ConnectShip Blogistics, coming soon.


Ludwig Dischner III, MA, PMP
Marketing & Commercial Project Analyst ~ ConnectShip
Ludwig contributes to ConnectShip in brand development, agile and predictive project management, content production, video animation, web and UX design and development, marketing research, analytics, business strategy, legal administration, and some musical talents, too. Ludwig is an integral piece of the team, communicating logistics solutions to a wide range of audiences and improving ConnectShip's project management. Ludwig holds a master’s degree in strategic communication and in project management from the University of Oklahoma, after graduating from the University of Tulsa with a bachelor's degree in business marketing. He earned his PMP certification in the Fall of 2021.