Hi there and welcome to this lesson on the legal matters related to customs and importing. Over the next few minutes, I will outline some of the things you need to know in order to stay on the right side of the law when you make an import.
Making sure you can import your item legally and according to your country’s regulations is a necessary part of the import process. Thankfully, the number of customs and importing regulations is relatively few. However, we do recommend using a customs broker the first time around. Even so, you’ll make things a lot easier for yourself now if you get a good grasp of what is required.
In some cases, the company you are purchasing from, or the shipping company (DHL or FedEx, for example ) will handle all the importation forms for you. For very small imports weighing under 150lbs (or 68kg; which is the maximum weight these shipping companies can handle), you’ll be able to pick these up from the post office and pay the customs duty there, or you’ll receive notification that your goods are being held at a location pending the payment of import duty, and where and when you can pick them up.
Recommended reading: What is ePacket Shipping?
However, it is likely you’ll need to import larger amounts than this – either container loads or half containers, in order to get the best discounts possible.
Before you order your product, don’t forget to check up on restrictions and special licenses required. Some countries have very specific regulations about prohibited or restricted goods.
While many countries prohibit items you might expect (drugs, chemicals etc), some restrictions can take you by surprise. For example, you can’t import shoes to Italy or cultural and heritage goods to Australia!
The easiest way to find information is by going to Customs’ websites for your country and the countries you wish to sell your item too. Check out those URLs on screen, and if you can’t find the information you want or are unclear about the specifications, contact Customs directly by phone or email. This is not something you want to take a chance on!
After you have found a supplier for the product you are looking for, the next step is to negotiate a contract. You’ll need to discuss the price per unit, packaging, how many items are to be loaded into each case, and shipping terms.
There are a number of different shipping terms that you can negotiate. Your goal is to get the supplier to take as much of the risk on board as possible. Let’s take a look at the various shipping terms now.
First is Ex-Works where You are responsible for all costs once merchandise leaves the supplier's door.
FOB: With FOB, the supplier pays for everything up to the Port of departure, including the export charges.
CIF (Cost, Insurance & Freight): In this case, the supplier pays to send the goods to the port of destination and arranges the minimum cover marine insurance.
Then you have DDU (Delivered Duty Unpaid) where the supplier pays for all costs to deliver to the buyer's door, with the exception of duties.
DDP/CARRIAGE PAID (Delivered Duty Paid): The supplier delivers to the buyer's door and pays all of the costs including duties.
The most common shipping quote is FOB – or ‘Freight on Board’. This means that freight costs to the point of loading are included in the price.
I should point out that ‘FOB factory’ has quite a different meaning altogether. “Freight on Board Factory” means that you pay onward costs to the local port or airport and this can increase the price considerably – particularly if the company is situated inland.
A better quote to get is ‘CI&F’ or Cost, Insurance and Freight. This means that in addition to the FOB price, you’ve been quoted insurance and freight costs. This is ideal as it means you can budget much more effectively. Or, if you are very lucky, DDP, where you pay the price of the product delivered to your door.
The cost of your shipment will depend on the weight or volume you ship. You will either need a Full Container Load or a Lesser Container Load.
For a full container load, the standard container sizes are 20 foot and 40 foot in length and can accommodate whatever mixture of products you choose. The shipping cost includes the use of the container, although you can buy a container if you are making very frequent purchases. If you are purchasing from one supplier, the container is taken to their premises, loaded on site, sealed and collected for onward shipment to your country.
For multiple suppliers, you can arrange to have all goods delivered to your freight agent who will load all the goods at their premises. Full Container Loads are the most efficient way to ship as cost savings can be made on packaging and less labor is required. Apart from the obvious advantage of the lower freight cost, the additional Export or Import processing and Handling & Haulage costs are all more economical as processing a full container is calculated as a single transaction.
If you are not importing a full container load, then your shipment will be consolidated along with other company’s goods traveling to the same destination. The rates applied to a Lesser Container Load are calculated by the volume your goods take up in cubic meters. Lesser container loads are not as economical as full container loads because they require more packaging and more labor loading and unloading at both ends.
When you have negotiated a deal with a seller, including the shipping terms, price of goods, and the packaging they’ll be shipped in, the seller will send you a Pro Forma invoice, which you pay according to the arrangements you have negotiated.
A pro forma invoice is basically an advance copy of the final invoice. If you need to apply for a letter of credit (L/C) and/or foreign exchange allocation, you will need your pro forma invoice.
When the goods arrive, they will be accompanied by the commercial invoice. This invoice enables the goods to be cleared through customs. It is similar to a sales invoice except specific details are included for export-import purposes.
Remember to check that everything you want and have agreed to – and that the supplier has agreed to – is on the invoice. It’s easy to think that you’ve arranged the payment and shipping, and that all your requests have been taken into account. But miscommunication is common so always double check!
If you need to find your own shipper, then the best place to start is with a search in Google. Ask for quotes from a number of shipping companies before you decide which one to go with. You can often save between $100 and $500 by doing this.
Let’s do a quick recap on the important points from this lesson:
- There are relatively few regulations when it comes to importing, but you should always check with customs before making an import.
- When it comes to negotiating shipping terms, FOB or freight on board is the most popular.
- Shipping an entire container load works out more cost-effective than occupying part of a container load with other importers.
- For further information importing, contact your local customs authority.
Thanks for watching.