Imports & Exports: An Insider’s Guide to Getting it Right
Experts share best practices to ensure your cross-border commerce success.
Shipping across international borders is a complex enterprise, ripe for customs clearance mistakes that can cost time and money. And while you can get help from many resources and service providers, it’s still your company’s job to get the details right.
“It’s the responsibility of the importer of record, or the exporter’s U.S. Principal Party in Interest, to be knowledgeable about the process, as well as about the compliance regulations,” says Kevin Doucette, director of North American trade policy and compliance at logistics services provider C.H. Robinson in Eden Prairie, Minnesota.
Luckily, Doucette and other experts have valuable insights to share on all aspects of importing and exporting—from meeting tariff obligations to complying with regulations to reducing costs. Here’s some advice you can put to work in your own operation.
1. Use incoterms to your advantage
Incoterms define the roles of buyer and seller (see sidebar). Importers should choose terms that give them ownership right at the door of the overseas factory, recommends Jason Totah, president of Odyssey International Services, Kent, Washington.
When the vendor is responsible for moving product from factory to port of origin, it bundles the cost of transportation into the sale price. So the invoice might show, for example, that the product costs $1.10 per unit rather than $1. That practice increases the tab when the shipment clears U.S. Customs.
“You technically pay duty on those 10 cents embedded in the cost,” Totah says. But when the buyer hires transportation from the factory to the port, U.S. Customs bases duty calculations on just the $1 per-unit price.
2. Leverage programs that reduce tariffs
Sourcing from countries that have special trade agreements with the United States could save money—if you understand the product’s origins, so you know which rules apply.
“Just because you buy a product from Germany doesn’t mean it’s not made in China,” says Elvis Morales, manager of trade compliance at Henry Schein, a medical and dental supplies distributor.
Even when a product is made in a country with good tariff opportunities, it might not qualify if the manufacturer imported some of its components. Also, a product that meets the bar for tariff advantages today might not qualify tomorrow—for instance, if your supplier starts to buy materials in another country.
“Gaining a tariff advantage requires not only the initial vetting, but also having appropriate controls in place with the foreign supplier,” says Doucette.
Some programs reduce taxes in specific situations. For example, the Craft Beverage Modernization and Tax Reform Act (CBMA) lets eligible companies that import small quantities of wine, spirits, or beer pay a lower tax rate than they would on higher-volume shipments.
Elenteny Imports, which provides door-to-door services for U.S.-based alcoholic beverage importers, has helped clients save money by filing for rebates on past shipments of this type, or applying the reduced rate to new shipments.
You have to be proactive to gain this benefit. “A customs broker will not automatically do that for you unless you ask,” says Alexi Cashen, CEO at New York-based Elenteny.
3. Get smart about routing
A change in logistics strategy can sometimes yield tariff savings. Donald Hoffman, president of Harmony Logistics Group in Oakdale, New York, and chairman of the Long Island Import Export Association (LIIEA), tells of a company that used to move product from Morocco to France for repackaging, and then ship it to the United States.
“We advised the company to direct-ship their product from Morocco and take advantage of the Morocco Free Trade Agreement to come in duty-free,” he says. “It saved quite a bit of money.”
Conversely, if you add a new country to your route, keep an eye on possible compliance implications. Nowadays, that’s an issue for some importers trying to avoid congestion at the Ports of Los Angeles and Long Beach.
“Some organizations are rerouting goods to Canada,” says Gary Barraco, senior director of product marketing at E2open, which operates a digital platform for supply trade management and global trade.
Although the shipment will merely pass through Canada en route to the United States, the importer must prepare documentation for entry into Canada. “Whenever there are changes, always look to see if there’s a trade compliance implication,” Barraco advises.
4. Pay attention to design
Just as a product’s origin can influence tariff obligations, so can its design. Modifications could put a product in a different category in the Harmonized Tariff Schedule (HTS), which U.S. Customs uses to determine what duties you owe.
“Whether a jacket is lined or not lined, or has zippers or stitches, could impact the tariff,” says Totah. In some cases, it might cost less in tariffs to import components and assemble them in the United States than to import the finished product.
Odyssey International Services works with some of its clients to design products with HTS classifications in mind, making decisions that yield lower tariffs.
5. Create a formal operation, run by an expert
Whether you import, export, or both, one of the most crucial things to do is develop a formal program to manage those functions, with written policies and processes, says Morales.
Ideally, a company that imports or exports significant volumes will put a staff member in charge of meeting all applicable tax and regulatory obligations, even when the company also uses a customs broker or other provider.
“A service provider is facilitating transactions for you, but ultimately the U.S. government would look at you if there are mistakes,” says Doucette.
Mistakes can be costly, whether you misclassify a product for tariff purposes, fail to file a declaration for a regulatory agency, or export a product to a person on the U.S. government’s denied parties list.
Still, service providers can offer invaluable assistance. “They have subject matter experts you can call upon for mentoring and advice,” Doucette says.
6. Educate yourself and do your homework
Companies working to build internal expertise can find a wealth of free information on sites operated by U.S. agencies such as Customs and Border Protection (CBP) and the Department of Commerce.
Importers need to learn not only about tariff compliance, but also about requirements imposed on certain products by partner government agencies such as the Department of Agriculture and the Food and Drug Administration. Exporters must comply with regulations from the Department of Commerce, the State Department, and the Treasury Department.
“Your due diligence process is key on exports, because certain reviews of products, people, and locations need to be conducted per transaction,” says Morales. The U.S. government prohibits exports of certain products to certain recipients, or to any recipients in certain countries.
Besides finding resources online, you can boost your knowledge by joining a local trade organization, says Morales, who serves as regulatory compliance director at LIIEA.
“LIIEA, for example, offers industry knowledge from people who are in the thick of it,” he says. “You get access to officials who are knowledgeable about government policies and the issues impacting the industry.”
7. Understand requirements on both sides of the border
U.S. regulations aren’t the only ones that U.S.-based importers and exporters have to understand. When you arrange transportation from one country to another, you must know the rules on both sides.
“There are different regulations in terms of time frames, hours of service, and ways that you can load freight into certain types of equipment,” says Antonio Echevarria, director of sales at Nuvocargo, a New York-based company that operates a digital platform for managing cross-border trade between Mexico, the United States and Canada.
For example, a U.S. company that exports to Mexico needs a government-authorized trading partner south of the border. “Not every company in Mexico can legally import cargo,” Echevarria says.
U.S. exporters also must be careful about where in Mexico they plan to ship. “Big cities with awesome industrial parks have all the infrastructure ready to receive any kind of cargo,” Echevarria says. But in some less-developed areas, tractor-trailers need special permits.
“A 53-footer won’t be able to go through certain kinds of roads in Mexico without those permits,” he adds.
8. Monitor Rule, tariff, and status changes
Just as you need to keep an eye on overseas suppliers in case they make changes that affect your tariff obligations, you also have to watch for changes in tariffs themselves, in government regulations, and in the status of customers. For example, consider what happened when the U.K. officially left the European Union (EU) at the end of 2020.
“For Brexit, we had about 6 million updates,” says Barraco at E2open, whose platform includes a global database of tariffs and trade regulations. “We had to take the U.K. out of the EU, reestablish all the new EU relationships, and then create all the new U.K. regulations.”
Exporters that screen customers to make sure they’re not denied parties under U.S. law must watch for any changes in a customer’s status. Since it might not be feasible to screen every customer each time it sends a new purchase order, it pays to take a risk-based approach.
“For example, if you sell machinery and accessories, you obviously want tighter controls and to screen with greater frequency,” Morales says. But if you sell gauze pads and toothbrushes to a hospital, then you probably don’t need to screen that customer with every sale.
9. Collaborate, integrate, automate
Import and export operations run best when they collaborate with sales, marketing, transportation, and other parts of the company that touch on international trade.
“If you have a sales or procurement system that hasn’t been reviewed by the regulatory team or trade compliance professional, then you don’t know where the gaps are in your organization,” Morales says. Those gaps can produce gaffes—inbound product that reaches Customs without required documentation, for example, or an overseas sale that runs afoul of U.S.-imposed sanctions.
To stay compliant, a company should integrate the rules from its import/export manual into its enterprise resource planning (ERP) or other operational systems. “The policies and procedures alone don’t mean much if you can’t back that into the workflow of everyone else within the organization,” Morales says.
Along with integrating internal systems, companies can find many other opportunities to automate import and export processes, removing manual labor and the chance of human error. One example is E2open’s new easy classification functionality.
E2open offers courses through its Global Trade Academy where shippers can learn to assign tariff classifications manually, looking up product categories in a huge book and working their way through decision trees to choose the correct code. But with artificial intelligence-driven automation tools, users can classify products based on natural language input, speeding the process and reducing errors.
“The user says, ‘I have shoes,’ and the system asks, “Men’s, women’s or children’s?'” Barraco says. “Then it starts a decision tree to help you find the harmonized system classification to accurately classify the product.”
With the right HS code, E2open’s trade content database can be used to provide the requirements for exporting the product from Country A to Country B.
While importing and exporting are rarely simple, when you build strong internal processes, work with expert service providers, and take advantage of automation, you vastly increase the chance of getting product across borders cost-effectively and trouble-free.
Understanding the Role of Incoterms 2020
Incoterms® were first published in 1936 and are intended to reduce or remove uncertainties that may arise from different interpretations of the rules in different countries. They show where risk passes between buyer and seller, allocate transport costs, and clearly define the responsibilities for export and customs clearance.
Since inception, they’ve been updated multiple times—including the recent update, Incoterms 2020.
While helpful, many companies are unfamiliar with or don’t understand Incoterms. For example, a small retailer in Oregon utilized Incoterms when purchasing product from a mid-sized manufacturer in Paris. No one in the U.S. company spoke French while their Paris business partners knew only a bit of broken English. What could have been a large problem was quickly rectified by using Incoterms 2020 since it’s available in 29 languages, including French.
“FCA Incoterms 2020 Paris, France” was added to the contract, and the deal was made, with responsibilities of both the seller and buyer clearly defined in their native language.
Per the rule, the French manufacturer (seller) assumed the costs and risks through export clearance and onto the pre-carriage collecting vehicle. Then the U.S. retailer (buyer) took on the risk and responsibility for the freight through destination, including customs clearance in the United States. Through Incoterms, both buyer and seller understood their obligations in the transaction, which led to a favorable outcome.
Playing By The Rules
It’s important to note that using an Incoterm rule in a sales contract without a complete understanding of what is expected from both parties can delay the transaction or cause worse problems.
To paint the picture, let’s say a U.S. manufacturer wants to get into the Brazilian market. The sales department agrees to “DDP Incoterm 2020 São Paulo, Brazil” with its new business partner in São Paulo. Under this Incoterm rule, the U.S. manufacturer is the importer of record into Brazil, responsible for exporting from the United States and importing into Brazil, and paying all duty, taxes, and customs charges.
Unfortunately, both parties agreed to an Incoterm that cannot be successfully executed. According to customs regulations in Brazil, this small U.S. manufacturer cannot be the importer of record. When the product arrives at the Port of São Paulo, Brazilian customs seizes the goods for inaccurate documentation.
This is just one example of the many violations that occur when companies don’t understand how to consistently and correctly use Incoterms in trade. While the rules can facilitate good trading practices, lack of knowledge in the meanings and responsibilities behind the rules is a concern.
When companies incorporate Incoterms 2020, it’s vital their logistics, procurement, tax, finance, and sales teams understand the rationale behind the rules and what steps to take to ensure a successful product journey from seller to buyer.
Education and training can be successful methods for helping employees understand the intricacies of global trade. If your company uses Incoterms or plans to start with Incoterms 2020, make sure your employees understand the requirements of both buyer and seller in each of the 11 rules. When used correctly, these rules can help your business achieve optimum success in international trade.
—Jeff Simpson, Manager of Trade Policy, C.H. Robinson
Ins and Outs of Exchange Rates and Insurance
Although many import/export best practices involve tariffs and trade regulation, other aspects of global trade also call for special attention.
Take foreign exchange. When you buy product overseas, how can you get the best value for your U.S. dollars? Sometimes a partner can help.
For example, Elenteny Imports, which provides freight forwarding and customs brokerage for U.S.-based importers of alcoholic beverages, also buys and sells wine itself.
“The quantity of foreign supplier payments we make has consolidated to the point where Elenteny Imports gets highly competitive rates on currency exchange,” says CEO Alexi Cashen.
When Elenteny manages freight for an importer, it can also handle payments to the customer’s overseas suppliers, providing the same advantageous exchange rates.
Insurance is another important concern, since legal liability for product damage varies from country to country.
“In the United States, the Department of Transportation requires carriers to have insurance for their customers, and the minimum is US$100,000,” says Antonio Echevarria, director of sales at Nuvocargo, which operates a digital platform for managing cross-border trade in North America. But in Mexico, a carrier transporting a 34,000-lb. shipment is liable for only about US$1,500.
“To have peace of mind,” he says, “insure your cargo for both sides of the border.”