If you're planning to expand your business internationally, there are a few key things you need to know about regulations surrounding shipping products to international markets. Let us walk you through what you need to know such as key terms, regulations and tips for managing shipping costs, and why outsourcing is the best option for managing the complexities of fulfilling your international orders.
Over the years, many businesses have realized first-hand that shipping internationally requires a lot more time and knowledge than they anticipated. Hiring additional staff to focus on international shipping is challenging because the skillset required is rather specific to the countries you will be shipping to and may not be easy to find. Additionally, investing in additional staff is a big decision when there is no guarantee on the number of international orders that will be placed. Most e-commerce businesses that have tried to manage international shipping in-house have come to realize it just doesn’t make sense financially. Meanwhile, they still have orders that need to get out or that they need help tracking down in Customs after weeks of waiting for them to be delivered. This is where a fulfillment company steps in and makes everything easier by taking the reins on international shipping to Europe, Central and South America, the Caribbean, and more.
What are Incoterms?
When it comes to international shipping, learning a bit about the terms used in international shipping circles can help you understand more about how you want to ship your products. The rules and regulations for shipping internationally vary from country to country. While getting all of the details you need can seem tedious, it’s worth the effort if you want to expand into international markets.
Not knowing the acronyms of the logistics world can sound like a foreign language. Breaking it down a bit, Incoterms, or international commerce terms, are published by the International Chamber of Commerce. They refer to harmonized contractual terms agreed upon by sellers and buyers regarding when and at which point in the shipping and receiving processes responsibilities and obligations transition from sellers to buyers in terms of:
- Risk transfer
- Customs clearance
- Final destination delivery
Glossary of Incoterms you will want to familiarize yourself with include:
- CIF – Cost, Insurance, and Freight: Sellers assume responsibility for cost, insurance, and freight while any risk of damage is transferred to buyers after products are onboarded. Applicable only to maritime freight.
- CIP – Carriage and Insurance Paid: Sellers pay for freight and buyers assume damage and loss risks.
- CPT – Carriage Paid To: Sellers pay for freight but not the insurance and buyers assume risks for loss or damage.
- CFR – Cost and Freight: Sellers are responsible for the transportation of their products to an agreed port. After products are onboard, risks are transferred to buyers. Applies only to maritime freight.
- DAP – Delivery at Place: Sellers are responsible for transportation, risks, and losses associated with moving products to a specific location.
- DAT – Delivered at Terminal: Sellers arrange the loading and delivery of their products but the risk transfers to the buyer after shipment has been unloaded. The buyer’s responsibilities include payment of any import clearance, local taxes, or duties.
- DDP – Delivery Duty Paid: Sellers assume responsibility for all costs and risks associated with the delivery of their products, and that includes Customs duties and taxes.
- DDU – Delivery Duty Unpaid: Buyers assume all responsibilities for Customs duties and taxes.
- ExW – Ex Works: Sellers opt for very limited risk and responsibility. This means that basically, sellers are only responsible for packaging their products and prepping them for shipment. In this agreement, the buyer’s responsibilities include loading the products, as well as making all export preparations, and paying all associated costs after the goods have been received.
- FAS – Free Alongside Ship: Sellers are responsible for the costs and risks of delivering a shipment next to their buyer’s ships in a specified port. After shipments are delivered, buyers are responsible for unloading the shipment, in addition to assuming all associated costs and risks. Only applicable to maritime freight.
- FCA – Free Carrier: Sellers are responsible for transportation and insurance costs from the warehouse to the transport hub. That’s where buyers assume responsibility for the subsequent shipment of goods and all associated risks.
- FOB – Free on Board: Sellers deliver shipments to ships and clear them for export. From that point, buyers assume all costs and risks.
Cost Overview for International Shipping
For a quick cost overview, you will need to know the calculation method used for the country or countries you wish to ship your products to. Generally, the methods used to calculate shipping costs, are:
- CIF (Cost, Insurance, and Freight) – Most European countries, parts of Asia, as well as Canada and Mexico, use this method where the value-added tax (VAT), sometimes called goods and services tax (GST) is applied to the sum of your item in addition to the cost of shipping.
- FOB (Free on Board) – Australia uses this method where the VAT is merely applied to the price of the item, without shipping costs.
- De Minimis – Refers to the threshold in which your packages will not be taxed. If, for instance, a country's de minimis tax is 22 EUR, then for packages valued at 22 EUR and below, no taxes will be due. If the value of the shipment is below the threshold, it can be cleared without incurring customs duties or taxes. For most countries, the de minimis tax and duty are the same but be aware that some do differ, so you should look out for that.
The cost overview looks something like this for shipping from the US to France:
- Calculation method: GIF
- VAT/GST: 20%
- De Minimis Duty: 150 EUR
- De Minimis Tax: 22 EUR
While shipping costs to Canada from the US are:
- Calculation method: GIF
- VAT/GST: 5%
- De Minimis Duty: CA$20
- De Minimis Tax: CA$20
Fines and Taxes: What You Need to Know
International shipping involves taxes and fines for different things in different countries. This includes the size of packages, the size of shipments, the shapes of packages, prohibited goods, restricted goods, etc. E-commerce companies can get bogged down in shipping regulations and taxes that seem to never end. Plus, companies wishing to ship internationally need to research the various regulations in each country and for each carrier.
Other customs duties and taxes can also include:
- Excise duty – Often on alcohol, tobacco, and fuel
- Consumption tax on luxury goods
- Environmental tax
- Clearance/entry fees
Correct Documentation is Essential
Customs can be particular about what kinds of products they allow in a particular country. Some countries charge additional fees for certain categories of products. Proper documentation is essential if you want your products to move through Customs at a reasonable pace. Inconsistent or incorrect information on your documentation can raise red flags with Customs officials, as well.
Fulfillment Partner: Secret to Success with International Shipping
One way more and more e-commerce companies are simplifying their international shipping and fulfillment process involves partnering with a trusted 3PL service provider to handle the fulfillment processes from onboarding products to shipping them anywhere in the globe. E-commerce vendors are taking advantage of the experience, skill, and knowledge that 3PLs such as Phase V offer to streamline their fulfillment operations.
When it comes to international shipping, our shipping logistics team is well-versed in the correct documentation you need to ship to any locale. With two state-of-the-art warehouses, one in Fort Myers, FL and one in Phoenix, AZ, Phase V is strategically located near Latin American marketplaces and near all international ports of call. When it’s time for you to expand your business internationally, contact Phase V to make your international shipping experience easier and more efficient, as you focus your time and talent on expanding your business globally.
Phase V's experience with different countries and each of their requirements make it an easy choice – a fulfillment partner is the only way to go with international shipping.