When it comes to world trade, more than $19 trillion in exports occurred around the world in 2019. These goods may go directly to businesses, customers, or government entities. With so much trade, companies can find competitive avenues for their products, as consumer demand may be larger in some regions than in local areas. In addition, smaller companies could expand their customer base if they are not limited by borders.
However, businesses may experience complications when importing and exporting shipments. International shipping regulations dictate the number of shipments allowed into a country at one time, the costs of these shipments, and any prohibitions/restrictions. These regulations vary based on the country. Companies need to understand the basic concepts of the laws governing international shipping, as well as the common terminology. Use our guide to international shipping to demystify this supply chain process.
Basics of Shipping Internationally
The first thing to understand about importing and exporting is that every country has its own set of international shipping rules. These rules dictate what goods are allowed to enter the country and they are in place for a variety of reasons. Some countries limit certain goods to boost the economy and get customers to purchase products locally. Other regulations are in place to prevent the shipment of specific goods altogether.
For example, many countries prohibit the shipment of certain live animals, plants, and seeds. These regulations prevent invasive species from entering the environment and disrupting or destroying the local flora and fauna. Other goods cannot enter a country if they contain prohibited chemicals or were not manufactured following the country’s standards.
Some carriers also have their own international regulations for shipments. In the United States, for instance, the USPS prohibits the shipping of alcohol, lottery tickets, and tobacco products.
In addition to regulations and restrictions, international shipping laws provide details regarding the taxes applied to shipments. Everything is taxed by the respective country based on various factors, including the volume of a shipment. A few shippers try to avoid paying larger taxes by sending smaller shipments in batches. However, customs agencies who discover this ploy may impose fines and penalties on the company.
Documentation for International Shipping
Every international shipment requires documentation. This documentation usually involves customs forms detailing the origin country of the shipment, the destination, what the shipment is, the quantity, and other information. Two common types of documentation encountered with shipping laws are proforma invoices and commercial invoices.
A proforma invoice is sent out before the shipment. A buyer typically uses this invoice as a receipt. A commercial invoice is a form declaring what the cargo is, the volume, and the amount that is due. Some 3PL providers can handle all the documentation so you can focus on other tasks.
Common Terms When Shipping Internationally
A term often encountered with customs and shippers is “de minimis.” De minimis simply refers to the threshold or minimum number of goods that may be shipped without encountering any taxes or custom duties. Countries set varying de minimis duties and taxes for goods, as some have stringent regulations while others are more lenient. For example, Australia does not impose a de minimis for goods up to a certain amount.
Companies need to understand that de minimis duty is a type of tax applied to the goods themselves when imported and exported between countries. This tax allows governments to raise their revenue. A de minimis duty may also be called a de minimis tax. The de minimis tax may be the same as the duty or may be a different amount based on the value of the shipped goods.
Types of International Shipping Agreements
Countries use international shipping agreements to calculate taxes for imported goods. The country’s de minimis duties and taxes are based on two agreements called Cost, Insurance, and Freight (CIF) and Free on Board (FOB).
Cost, Insurance, and Freight (CIF): The CIF is calculated based on the value added tax (VAT) applied to the good’s sum and the cost of shipping the goods.
Free on Board (FOB): FOB is calculated based on the VAT when applied to the good’s price without any shipping charges added.
WSI International Shipping Solutions
Shipping regulations impact most goods imported to other countries. The complexities of these regulations can leave many companies confused, which can slow shipments. In addition, countries are continually updating, removing, or adding new regulations on specific goods.
Working with a partner who is well versed in U.S. international shipping regulations is a must. They can help you understand shipping restrictions, the required documentation, the types of taxes and duties owed, and other shipping processes.
At WSI, we provide supply chain and logistical solutions. If you are looking for a company that understands the complexities of international shipping and can work with a variety of international shipping partners, we provide customizable solutions for businesses of all sizes and freight needs. We offer services such as:
For more information about international shipping and regulations, contact WSI.