In the rapidly expanding world of cross-border ecommerce, understanding the customs clearance process is not just beneficial—it’s essential. This routine process ensures that goods reach your customers in compliance with international trade laws. Knowing how to navigate customs, including the intricacies of taxes, duties, and item classification is critical to providing successful customer experiences and keeping your costs in check.
Customs clearance process basics
Customs clearance is a mandatory procedure for any goods crossing international borders.
Customs serve as the gateway through which products must pass to ensure they meet a country’s importation standards. When a package enters a country, it is subject to inspection and verification by customs officials. They ensure all shipments comply with the nation’s regulations by checking documentation, assessing costs, confirming import licenses, and ensuring no prohibited items are present. Any discrepancies can lead to a hold or rejection of the goods.
Understanding the customs clearance process can demystify cross-border shipping, shed light on potential pitfalls, and streamline customs clearance. The process involves a series of steps, from document inspection to final release, which we’ll examine in detail below.
Steps in the customs clearance process
1. Paperwork Inspection by Customs
Accurate and complete paperwork is the cornerstone of successful customs clearance. The documentation required may vary by country but generally includes a detailed invoice, packing list, bill of lading or air waybill (AWB), certificates of origin, and any special licenses related to the type of goods being shipped.
To ensure smooth clearance, all information provided must be precise and consistent across all documents. Companies should familiarize themselves with the specific requirements of their destination country and consider working with a cross-border ecommerce partner with experience who can guide the preparation of these documents.
2. Assessment and Request of Taxes and Duties
Import fees, including taxes and duties, are determined by the classification of goods according to the harmonized system (HS) code, the value of the shipment, and the country of origin.
Customs authorities assess the amount that should be paid upon entry to the country. This assessment is based on the declared value of the goods and takes into account any trade agreements or exemptions that may apply. Ecommerce businesses should have a comprehensive understanding of these fees as they directly impact pricing strategies and customer satisfaction.
3. Payments for Taxes and Duties
Once the duties and taxes are assessed, customs will request payment. The responsibility for these fees depends on the agreed terms between the seller and buyer. Typically, these terms center around a choice between Delivery Duty Paid (DDP) and Delivery Duty Unpaid (DDU), which we’ll define in the next paragraph.
DDP vs. DDU
With DDP, the seller assumes all the risk, responsibility, and fees associated with transporting goods until they are received by the buyer, including the payment of duties and taxes. Crucially, this agreement typically means that the total landed cost of the order is shown to the shopper and paid at checkout.
While it’s not always an option, DDP offers an optimal experience for shoppers that does not come with any surprise costs or fees. Working with a logistics partner who can offer a DDP checkout experience, complete with an upfront guaranteed landed cost, can be crucial in driving repeat business for cross-border ecommerce brands.
In contrast to this ideal experience, with DDU (also known as DAP, short for Delivered at Place), the buyer is responsible for handling the import process and associated fees once the shipment arrives in the destination country. The shopper may be surprised by the cost of these duties and attempt to refuse the order, leading to lost business and added complexity for sellers.
4. Package Clearance
After the payment of duties and taxes, and assuming there are no other compliance issues, the package is cleared by customs. This final step means that the goods are now legally allowed to enter the market and can be delivered to the end customer. At this stage, having a logistics partner that can efficiently manage the last mile of delivery becomes important to maintain customer satisfaction.
How to Simplify Customs Clearance, Duties, and Taxes
Simplifying customs clearance can be achieved by taking the right proactive measures:
- Stay Informed: Keep abreast of the changing regulations and requirements in the countries where you do business.
- Submit Accurate Documentation: Ensure that all your paperwork is in order and accurately reflects the contents and value of your shipments.
- Leverage Technology: Use tools that help automate and track the process.
- Clear Communication: Clearly communicate with customers about potential duties and taxes they may be responsible for.
- Work with Experts: Teaming up with a global logistics aggregator partner like Digital River can help ensure that customs clearance processes are streamlined wherever you plan to do business around the world. With leading technology and an extensive global logistics network, Digital River can simplify the complexity of selling across borders, delivering an optimized experience from checkout to customs to delivery.
By streamlining this crucial aspect of your international ecommerce operations, you can ensure that customs clearance does not become a barrier to your global expansion and your delivery of winning customer experiences. Contact Digital River today to learn more about how we can help you eliminate the risk and complexity of everything required of ecommerce brands beyond the Buy button.