Contributed by SUBTA partner, Fusion Fulfillment
One of the strengths of e-commerce is its ability to connect markets from all over the world. Today, people can shop for and purchase products thousands of miles away with simply the click (or tap) of a button. However, as an online retailer, it’s important to understand what’s involved with shipping internationally and how to make the experience for your customers as smooth and positive as possible.
First, we will discuss important terms and expectations that e-tailers should be aware of and understand.
Import Duty – Simply put, Import Duty is a tax imposed on goods imported into a country by the local government in order to do one (or all) of the following:
- Raise income for the local government
- Promote the purchase of local goods by inflating the cost of the imported item
- Penalize a particular nation by inflating the cost of their goods coming in as to deter people from buying them (for example: what we are currently seeing between the U.S. and China).
It is important to understand that duties and taxes, which are imposed by the local importing government, are determined by the importing government and not your freight carrier (as some may think). However, your freight carrier CAN charge you for handling the duties and taxes (and all of the paperwork associated with it), and this charge varies depending upon a variety of factors.
Goods and Services Tax (GST) – Also known as a Value-Added Tax (or VAT), this is a tax levied on most goods and services sold to a country for domestic consumption. Applied to the cost of those goods and service, GST’s are paid for by consumers but remitted to the government by the businesses selling them. A list of the countries implementing GST / VAT taxes can be found here.
Commercial Invoice – A required document in international shipping that describes the items in the shipment and their value. Commercial couriers and customs brokers refer to this document to process and clear your package through customs.
Incoterms – These are the rules are the world’s essential terms of trade for the sale of goods. The two that e-tailers should be most concerned with are as follows (complete details of all of them can be found here):
DDP (Deliver Duty Paid) – The seller is responsible for any incurred duties and taxes imposed by the local importing government.
DDU (Deliver Duty Upaid) – The buyer/consumer is responsible for any incurred duties and taxes imposed by the local importing government.
Understanding How Duties and Taxes Are Calculated
When offering products through an e-commerce store, it is critical to know how each of those products are identified and their associated duties and taxes calculated. Import Duties and Taxes are determined by the following factors:
- The product’s declared value and shipping costs
- The product category as determined by the HS code – The HTS Codes for your products can be found here.
- The country or region of origin
- The destination country’s tariff rates
- Applicable trade treaties
Fortunately, there are many calculators available to help e-tailers determine what the duties and taxes would be for the customer (or the e-tailer, should they choose to ship DDP). Below are just a few that are available:
Clearing Customers – What Happens
One of the biggest questions we as a fulfillment center get from our customers is how the customs clearance process works. Here’s a quick map on the process for reference:
How to Effectively Handle Duties and Taxes (With Customers)
While E-commerce has been around for some time, many people still don’t entirely understand duties and taxes and how they are applied to their purchases. This leaves many customers (and subsequently many e-tailers) frustrated. One of the biggest challenges faced by any e-tailer that ships internationally is how to effectively handle duties and taxes so that customers are left happy (and hopefully purchasing again) and e-tailers profitable. While there isn’t one good answer on effectively tackling this issue, there are some fundamentals that have a large impact on how the experience is for the customer.
Determine Your International Shipping Strategy – Before handling any international shipments, determining what the proper strategy will be for handling duties and taxes. There are a few that can be employed:
Ship DPP and absorb the cost — This isn’t the best methodology, unless the contribution margin on an e-tailer’s products is high enough for them to accept the costs and the competition is following the same strategy.
Ship DPP and add the calculated cost to the shipping price – This methodology can work, but e-tailers should be prepared to communicate to customers that they will handle all of the duties and taxes on their behalf (maybe spin it so you can communicate it as a value-added service).
Ship DPP and add a flat fee across all international shipments – This methodology is only recommended if there is enough consistency in the destinations or characteristics of the shipments (weights, dimensions etc.) so that accurate averages can be calculated to allow for making money or at least breaking even overall.
Ship DDU – The most common methodology, this puts the duties and taxes responsibilities on the buyer. Generally, as long as the e-tailer effectively communicates that the purchaser will be paying these (and if you can give them estimates, even better), they should be OK with it.
Communicate, Communicate, Communicate – Nobody likes surprises. The best thing an e-tailer can do is clearly communicate your international shipping policies and make it easy for customers to find them and understand them. Most of complaints that e-tailers receive are from customers that didn’t expect duties and taxes and aren’t please when they get a call from an agent requesting them. It generally leads to angry customers and worse, cancelled orders (which e-tailers have to absorb the cost of).
Consider Using a Trackable Service – Especially when it comes to international shipping, cheapest isn’t always best. If a product is purchased by someone in another country, the chances are that they couldn’t find it locally and are willing to wait and pay the costs to have what you are offering. If shipped via International USPS or an inexpensive consolidator that offers limited tracking, the order may get lost, costing both e-tailer and the consumer time and money. Whereas shipping via a carrier that offers point to point tracking internationally (such as FedEx, UPS, and DHL) can provide both the e-tailer and the customer with the comfort of knowing where it is while in transit. While it may be more expensive, it may still be less money than re-shipping a lost package or worse, dealing with an angry customer.
Benefits Of Partnering With a Fulfillment Center
While partnering with a fulfillment center has many benefits; the handling of international orders is a valuable one. Fulfillment centers have two key strengths that make them a valuable asset to e-tailers shipping internationally:
Knowledge and Experience – As a direct result of their scope of business, fulfillment centers have the experience needed to effectively navigate around the various idiosyncrasies associated with shipping internationally. Additionally, they have the knowledge needed so that your shipment doesn’t get stuck in customs due to a missing document or a procedure that wasn’t followed properly. Growing e-tailers find this invaluable and see partnering with a fulfillment center as a key part of their international market expansion.
Leveraged Relationships with Carriers – Another invaluable strength, fulfillment centers have strong relationships with key international carriers. This allows them to ship internationally on behalf of their clients with greater speed, efficiency, and sometimes at a lower cost than if an e- tailer were to try and do it on their own. However, the strength of these relationships become most apparent when things go wrong (which they will). Fulfillment Centers, through the many strong relationships that they have developed with the top international carriers, can resolve issues far more effectively and efficiently than if the e-tailer were to try and do it on their own.
Most importantly, the cost associated with developing / hiring a team to handle international shipments and try and possess the strengths found with fulfillment centers can cost e-tailers much more than partnering with a fulfillment center.
Shipping internationally is always a bit of a challenge. By understanding what is involved, employing the right strategy (and partners) and communicating effectively with your customers, e-tailers can ship to customers around the work effectively and efficiently and keep customers happy in the process.
Written by Evan Yudell – Vice President, Fusion Fulfillment
Learn more at https://www.fusionfulfillment.com/