the abc’s of international shipping & customs compliance€¦ · –full container load...

THE ABC’S OF

INTERNATIONAL SHIPPING &

CUSTOMS COMPLIANCE

THE MERCADO INSTITUTE OF

INTERNATIONAL TRADE

DECEMBER 18, 2019

2proprietary + confidential © Mercado 2020

• Help importers and their supply chain partners to

be more competitive in their trade endeavors

– Heighten awareness of the strategic, tactical, and

financial considerations inherent to the import

process

– Broaden perspective on the multi-functional and

multi-player nature of importing

SIX- INSTALLMENT WEBINAR SERIES:OBJECTIVE


• 1/8/20: Buy & Move: Five Ways to Reduce Import Costs

SIX- INSTALLMENT IMPORT WEBINAR SERIES:REMAINING SCHEDULE (ALL EVENTS 10 :30 A .M. PST)


• Introduction to Mercado Labs

• Fundamentals of maritime transportation

– Full Container Load shipping

– The role of the freight forwarder

– Ocean freight pricing models

• Fundamentals of air freight shipping

– Direct vs. Consolidated shipping

– The role of the freight forwarder

• U.S. CBP Compliance

– Classification & Valuation

TODAY’S AGENDA


Digitize your First Mile,

Transform your Global Supply Chain

? ? ?

CURRENT STATE – Importers have systems to plan and sell products, however no system to manage product supply.

PLAN SELLBUY MOVE

Order Planning Systems

Demand Planning

Systems (DPS)

Enterprise Resource

Planning (ERP)

Demand Fulfillment Systems

Warehouse Mgmt.

Systems (WMS)

Enterprise Resource

Planning (ERP)

No – System.- 1st mile. Inventory.

Disconnected Supply Chain

THE MISSING L INK IN YOURSUPPLY CHAIN


Affordable. Easy to Implement. Easy to Use.

MERCADO PLATFORM -

PLAN SELLBUY MOVE

Order Planning Systems

Demand Planning

Systems (DPS)

Enterprise Resource

Planning (ERP)

Demand Fulfillment Systems

Warehouse

Management

Systems (WMS)

Enterprise Resource

Planning (ERP)

Networked Supply Chain!

Mercado - Order Management System

BRING ORDER TO YOUR IMPORTS


• Who needs Mercado?

– Importers and your supply chain ecosystem

• Why do you need Mercado?

– Increase sales

– Decrease landed cost

– Compress cumulative lead-time

– Optimize inventory levels

TRANSFORM YOUR GLOBAL SUPPLY CHAIN


• Regardless of whether you work full time in

logistics or in a related field (purchasing,

sourcing, IT, etc.), there are two essential

requirements for getting the most out of an

international logistics program:

– Know who all of the players are in the global

logistics chain and what they do

– Understand the business models of Logistics

Service Providers (how they create value and

make money)

INTERNATIONAL TRANSPORTATION & COMPLIANCE:

OVERARCHING THEMES


• Steamship lines specialize in the

containerized transport of goods

– Also know as “ocean carriers”

• The Federal Maritime Commission (FMC)

definition is a, “Vessel Operating Common

Carriers (VOCC) that specializes in the

transport of containerized cargo”

• Through a “Liner Service” SS Lines offer

scheduled routes and sailing dates

KEY OCEAN FREIGHT PARTICIPANTS:

STEAMSHIP L INES


• Steamship lines work closely with port

operators, terminal operators, ocean freight

forwarders, rail companies, intermodal

companies, drayage firms and long-haul

truckers to carry out their service offering

• Container lines can contract directly with

importers or with NVOCCs (freight forwarders

who in turn offer multiple services to shippers)

– Some container lines have their own logistics

divisions that compete with freight forwarders


STEAMSHIP L INES



FREIGHT FORWARDERS

• The FMC defines an ocean freight forwarder as

a person that dispatches shipments via a

common carrier and books or otherwise

arranges space for those shipments on behalf

of shippers

• The types of services that an ocean freight

forwarder can provide depends on the type of

Ocean Transport Intermediary (OTI) approval

they receive from the FMC

– Ocean freight forwarder

– Non-Vessel-Operating Common Carrier

(NVOCC)



FREIGHT FORWARDERS

• When used strategically, forwarders can serve

as a liaison between multiple supply chain

players

– Supplier(s)

– Drayage provider at origin

– Consolidation facility (Consolidated Freight

Station) at origin

– Steamship line

– Origin Customs

– Destination Customs Broker

– Destination drayage provider


• Ocean freight forwarders and/or NVOCC’s

offer a number of services to U.S. importers:

– Origin services (container booking,

documentation, consolidation, drayage, et al.)

– Main mode of transportation (Full Container

Load and Less Than Container Load…licensed

NVOCC only)

– Destination services (Customs clearance if

licensed as a customs broker, port drayage,

deconsolidation, domestic on-forwarding)

THE OCEAN FREIGHT FORWARDER:

SERVICE OFFERING


• Depending on the Incoterms® Rule, the

charges that may be levied on an FCL import

may include:

– Container stuffing fee at origin (when done by

the ocean freight forwarder)

– Drayage to origin port of export

– Chassis usage at origin

– Origin Container Yard fee

– Importer Security Filing

FULL CONTAINER LOAD SHIPPING:

PRICING MODEL




may include:

– Automated Manifest charge

– Origin Terminal Handling Fee

– Verified Gross Mass (VGM) weighing fee

– Main mode of transport

– Bunker Adjustment Factor (BAF)

– Low Sulfur Surcharge

– Documentation fees


PRICING MODEL




may include:

– Destination Terminal Handling

– Currency Adjustment Factor (CAF)

– Chassis usage fees at destination

– Destination demurrage fees

– Destination detention fees


PRICING MODEL


• The two key players in the air freight

transportation eco-system are the airlines and

freight forwarding community

• Whereas an importer can work directly with

an airline, most choose to work with an air

freight forwarder

– “Direct” vs. “Consolidated” freight movements

KEY AIR FREIGHT PARTICIPANTS:

AIRLINES & AIR FREIGHT FORWARDERS


• The main feature of the forwarder’s air cargo

service portfolio is freight consolidation

• The freight forwarder serves as an intermediary

between the air carrier and the importer

– Negotiates space and rates with airlines based on

an aggregate of cargo volumes tendered to the

airlines (from multiple shippers)

– Forwarders then mark-up the per-kilo buy rate

from the airline and offer air freight consolidation

services to the shipper community

• NOTE: The same principle of freight

consolidation applies to Less Than Container

Load (LCL) ocean freight

THE AIR IMPORT SERVICE MODEL:

AIR FREIGHT CONSOLIDATIONS


• All aircraft (and ocean carriers/containers) have

both weight and space restrictions

• The concept of “Actual vs. Volume Weight” (aka

“Actual vs. Chargeable Weight”) is based on the

need for the carrier to optimize the return on its

assets

• On any given flight an airline can handle cargo

with different characteristics

– The classic example of shipping ping pong balls

vs. ball bearings

ACTUAL VS. VOLUME WEIGHT


• In order to maximize payload and revenue

potential, freight is subject to charges based on

the actual or volume weight of a given shipment

(how much it weighs or how much space it

occupies)

• Both air carriers and freight forwarders employ

actual vs. volume weight calculations

• In order to negotiate the best rates possible,

importers need to know the density/volume of

their cargo

ACTUAL VS. VOLUME WEIGHT



charges that an importer may be charged for

an air freight shipment are:

– Inland freight to forwarder’s facility

– Origin consolidation fee

– Airport transfer

– Security surcharge

– Fuel surcharge

– Air freight (per kilo)

AIR FREIGHT CONSOLIDATION:

PRICING MODEL



charges that an importer may be charged for

an air freight shipment are:

– Airway bill preparation fee

– Destination transfer fee

– Deconsolidation fee at destination

– Break bulk charge

– Customs clearance (if forwarder is broker)

– Local delivery

AIR FREIGHT CONSOLIDATION:

PRICING MODEL


• Two of the most important activities related to

preparing and submitting a Customs entry are

Classification & Valuation

• Classification – The process of matching

product descriptions with the numeric

nomenclature found in the Harmonized Tariff

Schedule of the U.S.

• Valuation – The process of determining the

true value of imported merchandise for

purposes of assessing Customs duties

CUSTOMS CLEARANCE IN THE UNITED STATES


• In the U.S., importers can choose to submit

(electronic) entries to Customs & Border

Protection themselves, or use the services of

a Customs Broker

• In either scenario, all entries must be

submitted electronically, with the majority of

required information coming from the following

documents:

– Commercial invoice (supplier)

– Packing list (supplier)

– Transport document (carrier or forwarder)



• The process of Classification & Valuation

allows U.S. CBP to answer some very

important questions:

– What is the merchandise (essential character

and/or intended use)?

– What is the country of origin?

– What was the price actually paid or payable for

the merchandise?

– What is the product’s Harmonized Tariff

Schedule number?

– What amount in duties (if any) is owed to the

U.S. Treasury?



SAMPLE OF A CUSTOMS ENTRY (CBP FORM 7501)


• The Harmonized Tariff Schedule of the United

States provides guidance on how to classify

merchandise

• Whereas essential character and intended use

are very important principles, the specific guidelines

for classification are provided by the Harmonized

Tariff Schedule of the United States (HTSU)

• Classification guidance can also be found in

Section and/or Chapter Notes

HOW TO CLASSIFY GOODS USING THE HTSUS


• Product classification is based on the principle of

progressing from a general description of an item to

its most specific and appropriate

• Within the HTSUS, that progression is based on:

– Guidance from the General Rules of Interpretation

– Section Notes

– Chapter Notes

– Chapter Heading

– Chapter Subheading

– Eight digit legal classification

– Ten digit statistical classification

HOW TO CLASSIFY GOODS USING THE HTSUS:

FROM THE GENERAL TO THE SPECIFIC


CLASSIF ICATION RESOURCES:

SCREEN SHOT OF USITC HTS TOOL (WWW.ITC.GOV)

http://www.itc.gov/


HTSUS EXCERPT:

NUMERICALLY CONTROLLED LATHE


• In the U.S., the rate of duty (if any) assigned

to a product depends a great deal on its

country of origin

• The varying rates of duty applied to countries

is found in Columns 1 & 2 of an HTS Chapter

page

• Column 1 is broken down into two columns:

– General

– Special

ANALYSIS OF HOW CUSTOMS DUTIES

ARE ASSESSED IN THE UNITED STATES


• The General column is reserved for countries

that have, “Normal Trade Relations” with the

U.S.

– Duty rates applied equally among countries

with NTR

• The Special column is for countries with,

“Special Tariff Treatment” programs with the

U.S.

– Preferential Duty Programs

– Free Trade Agreements

• Column 2 is for countries that have neither

NTR or Special Tariff Treatment programs

ANALYSIS OF HOW CUSTOMS DUTIES

ARE ASSESSED IN THE UNITED STATES


CUSTOMS DUTIES & THE HTSUS STRUCTURE:

RATES OF DUTY COLUMN TWO

NOTE: At the time of recording this

Section, NAFTA was still in effect.


CLASSIFICATION EXAMPLE:

THE IMPORTANCE OF THE COMMERCIAL INVOICE


HTSUS EXCERPT:

NUMERICALLY CONTROLLED LATHE


• Website: mercadolabs.com

• Brian Nacci, Chief Strategy Officer

– [email protected]

– 1 302 893 3750

THANK YOU!

mailto:[email protected]

the abc’s of international shipping & customs compliance€¦ · –full container load...

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