7 Ways You Can Reduce Costs on Imports
If your company is doing any cross-border trade, you have to carefully manage operational costs like transportation charges, insurance, duties, taxes and warehousing expenses.
Let’s discuss a few ways you can keep these costs under control.
- Declaring the correct value to Customs. When Customs brokers declare your shipments’ values to Customs – are they over declaring the value? If yes, this means you are paying additional VAT and Customs duties unnecessarily. The correct value that needs to be declared to Customs can vary from country to country.For example, it can be:
- The actual price payable, or the amount that will be remitted overseas.
- The Free on Board (FOB) value
- The Cost Insurance and Freight (CIF) value or
- Ex-works (EXW) value
FOB, CIF & EXW are defined in Incoterms® 2020. (Read our comprehensive introduction to Incoterms 2020). If the required value to be declared is EXW, but the broker declares the Delivered Duty Paid (DDP) value simply because that is what the invoice is showing, the difference in duties and VAT you pay will be significant.
- Free Trade Agreements (FTAs). When countries sign Free Trade Agreements, they agree to put into place measures to reduce the import duties that need to be paid on certain products, depending on where they were manufactured. You may be missing out on significant savings if you fail to use FTAs when you import qualified products. Ask your suppliers for FTA forms or source for alternative suppliers who can supply you with products that are qualified for preferential duty treatment.
- Customs brokerage fees. When was the last time you studied the charges on the invoice from your Customs broker? Most established brokers charge per shipment and not based on the value of the invoice. Are the service charges from your broker reasonable? Do you know what the industry norms for Customs brokerage charges in your locality are? Can you shop around for established brokers with lower service fees?
- HS Classification. Customs in all WCO countries use the declared HS code to calculate import duties. If the product is incorrectly classified, you may be paying too much in import duties. Have you reviewed the HS codes used for import declaration? Even if they are correct, savings opportunities may present themselves by doing tariff engineering. If you find that import duties are putting undue pressures on your revenue as compared to your competitors, there may be some savings opportunities available. It is interesting to note that statistically it is believed that anywhere between 20% to 35% of imported products are wrongly classified. (Look at our resources to learn how to classify a HS code for your products).
- Freight charges. Transportation and freight charges will form the bulk of operational costs. Transportation rates are always changing. So, traders may find savings opportunities simply by shopping around for alternative haulers and carriers who are in a better position to service your primary lanes. Also, contracts between businesses and freight carriers have to clearly state transportation requirements, so that traders do not end up paying for a carrier using refrigerated containers when standard ambient containers will do. The contracts must also make clear the charges that are included in the contract for carriage – such as terminal charges, security charges, costs associated to meeting SOLAS requirements, port fees etc.
- Declare an earlier invoice. Some Customs authorities allow importers to declare the value of an earlier sale for a shipment. When a business model involves multiple sales between manufacturer and importer, using the price of an earlier transaction with a lower value can save the customer some import duties and VAT.
- You should also look at all special Customs programs available for use, such as:
- Importing into a bonded facility to temporarily suspend duty and VAT
- Use of duty drawback for manufacturers
- Manufacturing in a special economic zone
- Using Carnets where applicable
- Declaring import for reexport permits where applicable
- Declaring temporary export permits where applicable
A final word:
Operational costs can have a significant impact on the bottom line if they are left unchecked. It is usually worthwhile to spend some time and effort to understand industry average charges so as to be sure that you are not overpaying in any operational aspect. It is not always a case of “you get what you pay for” in terms of vendor selection either and many small Customs brokerage firms and transport providers can do as good a job or better than the big names. Hence, it is highly recommended that you do due diligence in selecting the Customs brokers you want to work with and monitor their performance closely, to ensure that you are getting the maximum value for your money.