There’s no question that international trade can be difficult to master at first. There are important decisions that need to be made every step of the way — which International Commercial Terms (incoterms) to use, whether to ship by air freight or ocean freight, where to house your goods...the list goes on. Yet, with some expert and professional help along the way, you can unlock the opportunity to sell your products around the world.
Customs clearance is one particular area that causes confusion. To help you better navigate the complexities of cross-border trade, in this article, we’re going to break down what customs clearance entails, and talk about the role of a customs broker and when & why you might need one. From the benefits of using a customs broker to the problems you might face going it alone, we’ll discuss how a licensed customs broker can help you find your feet in the world of international trade.
Starting with the basic role and responsibilities of a customs broker, to the differences between a customs broker and a freight forwarder, get ready to discover everything you need to know about trading overseas easily and professionally!
What Is Customs Clearance?
Customs clearance is an important and necessary procedure to permit the entry or exit of goods into or out of a country. This process also reinforces any tariffs or regulations relating to certain goods and will hold sellers accountable should they try to bypass the rules.
To trade internationally, you’ll need to submit documents and information relating to the goods in transit, commercial invoice, packing list, certificate of origin and final destination. Many governments use the customs clearance process in order to collect revenue, analyze trade between countries and fight crime. All active trading ports around the world will put cargo through a rigorous customs clearance process but the rules, regulations and tariffs will differ from country to country.
What Is A Customs Broker?
A customs broker is an experienced professional who specializes in the tariffs, laws, regulations and customs clearance process of imported and exported goods. They will be licensed to trade and able to assist both importers and exporters when it comes to clearing goods through customs. Broker’s role will involve preparing the necessary documentation, such as payment duties, taxes and other charges to ensure a shipment is not delayed or refused entry during the customs clearance process.
According to the U.S. Department of Homeland Security, to engage in the customs brokerage business, companies or associations must have a broker license. Each of these businesses must have at least one individual who has passed the Customs Broker License Examination and is certified by the U.S. Customs and Border Protection (CBP). As a client, you grant your customs broker to submit necessary information and payments to U.S. CBP on your behalf, and you pay a fee for this service1.
It is the job of a customs broker to know exactly what is needed in terms of information and documents, by the customs clearance process and how to professionally prepare the right documents and evidence to ensure the process runs as smoothly as possible. When you consider the time and money that could be lost should an order be delayed or worse, held or confiscated by a customs officer, you can begin to understand the importance of a customs broker for any business hoping to trade overseas.
Why Should You Work with A Customs Broker?
A customs broker can help your business in many ways. To put this simple, customs broker helps you clear your shipments at the border.
The benefits of working with a licensed customs broker include:
1. Make sure your shipments cross the border
Simplifying a complicated customs clearance process and preparing all necessary documents and evidence on your behalf for government agencies, saving you time and additional stress. This also gives you peace of mind that your shipment should pass the customs clearance process with ease, and without delays.
2. Convenience in entrusting all the work with one person
You will have the convenience of dealing with one person, the customs broker, rather than contacting several different government agencies individually to find out which documents you are required to submit for customs clearance.
3. Avoid unnecessary costs and costly delays or fines
A customs broker will help you to avoid overpaying duty and VAT, as well as avoid facing fines and additional charges due to mistakes and errors with your documents. Failing to pay duty or VAT will mean your goods won’t be released.
4. Stay up to the latest regulation changes
A professional and experienced international shipping broker will be knowledgeable in the often-complex customs regulations and procedures. They will be able to give you accurate information and sound advice in relation to importing goods and exporting products. As rules, regulations and tariffs can change on a regular basis, they will stay up to date with the latest advice and guidance that relates to your product categories. This advice may come from organizations such as the Food and Drug Administration (FDA) and the Center for Disease Control and Prevention.
5. Correct classification of goods
Each product classification will have its own duties and tariffs. This is yet another way trading overseas can become more complicated. A customs broker will be able to guide you according to the classifications set by the Harmonized Tariff Schedule (HTS), the primary resource for dictating tariff classifications on products imported into the US. Finding the right classification can be pretty difficult and this is how a customs broker can save you time and additional work.
6. Offer additional services and professional advice
A customs officer may also offer additional services such as tracking your goods in transit to ensure they don’t go missing and arrive on time.
When Do You Need A Customs Broker?
If your trading overseas and don’t feel confident submitting documents to customs, you should consider hiring an international shipping broker.
As a new importer, or exporter you may not have the experience or knowledge required to prepare the right documents to trade overseas, so to avoid facing fines, making mistakes and losing money, you might want to bring in the professionals, and hire a customs broker to work on your behalf.
There is no legal requirement to hire a licensed customs broker in the US, for example, but many businesses prefer to have an expert on hand to deal with this complicated process and ship goods without suffering from delays, miscommunications and overpaying duty.
Who Is Responsible for Customs Clearance in A Trade Agreement?
Another important thing for business engages in international trade is to understand whether the importer or exporter is responsible for the customs clearance process. An Incoterm is what provides one universal definition for a series of responsibilities, liabilities, and decisions related to transactions in cross-border trade. It’s imperative that you understand what the agreed-upon incoterm entails, as it determines the shipping cost and who is responsible if something goes wrong.
For example, if the agreed-upon Incoterm is Delivered Duty Paid (DDP), the seller or exporter is responsible for fees and managing the customs clearance process into the destination country. That means the buyer or importer does not need to work with a customs broker. The DDP shipping agreement places the maximum obligations on the seller, and thus is useful and more convenient for inexperienced buyers who want a trouble-free experience. But it also means that the importer/buyer has less visibility into the entire shipping and customs clearance process and has less control over the total cost.
There is a lot to consider when approaching customs clearance. A customs broker can make the process easier and avoid headaches down the road. The key is understanding what your responsibilities and liabilities are as described by your agreed upon Incoterm and making an informed decision.
Difference between Customs Brokers and Freight Forwarders
When trying to find a licensed customs broker for your business, you may have come across the term freight forwarder. A freight forwarder is a multi-function agent who specializes in arranging the storage and transportation of cargos. It handles the entire trip and logistics of shipping goods from one international destination to another, on behalf of the shipper.
The main difference between a freight forwarder and a traditional customs broker is that a freight forwarder is supply chain expert who concentrate on the physical transportation of goods in international trade, while a customs broker acts on behalf of the client with the goal of passing the customs clearance smoothly. There is no overlap as far as the definitions go. But in fact, many companies offer both services for their clients.
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Reference: 1. https://www.cbp.gov/trade/programs-administration/customs-brokers/becoming-customs-broker