International shipping is complex and difficult to manage. Yet with the rise of global ecommerce shopping, many brands need to consider shipping around the world to remain competitive.
Here are some of the most common international shipping terms, defined. If you’re not sure if you’re brand is ready to sell abroad, learn more with our international shipping readiness checklist.
Air Freight
Any cargo transported by air is considered air freight. International shipping carriers have different prices for various services, air freight is one of those. Often air freight is the fastest way to transport cargo internationally, but that can come with a steeper price.
Broker
Shipping brokers are intermediaries between shippers and carriers. They work toward creating favorable contracts and terms between these two parties. Benefits of working with a broker is that they will have the most updated information on policies and regulations to ensure your shipping paperwork, customs documentation and tax preparation are always correct. They may have connections to government agencies, tax experts, and other legal bodies more than an international shipping agency might.
Some brands choose to work with an international shipping broker who knows specific countries where they ship from or ship to, because all countries have different import and export rules and regulations.
Cargo Insurance
Also called freight insurance, this is insurance that covers damage due to loading/unloading, weather conditions, piracy and other potential risks during international shipping. Cargo insurance can be specified for marine or air freight.
Certificate of Insurance
A documentation of cargo insurance that covers the importer/exporter for any possible damage to the goods while in transit. Reach out to a broker or freight forwarder to arrange the insurance.
Certificate of Origin (CO)
A CO is a document declaring in which country a commodity or good was manufactured. The certificate of origin contains information regarding the product, its destination, and the country of export.
Commercial Invoice (CI)
A commercial invoice is one of the most common and important documents used in cross-border trade and shipping. Every shipment needs proper international documentation to clear customs and border checks (both export and import checks).
Most basically, the information on a CI includes what the products are (classification, also known as HTS code), where they are manufactured (origin), and where they are going (destination). There are basic required items, but some countries may have additional requirements.
Customs
Customs is the governmental agency of each country that is responsible for controlling the flow of goods across the country’s borders. The Customs and Border Control entity typically enforces import and export rules and regulations, and collects fees associated with import and export—tariffs, taxes, duties, etc.
Customs Fees
The cost of importing or exporting any goods, animals, products, or materials differs from country to country. Whatever the country expects in monetary terms is considered part of the customs fee. These could include taxes, duties, tariffs, or other fees.
De Minimis
If you are a CPG (consumer packaged goods) brand, or ship lower value goods you may avoid paying duties in certain countries because of a de minimis tax rule which states that if the value of your shipment does not exceed the countries de minimis value, you pay no import fees.
Duties
Duties are customs fees often determined by international trade negotiations and they are based on product characteristics. Duties change, but they won’t ever go away, they are a constant.
Anytime a product is imported into a country it incurs a duty fee. For most consumer goods duty fees are usually 5-7% of the import value, because these products may not have as big of an impact on the economy. Duty rates are applied to certain categories of materials and products, and they largely depend on how much that country needs them.
Duties are calculated by each product’s 10 digit HTS code. This is a fixed code that is dependent on the characteristics of your product. Every type of product is classified with a specific HTS code.
Duty Drawback
Duty drawbacks are for a retailer importing finished goods, then warehousing them, then exporting them to a third country. Duty drawback only applies to B2B shipments, marketplaces and retailers are included.
Export
An export in international trade is a good produced in one country that is sold to another country. The seller of such goods or the service provider is an exporter; the foreign buyer is an importer.
Export Documentation (and Import Documentation)
For each country you’ll need specific paperwork to import your products. In most cases the documentation isn’t long, but it’s very detailed and needs to be correct. A few of the most common documents you’ll need for export or import include: certificate or origin, commercial invoice, cargo insurance, certificate of insurance.
FCL (Full Container Ocean Freight) and LCL (Less Than Container Load)
Similar to trucking, ocean freight containers can be loaded as full or less-than-full containers. FCL denotes full container ocean freight, while LCL denotes less-than-full container ocean freight.
Freight Insurance
See cargo insurance.
HS Codes & HTS Codes
An HS or HTS code stands for Harmonized System or Harmonized Tariff Schedule. This is a system of product identification developed by the World Customs Organization (WCO). HTS codes are used to classify and define internationally traded goods, they correspond to the customs fees paid.
A code with six digits is a universal standard (HS Code) and a code with 7-10 digits (HTS Code) is often unique after the sixth digit and determined by individual countries of import.
These codes are important because they not only determine the tariff/duty rate of the traded product, but they also keep a record of international trade statistics that are used in nearly 200 countries.
Import
A product or good that is being received into a country is an import. Importation is limited by quotas and regulations from the customs agency of that country.
Importer of Record (IOR)
An Importer of Record is an entity responsible for goods being imported into their country. The IOR ensures the goods are appropriately documented and valued, they are also responsible for paying duties, tariffs, and other fees related to the imported shipment.
Incoterms
Specific codes added to your import/export documentation, Incoterms define the transaction of goods between the entity exporting and the entity importing. They set out the various parts of trade that assign responsibility for cost, logistics, and any operational processes needed.
- EXW – Ex-Works: The seller makes goods available at their location, with the buyer responsible for all transport and clearance.
- FAS – Free Alongside Ship: The seller clears goods for export, and the buyer assumes all transport costs and risks.
- FCA – Free Carrier: The seller arranges transport with the buyer’s carrier at the buyer’s expense and risk.
- FOB – Free On Board: The seller delivers goods to the port, and the buyer assumes responsibility from there.
- CFR – Cost and Freight: The seller pays for transport to the destination port, but the buyer takes on risks after loading.
- CIF – Cost, Insurance, and Freight: The seller covers transport and insurance to the destination port.
- CPT – Carriage Paid To: The seller pays for transport to the destination and arranges basic cargo insurance for the buyer.
- CIP – Carriage and Insurance Paid To: The seller provides minimal insurance for multimodal transport until the goods are handed over.
- DPU – Delivered At Place Unloaded: The seller delivers and unloads goods at the destination, with the buyer covering duties and taxes.
- DAP – Delivered At Place: The seller delivers goods ready for unloading, with the buyer handling import clearance and unloading.
- DDP (Delivered Duty Paid): The seller handles all costs, risks, and duties to deliver goods to the buyer’s door.
Be sure you’re clear on the differences between DDP and DDU.
Landed Cost, Landed Price, or Total Landed Cost
This is the sum of all customs or import fees totaled together. Also called landed price, landed cost is the total cost of getting a product from the supplier to its destination. It includes order value, shipping costs, cargo insurance costs, and all duties and taxes.
To determine this cost, you need to consider the cost of the products themselves, plus any other costs you directly incur to obtain the products. These costs can include everything from shipping to freight costs. Include other expenses as well, especially if you’re importing goods, such as costs associated with customs, duties, insurance, storage and taxes.
To calculate the landed cost, you’ll need to add up all the fees and expenses. Some merchants choose to calculate the landed cost per unit, which is the total cost for each individual unit, rather than for the entire shipment. You can define units in various ways, including by individual products, by weight or by volume. This number can tell you how much it costs you to ship each product or each portion of your shipment.
Read more about landed cost and how it’s calculated.
Ocean Freight
Any cargo transported by sea is considered ocean freight. International shipping carriers have different prices for various services, ocean freight is one of those. Often ocean freight is the slowest way to transport cargo internationally, but that can come with cost benefits.
Reclamation
Reclamation is the process of getting back any customs fees that were paid to import a product when it is returned to the country of origin.
One of the biggest headaches for merchants and consumers alike when dealing with returns is getting your full refund. In international shipping, getting paid back for the import and customs fees is called reclamation. There are many ways to manage reclamation for your customers to ensure they get a full refund on the product and all other fees they paid. Two types of reclamation for Canadian shipping are the casual refund or credits.
Learn more about reclamation for international returns and how to implement a simple reclamation strategy.
Tariffs
Tariffs are fees applied to specific products from specific countries for specific times. They are determined by the whim of the US government, based on how that government wants to impose restrictions from certain foreign countries.
Often confused with duties, tariffs are fees imposed by a government for certain products, or categories of products, at distinct times.
Just like duties, the percentage increase of a tariff is calculated from the import value of the product, and very often the fees are passed on to the end-customer. Tariffs can drastically change the prices of imported goods, thus affecting consumer habits.
Taxes
Import taxes are based on the standard percentage, defined by the government, of the additional cost added to any imported product coming into the country. Based on the country it may be called Value-Added Tax (VAT) or Goods and Services Tax (GST).
If you’re seeking international shipping support, reach out to DCL Logistics for a quote. We have amazing international shipping partners like Passport Shipping who can integrate seamlessly with our services to give you great international support.
Tags: International
