Customs clearance is an important aspect of international shipping. All shipments moving through customs need to be properly documented and labeled, one of the most important factors is the product’s declared value. This is the what the shipper determines the goods are worth.
Declared value is important because it is used to calculate taxes and duties. All shipments will go through customs valuation when being imported, this is the process that customs takes to determine the value of the goods, thus the import fees that will be applied. Declared value is an important part of customs valuation.
Many ecommerce brands may not know how to value their products properly for customs clearance. But assigning the correct value to your products is critical. Any missing or incorrect information will result in fines or held shipments.
Understanding the best way to value your products, common issues to avoid, and how to properly label your shipments will ensure smooth customs clearance.
How is Declared Value Calculated for Customs Clearance
As you fill out your commercial invoice and other customs documentation, it’s important to properly assign a declared value.
The basic approach to calculating declared value is to use the price of goods actually paid by the shipper. If this price is not known, use the following methods of customs valuation.
According to the World Trade Organization (WTO) every country must use one of the following approved methods of customs valuation.
- Transaction value—the price that is actually paid by the importer, plus any other costs or expenses incurred.
- Transaction value of identical goods—apply the value of goods that are identical and being imported by the same producer into the same country.
- Transaction value of similar goods—apply the value of goods that function similarly and are made in the same country, being imported to the same country.
- Deductive value—based on the unit price which the goods are sold in the country of import.
- Computed value—based on the aggregate cost of producing the goods (this is a very rare method).
- Fall-back method—if no other method can be used, customs will use any available data to determine a value.
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How to Value Imports That are Free or “No Sale” Circumstances
There are many scenarios where ecommerce businesses find they are importing products where there weren’t sold for a monetary transaction. Gifts, promotional add-ons, warranty replacements, or product exchanges. For these “no sale” transactions, here’s how you declare an accurate value for customs.
Gifts
Many ecommerce brands attract customers with “free gifts” but in the world of shipping, you’re technically not allowed to send a gift to a private individual. If customs sees your product marked as “gift” or valued at $0, they will flag and audit the shipment.
Free Items
Free samples are another great promotional too, but free won’t get you through customs clearance. No matter what the product is, list a realistic value on your import documents. Usually, the best way to do this is to use the retail value of a product as if it were purchased.
Promotional Add-ons
Similar to the scenario above, if a brand is sending a free t-shirt as a promotion to a customer who also bought a backpack, they need to disclose the value of both items that are being shipped. Retail pricing can be used, or the two items can share the total price. For instance, if the backpack was $60, the brand can list it for $50 and the shirt for $10.
Bundles & BOGOs
Bundling products together for an overall lower cost is a great promotional tool. But it means more products will be shipped than the actual retail cost of each added up together. If you are promoting buy-one-get-one (BOGO) to your customers, you’ll need to make adjustments to your declared value when shipping two products purchased for the cost of one.
Here are two approaches:
- You can reappropriate individual costs of each item that will add up to the actual total “BOGO” promotional price. For example, if the promotion is buy one at $100, get one free, the brand could list the value of each item as $50 for customs purposes.
- You can list a quantity discount with the items and use the transaction value method.
Discounted Product
If a customer pays a discounted price for a product, the discounted price can be used as the declared value. It must be the same price that’s shown on the sales receipt.
Swag or Business Gift
If a discounted item is not sent from a consumer transaction and there is no sales receipt, use the discounted price. This could be swag sent as a holiday gift for employees, or a birthday gift automatically sent as part of an organization’s loyalty program. The stipulation is that the product will not be resold, and it must be sent directly from a business to an employee.
What Happens if I Under Value My Products?
Customs requires shipments to be reasonably valued. When products are undervalued or misvalued, customs will hold the shipment until the product is reassessed. This causes delays and possible added costs.
Undervalued shipments may become a liability if lost or damaged. Any insurance reimbursement won’t match the actual cost of goods if the product was initially undervalued. For example, if your declared value is $10 for a $450 product, you will absorb that loss.
Customs will inspect shipments with valuations that appear arbitrary, $0.01 or $1. They use technology to flag and hold any goods that may be undervalued to ensure all imports are following their requirements.
How does Declared Value Affect Shipping Costs
While product valuation is imperative for customs, it will also affect your shipping costs. Carriers will use the declared value, as determined by the shipper, to calculate their overall shipping rate. Often a higher declared value will also incur a higher shipping rate.
Shipping insurance is also affected. The shipment’s declared value will determine the maximum amount you can recover if any damage occurs in transit. Many carriers offer a standard rate of shipping insurance (FedEx and UPS it’s $100) that will cover any shipment, unless your declared value is significantly higher, or you determine you want to insure a shipment for a higher rate.
What Happens if My Declared Value is Incorrect?
Sending a shipment through customs that is not accurately and reasonably valued will result in fines or a hold. If there is any missing or incorrect information on your international shipping documents, your shipments will be fined or held at customs which will delay them to your end customer.
If errors are repeated customs agents may develop a negative association with your brand and pull shipments for inspection more often, which also leads to delays.
Bottom Line
When shipping internationally there are many variables to get right—it can be a complex endeavor but one with big growth potential. By getting the declared value right you’ll ultimately be giving your customers the best possible experience with your brand. International shipping is nothing without maximum customer satisfaction. Don’t get caught with delayed shipments or issues at customs.
This post was written by Maureen Walsh, Marketing Manager at DCL Logistics. A writer and blogging specialist for over 15 years, she helps create quality resources for ecommerce brands looking to optimize their business.
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