Most merchants with global shipping programs spend time making sure they pay the correct import fees, duties and taxes when their products cross country lines. But what happens when one of those products gets returned? What happens to those fees?
Reclaiming import fees incurred on international returns is a complex and intricate process.
How to Manage International Returns
Shipping into international markets is an important step for any growing ecommerce business. With the rise of online shopping, a company may need to support global customers more quickly than in years past. Consumers expect to get the products they see online no matter where in the world they ship from.
Figuring out the complexities of shipping internationally is difficult, and many companies forget to map out the returns process. Before launching into a new country, it’s imperative to understand every detail of how to manage international reverse logistics.
What are Duties, Taxes, and Total Landed Cost?
Most companies know that when they send products across country lines, they will need to pay import fees. Here are the main types of import fees (they will be different for each country).
- Duties: a fixed fee, determined by the country of import, based on how freely a product can be let into the country. Duties are applied to the specific material or product type (determined by the Harmonized Commodity Description and Coding System, or HS codes). For most consumer goods (consumer electronics, apparel, etc.) duty fees are usually 5-7% of the import value. While duty fees change often, they don’t ever go away.
- Taxes: also called import taxes, these are fees based on a standard percentage, defined by the government, of additional cost added to any imported product coming into the country. These may also be called Value-Added Tax (VAT) or Goods and Services Tax (GST).
- Tariffs: fees that are imposed by a government for certain products, or categories of products, at distinct times. Tariffs are not constant, they come and go depending on the folks in power within the government, and the relationship between the export country and import country.
- Total landed cost: this is the sum of all customs or import fees totaled together. Landed cost includes order value, shipping costs, cargo insurance costs, and all duties and taxes.
Brands often understand that when shipping internationally they will have to pay any number of these fees, depending on the country and current trade relationships. But companies often don’t think about what happens to those fees if customers return their products.
Read a full breakdown of the difference between international import fees.
How Does Reclamation Work?
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.
For the sake of simplicity, let’s take Canadian shipping as an example. All countries have slightly different rules and processes, but many US-based ecommerce brands ship to Canada so it’s a popular example.
“Reclamation is often the economic tipping point to whether returns are viable for them on cross border returns. It’s so important to work with a partner like Passport because we handle all the direct commissions and paperwork.”
There are two main ways to reclaim duties and taxes on an international return (imported into Canada, returned by a Canadian customer, and shipped back to the US).
- The Casual Refund. This requires the customer to print out and submit a few pieces of paperwork to the Canadian Customs office. The documents state the duties and taxes paid and validate the returned item was shipped back to the merchant. A refund for duties and taxes will then be issued from Canadian Customs to the customer directly. It’s a fairly easy process, as long as the customer is willing to mail in the paperwork. This process doesn’t exist as easily for US customers buying from international companies. The challenge with a casual refund is that the customer must be able to get the right information, such as the export documents to prove that the product left the country. If the information they send doesn’t match up exactly to the records that Customs has, then no refund will be issued. To enact a casual refund with returns management from Canada, your team must be prepared to send customers the correct information, in a timely manner, and give the clear directions on how to reclaim their refund.
- Credits. This is basically the automated version, or the electronic version of a casual refund program. The processing happens because a Canadian customs broker manages the refund on behalf of the US company. The broker will submit the documents to CBSA (The Canada Border Services Agency), and the merchant will receive the refund directly. The merchant will receive all duties and taxes and then be able to pass the funds on to the customer. From the consumer’s perspective, when they get a refund it be for the entire refund (including the price of goods, plus duties and taxes) all at once.
How to Set Up International Returns Properly
Just like most aspects of international shipping, the administration required for reclamation can get complicated. Most brands are not able to do it themselves, because it’s such a hassle.
There are ways to get help if you’re an ecommerce brand looking for international returns support.
- Work with a broker. A customs broker will know exactly how to help you get products to customers in their country, as well as return them. You’ll need a broker in each country where you import products, because laws and regulations are different in each country.
- Outsource to an international shipping carrier service. Passport Shipping is a great example. If you outsource the international part of your shipping with them, they will handle the paperwork, customer support, duty and tax calculations, and more.
- Hire an expert. If you’re company is expanding, you might want to bring a global logistics expert onto your team to manage your international markets. Just make sure they are well-versed in the specific regions where you want to ship.
By working with international experts (whether hiring them internally or outsourcing the work) you’ll be taking the guesswork out of your reclamation process. Plus, they may help you save money on commonly overlooked international costs. Each country has different rules and regulations, that can change quite frequently, so having an expert on your team is the best way to do business.
If you’re looking for internationally shipping support, Passport Shipping is a great resource. They are a partner of DCL Logistics. Ecommerce brands who use DCL for fulfillment have seamless integration with Passport when they want to start shipping internationally. Reach out for a quote.