Import Duty and How It Affects eCommerce Logistics (Updated 2024)

International shipping offers many profitable opportunities for your business. From 1990 to 2021, cargo transported by ships more than doubled from four to nearly 11 billion tons, just ocean shipping. While it has grown tremendously over the past two decades, international shipping can get challenging, especially for e-commerce businesses expanding into overseas markets. 

Out of all the challenges related to international shipping, one significant issue goes almost unnoticed: import duty. These additional expenses can significantly impact your online business’s profitability and customers’ shopping experience. 

Therefore, to take advantage of the growing potential presented by eCommerce, it is essential to understand and manage import duties effectively.

An import duty is the fee that a nation’s customs officials levy on imports and select exports. The value of the commodity typically determines the cost of an import duty. Depending on different situations, an import duty can also be referred to as a customs duty, tariff, import tax, or import tariff.

Import tariffs serve two unique purposes. First, they increase local government revenue. They also help provide a competitive edge to locally produced or cultivated items since they are exempt from import charges. These duties can also penalize another country by imposing excessive import taxes on its goods.

Import duties can significantly impact your pricing strategy as an online retailer should you choose to expand internationally. Given the amount of import duties needed to pay on the imported items, you will need to modify the pricing of your products.

But the effects go beyond the items’ altered prices. Import duties significantly increase the time for the items you send to transit and arrive. As a result, they will affect eCommerce shipping and change the dynamics of your logistics process.

Familiarity with import duties allows you to maintain more transparency with your clients. If you clear your price structure and shipping duration to them upfront, customers will be less likely to point out shipment delays or hidden fees. 

Breaking Down eCommerce Import Duty

Two major factors will determine whether or not you will have to pay import duty. You can base this on which nation you are sending to and what items you are exporting.

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Country of Import

The destination country of the goods mostly determines the specific import taxes overseas shippers must pay. Every nation has its own unique laws, regulations, and import taxes.

For example, you will probably pay less in import charges when exporting to nations that have free trade agreements with your own. If you are shipping to a destination with strict import laws, expect to pay more. 

Products Being Sold

Imported goods are another significant aspect that affects import duties and fees. The Harmonized Tariff Schedule (HTC) is a worldwide nomenclature that assigns a tariff rate to every commodity produced.

These items can significantly impact taxes, with some being extremely high and others low. The components or ingredients of the item can determine this.

In eCommerce, the buyer can be responsible for paying import duties on foreign shipments. The incoterm classifies this delivery duty as unpaid (DDU shipping). If you, the seller, will carry the cost of import duties, it is considered deliver duty paid (DDP shipping). Certain countries impose incredibly high import taxes on consumer goods. These expenses can even match the cost of the item.

You can incur many internal costs when exporting overseas and choosing to shoulder import duties.

Ensure you explicitly indicate when import fees and tariffs are the consumer’s responsibility. Include these charges in customers’ shipping estimates when they check out online. If not, these expenses will reduce your income. 

The amount of duty levied on cargo will vary based on several variables. The amount an eCommerce company delivering under DDP must pay can be calculated using four basic techniques. These will depend on the jurisdiction. Duty is determined ad valorem or as a proportion depending on the worth of the products.

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Cost, Insurance, and Freight (CIF) – The order cost plus freight, insurance, and the seller’s commission are used to compute the duties.

Free on Board, or FOB – Only the cost of the sold products is used to determine fees.

Weight – The weight of the items determines the duties.

Freeport – Some countries do not charge import duties, hence the term duty-free.

It is important to remember that taxes, carrier fees, and other government fees are among the additional costs factored into the final landed cost estimate.

The import duty collection process starts when the importer submits their manifest declaration to customs. This shipping document lists the individual and total values of the products they bring. Once the items are received, customs officers will assess their worth and determine the duties that must be paid at the border.

Customs delays may arise from a delivery exception caused by noncompliance with protocol. 

ECommerce companies must consider duties and taxes when transporting goods across international borders. Businesses can effectively deliver items to clients without incurring additional expenses or delays. This starts by understanding the various ways of calculating import duty and collaborating with knowledgeable fulfillment partners.

Dealing with Import Duty for Maximum Profits

Import duties are important for international trade. However, many corporations and enterprises often pay more in duties than what is mandated by law. This can have a significant impact on any business’s earnings. Shipping your goods as conveniently as possible is in your best interest.

Several strategies exist to lower import taxes and customs charges. Several variables determine your duty payment amount. By keeping these variables under control, you can save money and increase your profit margins.

1. Take Advantage of Free Trade Agreements (FTAs)

Using FTAs that your country has signed with other governments is one of the simplest methods to lower customs taxes upon import. 

FTAs are agreements that provide favorable trading conditions between two or more countries. Benefits include lowered or zero tariffs, streamlined customs processes, and mutual standard recognition. 

You can enjoy these benefits if you import products from a nation that has an FTA with your own. Of course, you must abide by the rules of origin and supply the required paperwork. For example, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) allows duty-free access for textile imports from Vietnam to Australia.

2. Duty Drawbacks

You can apply for duty drawbacks, which is a great way to lower import duty costs. These refunds are for the charges paid on imported products that are later exported or destroyed.

Duty drawbacks are intended to lessen the cost of double taxes on items that travel across borders and promote exports. 

You can claim duty drawbacks from the customs authorities if you import items that are either broken or outdated, utilized as inputs for exported products, or re-exported in the same condition. However, these only apply in certain situations, so be sure to double-check any regulations in the country you are shipping to. For example, duty drawbacks can help recoup most of the taxes if you import steel from China to the US, pay 25% in tariffs, and then sell to Canada.

3. Valuation Method

Selecting the appropriate valuation method for your goods is another way to lower customs taxes during importation. Customs officials use the valuation technique to establish the overall value of your products to charge duties. Depending on the country, there are many different techniques for valuing goods. The transaction value approach is the most widely used, based on the amount the buyer must pay the seller for the products. 

There are some instances where the transaction value might not accurately represent the products’ total value. It is also possible that the items are not accessible to or approved by the customs authorities. Other techniques can be applied in these situations, such as the value of similar or identical items, the deductive value, the calculated value, or the fallback value. You may minimize the value and the duty amount by selecting the most suitable valuation technique for your items.

4. Understanding the Tariff Classification

The process of giving your items a code based on the Harmonized System (HS), a standardized nomenclature for international trade, is known as tariff classification. The appropriate duty rate, together with other prerequisites and limitations, is determined by the HS code for your products.

There can be several interpretations or possibilities for your goods, and the HS code is not always simple or clear. 

By researching the HS code, you can prevent overpaying or underpaying duties by finding the most accurate and advantageous tariff classification for your goods. Consulting with customs officials or a professional customs broker can help clear any confusion regarding HS classifications.

It can be challenging to stay on top of import duty costs. However, with due diligence and research, you can save money even if you move items globally, regardless of taxes and fees.

Gaining a thorough grasp of import duty charges is crucial to expanding eCommerce. By handling import duty costs thoroughly, you can give your consumers an easy and transparent buying experience, boosting sales and strengthening customer loyalty.

ZhenHub’s globally connected eCommerce fulfillment centers help you manage import duty costs. With an extensive network of smart warehouses, you can scale your businesses into more international markets. Sign up today to get started with intelligent logistics. Contact our fulfillment experts for more details.