What's involved in B2C Customs Clearance?
For B2C merchants who ship cross-border, customs clearance is an integral part of the logistics supply chain. Alongside other delivery factors, customs clearance affects whether or not goods can reach end-consumers in a timely manner. More importantly, it will also determine whether or not shipments can even enter a country.
Just like how one has to clear customs at the airport before beginning their holiday in a foreign country, shipments also have to go through the same process.
Customs clearance refers to being given official permission to bring goods into a country once they arrive at their destination country. In other words, to clear customs, merchants need to ensure that their shipments aren’t on the country’s prohibited items list for the goods to enter the country or that their items follow the country’s laws before they can enter.
If your items are on the restricted list or need any additional permits, documents and licenses, you’ll need to make sure you have those on hand before you plan to import items to your target country. You’ll also have to check that your shipments have accurate labels before they set out on their delivery journey so that they can clear customs smoothly.
At the customs office, shipments would be checked to see if they require additional import taxes and duties to enter the country depending on the de minimis thresholds of the country. These fees will have to be paid either by your eCommerce logistics service provider (LSP) or your end-customer before the shipments can be released for fulfilment or distribution.
If you’re unable to clear customs without a hitch, it may cause a snowball effect further down your supply chain in terms of additional cost and time incurred. For example, goods that can’t clear customs would have to be stored at the customs warehouse or bonded warehouse until duties and taxes on the goods are paid and the items clear customs.
You may have to pay storage fees based on the duration of the storage. Not all countries would allow you to send back your parcels if they fail to clear customs as they may simply destroy or abandon them.
Hence, it’s important to partner with an LSP who has experience in customs clearance in Southeast Asia to stay updated on the latest changes. A reliable LSP should help you clear customs quickly and resolve any problems that may arise.
Now that we know what customs clearance means, we can look at how the process can be broken into smaller parts for easier understanding.
What exactly happens at customs clearance?
Upon landing at the destination airport, your shipments will be transported by ground service agents to the customs warehouse where the customs officers are. The shipments will then go through the customs clearance process, where the customs officers will look out for three main things: prohibited or controlled goods, documentation and labelling, and import duties and taxes.
Let’s take a closer look into what these aspects of customs clearance are.
1. Prohibited or controlled goods
When your shipments arrive at the customs warehouse, the customs officers will check if your shipments are permitted within the rules and regulations of the country. This is the most important part of customs clearance because if your shipments contain prohibited goods, they would not be able to enter the country.
For instance, non-medicinal chewing gum is not allowed to be imported into Singapore even though it is commonly sold to people from other countries (although visitors are allowed to bring in 2 packets for personal consumption). A shipment of non-medicinal chewing gum will not clear customs regardless of the documentation because it is under the list of prohibited items on Singapore Customs.
Another point to note is that if you’re looking to import controlled or restricted goods such as food or cutlery for only business-to-consumer (B2C) purposes, you likely would not need licenses to clear customs. However, if you’re going to import them for business-to-business (B2B) purposes, then they may need appropriate licenses such as an Agri-Food and Veterinary Authority of Singapore (AVA) license in Singapore’s case.
B2B shipments generally require a lot more documents to clear customs as compared to B2C shipments, and B2C couriers may not be able to ship B2B and vice versa without the correct licenses. Thus, it would be good to let your LSP know in advance the type of delivery you need in the event it is not a B2C one. This will help to reduce the chances of facing severe penalties trying to import controlled goods into the country without permission.
Considering all these requirements, be sure to check for the latest updates in the rules and regulations of the country you’re looking to import to.
Looking to start shipping internationally to and throughout Southeast Asia? We provide customs clearance solutions and can help you navigate through the process. Contact us via the link below to find out more!
2. Accurate labelling and proper documentation
Alongside checking for prohibited or controlled goods, the customs officers will also check on the labels of your shipments. This is where the importance of proper labelling comes in. If your shipments have inaccurate labels or commercial invoices, customs can hold or even confiscate your goods.
Common inaccuracies include wrongly stating the type of goods your shipments contain or the value of their prices, or incorrect delivery addresses. While these details may seem minute, incorrect labels have the ability to cause an entirely failed delivery if your shipments cannot pass through customs at all. Even in an optimistic standpoint, slow clearing of customs may still lead to delayed distribution for last mile delivery.
It’ll be useful to note that aside from labelling, some of the documentation you or your LSP may have to provide are:
- Certificate of origin
- Master airway bill
- Insurance policy
- Receipt of payment of import duty and import-related taxes
- Other relevant permits, licenses, and certificates
Failing to clear customs due to inaccurate paperwork may lead to increased costs when you’re charged more by your LSP because of the extra effort made in handling your goods when clearing customs. As an example, the additional effort can come in the form of them having to reprint your shipment’s label if it’s incorrect or damaged.
Hence, before sending your shipments out on their first mile delivery, it would help to check that all the details on the labels and documentation are accurate. This can help you save cost and time by increasing the chances of your shipments getting through customs at once.
However, with certain LSPs, you may be able to opt for a pre-customs clearance experience for your shipments so that you can be one step ahead of the customs clearance process. How this works is that your goods will be cleared even before they land in the destination airport because they’ve already been checked on a digital list sent to them by your LSP.
In this situation, customs officers have the ability to let your shipments through once they arrive in the warehouse because they’ve already acknowledged and agreed for all incoming shipments to enter the country.
3. Collection of import duties and taxes
A. Calculation of Import Duties and Taxes
Based on the Harmonised System Code (HS Code) of your shipments, customs officers will have to check how much import duties and taxes they are subjected to. HS Codes are internationally recognised ID codes to help countries identify the contents of a shipment or parcel without needing to open them. Different items can have different taxes regardless of how similar they may be, as evidenced by how coffee powder is not taxed in Malaysia, but coffee beans are.
Even if you're not placing the HS Code for your product on the shipping label, it's still important to know which HS Code on your shipment falls under to ensure that your goods are correctly identified and taxed. If you have an LSP helping you clear customs, providing them with an accurate description of your goods lets them give you a more accurate estimated amount of duties and taxes for the shipments.
UPDATE: Depending on your shipment and the specific country you're shipping to, import duties and customs taxes will be calculated in different ways. Some countries may not use HS Codes or charge flat rates on all types of products while others will charge based on HS Codes.
We’ve compiled a shortlist of import duties and taxes that eCommerce merchants may subject to in most Southeast Asian countries. To find it, visit our customs clearance guide.
B. De Minimis Thresholds
If your shipments fall under the de minimis threshold of the country, they may be excused from additional import duties and taxes. De minimis is the price threshold below which fewer or no taxes are charged on shipments. When cross-border shipping, your shipment value is the value used for calculating import taxes and duties at the customs office. It will include the monetary value of your goods plus the cost of shipping.
This suggests that if a country has a higher de minimis threshold, your shipments can have higher customs values before incurring higher taxes. Hence, a higher threshold allows your shipment to contain more goods, or higher priced goods before going over the limit and incurring higher customs duties and taxes.
C. DDU vs DDP
If there are payments to be made, depending on whether you have chosen delivered-duties paid (DDP) or delivered-duties unpaid (DDU), customs duties and taxes would have either been settled beforehand, or by your customers when the shipment arrives at the customs office.
When choosing DDU, customs duties and taxes need to be paid by end-consumers usually within three days of the goods arriving at the customs office. This may displease your customers who might not expect to foot these additional charges.
Even though different arrangements can be made for you to be billed instead, the DDU option still has other risks. For example, shipments might risk getting stuck at customs because they need to be set aside until import duties and taxes have been paid. This could lead to an unnecessary delay in clearing customs and cause inconvenience to the entire delivery process.
Thus, it’s always safer to choose DDP to ensure that the import taxes and duties are fully accounted for when your shipments arrive at their destination country. This is so that the goods can clear customs at a much faster rate to reach your customers. It would be helpful to look for LSPs who offer DDP services, where they pay for the customs duties and taxes to help move your shipments without hassling you or your end-consumer.
Once the customs officers have collected the necessary fees from your LSP or end-consumer, they will be transferred to a fulfilment centre or distribution hub for packing and preparation for their last mile delivery to your end-consumer. This means that they have successfully gone through the customs clearance process and can now enter the country.
While customs clearance may appear daunting, it should not be an obstacle to growing your business overseas. Take some time to confirm that your goods are not prohibited in your destination country, and check that the labelling and documentation for your shipments are accurate. Try to find out the estimated import tax and duties, and settle on a method of payment (DDU or DDP) that suits you best.
These steps should reduce the chances of your items getting stuck at customs, saving you time and money. Ultimately, cross-border shipping can be simplified even in complex regions like Southeast Asia when partnering with reliable LSPs who have the experience and knowledge about shipping in the area.
Janio Asia specialises in end-to-end cross-border shipping for your eCommerce needs. Reach out to us to find out more!
You may also be interested in: