In today’s post, we welcome Diane Callihan, Marketing Content Strategist for Bongo International, a FedEx company. She’s going to shed some light on the complexities of shipping internationally.
Worldwide e-commerce is growing at exponential rates, and more and more US e-retailers are realizing that selling and shipping their products globally offers vast potential to grow their businesses.
In fact, according to eMarketer, worldwide B2C e-commerce sales hit $1.5 trillion in 2014, and are predicted to reach $2.35 trillion by 2017.
Still, some merchants have been reluctant to join the global marketplace due to strict cross-border regulations and the complexities of doing business in multiple countries. One of the challenges to global e-commerce is understanding duties, taxes and custom fees around the world.
Duties, Taxes & Customs Fees
Almost all shipments crossing international borders are subject to duties and taxes imposed by the importing country's government. Duties and taxes are imposed to generate revenue, protect local industries against foreign competition, or both.
According to Export.gov, a tariff or duty (the words are used interchangeably) is a tax levied by governments based on the value of imported products, including freight and insurance. Different tariffs are applied to different products by different countries. National sales and local taxes, and in some instances customs fees, will often be charged in addition to the tariff.
These costs add to the merchant’s product costs, which can negatively influence foreign buyers.
Some countries have very high duties and taxes; some are relatively low. If a merchant’s product is primarily made in the US with US-originating components, it may qualify for duty-free entry into countries with which the US has a free trade agreement (FTA). The US currently has FTAs with more than 20 countries.
Duties and taxes on international shipments are based on a number of factors, including the value of the item being shipped, how the product is used, the country of origin, any trade agreements between the origin and destination country, and the product’s Harmonized System (HS) code.
Harmonized System Codes
The International Harmonized System is a commodity-classification system administered by the World Customs Administration. Countries around the globe use this international classification for all imported and exported goods. Every item that is shipped is legally required to have a 6-digit HS code, whether it’s a paper clip or a jet engine. The first two digits generally categorize the item, the second two classify it further, and the third two are most specific.
In addition to the HS code, each country may add additional numbers to the end of the HS Code to specify the item even further. The US uses a 10-digit code known as a Schedule B number. The first 6 digits of the Schedule B number are the HS code, followed by 4 digits for further classification.
Tariffs or duties are often assigned, in part, based on these classification codes. To get a duty rate for importing products into a foreign country, one needs to have the complete classification number used by the importing country.
A good global e-commerce solution provider will determine the classification codes for every product/SKU a merchant sells, as well as logging in the item’s dimensions and weight. With that information, as well as the destination country, they can determine not only the shipping cost of any item, but also any applicable duties, fees or taxes.
Together, this is called the total landed cost. Clearly a lot of variables go into this cost, so it pays to work with an expert who can help navigate international logistics.
Why is the Total Landed Cost Important?
According to a study by the Baymard Institute, the average documented online shopping cart abandonment rate is 68%. Econsultancy reported in April of 2014 that global retailers are losing $3 trillion (USD) in sales every year from abandoned carts.
The number one reason for shopping cart abandonment (56%) is that buyers get frustrated when presented with unexpected costs, including shipping, duties and taxes.
Due to laws and regulations around the world, those costs are unavoidable for international consumers. So how can eRetailers make those costs more palatable to their global customers?
Being able to calculate and communicate the "landed" cost up-front can often save both the merchant and the consumer valuable time and money. The merchant can find out which of their products will cost the most in shipping and taxes and adjust pricing accordingly.
And the consumer will be informed throughout the checkout process, so there will be no surprises at the end.
Greg Sack, Managing Director of E-commerce for Bongo International (A FedEx Company) said, “We believe that transparency at checkout is vital. E-commerce merchants benefit from being upfront with their customers throughout the process, and international consumers are more likely to buy if they aren’t surprised by hidden fees or unexpected charges.”
Determining and sharing the total landed costs of products can help merchants inform their international customers, and ultimately, retain sales.
Diane Callihan is the Marketing Content Strategist for Bongo International, A FedEx Company. Founded in 2007, Bongo International began as a package-forwarding service for international consumers and expanded to develop global e-commerce solutions for online merchants. Today, they are a leader in cross-border technologies enabling merchants to tap into the vast potential of world markets.