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Archive for the ‘Logistics’ Category

Import, Logistics, Q&A, US Customs

What is a Foreign Trade Zone?

Thursday, November 29th, 2007

A foreign trade zone is a warehouse on US soil that acts like limbo for imported goods. If you have something that can’t come into the country, is just stopping off before being shipped to another country, or needs to operate outside of standard Customs procedures, a Foreign Trade Zone (FTZ) might be the way to go.

Example: I worked with a customer one time importing textiles (T-shirts) from China for sale in the US. As many textile importers will tell you, there is an import quota on Chinese textiles that caps the total amount they’re allowed to import into the US each year. Unfortunately, this importer’s agent failed to advise his customer that his category’s quota for the year had been filled. The end result was 50,000 embroidered T-shirts held at the port of Long Beach California that could not be cleared through Customs.

As you can probably guess, the solution I recommended was a Foreign Trade Zone. By warehousing the goods in an FTZ on US soil, the importer was able to avoid shipping his goods back to China (and all the costs that would incur) and was first in line when quota was re-opened the following year.

Not a totally pleasant experience for the importer, but a lot better than the alternative!

Import, Logistics, US Customs

What is Transshipment?

Monday, November 12th, 2007

Transshipment is the act of shipping goods to an intermediate destination prior to reaching their ultimate end-use. Transshipment is a common practice with logistic benefits, but can be used to illegitimately to disguise country of origin or intent of the goods.

Transshipment is commonly used by smugglers and terrorists seeking to disguise the point of origin of their goods from Customs officials. Certain countries like Libya, North Korea, and Syria are considered higher risk for security threats while countries like China and Taiwan are likely sources for counterfeit goods. Importers can transship goods both intentionally and accidentally. Intentional transshipments are done to avoid higher duty rates levied on certain countries, avoid import restrictions like visa and quota restrictions, or make use of a special trade program to drastically lower duty rates.

Accidental transshipments are usually caused by miscommunication between foreign vendors or US buyers. Too often, US importers do not recognize the need for properly declaring country of origin and see reduced duty rates as smart business. Foreign vendors typically do not have the in-depth knowledge of US Customs regulations to advise against the practice.

Penalties

In addition to the loss of import privileges and seizure of imported merchandise, importers practicing transshipment may also be subject to an array of civil penalties under 19 U.S.C. 1592.

Maximum penalties for transshipment are:

  • Fraud: An amount not exceeding the domestic value of the merchandise.
  • Gross Negligence: The lesser of
    • the domestic value of the merchandise, or
    • four times the lawful duties, taxes, and fees, or
    • if the violation did not affect the assessment of duties, 40 percent of the dutiable value of the merchandise.
  • Negligence: The lesser of
    • the domestic value of the merchandise, or
    • two times the lawful duties, taxes, and fees, or
    • if the violation did not affect the assessment of duties, 20 percent of the dutiable value of the merchandise.
Logistics, US Customs

What’s an Inbond Transit (I.T.) Number?

Monday, November 12th, 2007

Normally when freight arrives in the US, a Customs entry is filed at the port of arrival. If it comes into Los Angeles, it is Customs cleared in Los Angeles (all import freight must be approved by US Customs before it can be released into the commerce of the US).

Sometimes however, it is beneficial for importers to move freight to another Customs port and to file a Customs entry there. In that case, Customs assigns an IT number to grant permission to the importing carrier to move the freight prior to clearance to another Customs approved, bonded warehouse in another port. IT numbers or (Inbond Transit) numbers come in several formats – they can be nine numerical digits, they can start with a V for ocean shipments, or they can be the same number used on an air shipment master bill.

The IT number must be properly reported to US Customs when the import broker files the entry. Freight said to be “moving on an IT” is traveling inbond from the port of entry to another port for clearance.

Logistics

What is a Freight Forwarder?

Monday, November 12th, 2007

An international freight forwarder is an agent for the exporter in moving cargo to an overseas destination. These agents are familiar with the import rules and regulations of foreign countries, the export regulations of the U.S. government, the methods of shipping, and the documents related to foreign trade. Export freight forwarders are licensed by the International Air Transport Association (IATA) to handle air freight and the Federal Maritime Commission to handle ocean freight.

Freight forwarders assist exporters in preparing price quotations by advising on freight costs, port charges, consular fees, costs of special documentation, insurance costs, and their handling fees. They recommend the packing methods that will protect the merchandise during transit or can arrange to have the merchandise packed at the port or containerized. If the exporter prefers, freight forwarders can reserve the necessay space on a vessel, aircraft, train, or truck. The cost for their services is a legitimate export cost that should be included in the price charged to the customer (see Chapter 11 of the Basic Guide to Exporting for pricing information.).

Once the order is ready for shipment, freight forwarders should be review all documents to ensure that everything is in order. This is of particular importance with letter of credit payment terms. They may also prepare the bill of lading and any special required documentation. After shipment, they can route the documents to the seller, the buyer, or to a paying bank. Freight forwarders can also make arrangements with customs brokers overseas to ensure that the goods comply with customs export documentation regulations. A customs broker is an individual or company that is licensed to transact customs business on behalf of others. Customs business is limited to those activities involving transactions related to the entry and admissibility of merchandise; its classification and valuation; the payment of duties, taxes, or other charges assessed or collected; or the refund, rebate, or drawback thereof.

Finding a Local Freight Forwarder Freight forwarders are located in most metropolitan areas. Yellow pages often have a freight forwarder, or transportation, heading. Additionally, the National Customs Brokers and Forwarders Association of America will provide exporters with information on their members. They can be reached at 1200 18th Street, NW, Suite 901,Washington, DC 20036, (202) 466-0222, or http://www.ncbfaa.org/.

Logistics

Incoterms

Monday, November 12th, 2007

Have you ever seen the letters “FOB”, “DDU”, or “CFR” marked on your freight documents but didn’t know what they were?

These abbreviations as well as a dozen or so others are called incoterms.  Incoterms are a way for a buyer and seller to clearly define who is responsible for the shipment at different points in the delivery process in a clear manner.

For example, if your container full of crystal fishbowls from China were accidentally dropped during unloading from the crane onto the deck below, who would pay for it?  If your freight terms were FOB, you would be responsible.  If they were DDP, then your supplier would be liable.

Here are some of the most common terms:

  • EXW – Ex Works — Title and risk pass to buyer including payment of all transportation and insurance cost from the seller’s door. Used for any mode of transportation.
  • FCA – Free Carrier — Title and risk pass to buyer including transportation and insurance cost when the seller delivers goods cleared for export to the carrier.Seller is obligated to load the goods on the Buyer’s collecting vehicle; it is the Buyer’s obligation to recieve the Seller’s arriving vehicle unloaded.
  • FAS – Free Alongside Ship –Title and risk pass to buyer including payment of all transportation and insurance cost once delivered alongside ship by the seller. Used for sea or inland waterway transportation. The export clearance obligation rests with the seller.
  • FOB – Free On Board and risk pass to buyer including payment of all transportation and insurance cost once delivered on board the ship by the seller. Used for sea or inland waterway transportation.
  • CFR – Cost and Freight — Title, risk and insurance cost pass to buyer when delivered on board the ship by seller who pays the transportation cost to the destination port. Used for sea or inland waterway transportation.
  • CIF – Cost, Insurance and Freight — Title and risk pass to buyer when delivered on board the ship by seller who pays transportation and insurance cost to destination port. Used for sea or inland waterway transportation.
  • CPT – Carriage Paid To — Title, risk and insurance cost pass to buyer when delivered to carrier by seller who pays transportation cost to destination. Used for any mode of transportation.
  • CIP – Carriage and Insurance Paid To –Title and risk pass to buyer when delivered to carrier by seller who pays transportation and insurance cost to destination. Used for any mode of transportation.
  • DAF – Delivered at Frontier — Title, risk and responsibility for import clearance pass to buyer when delivered to named border point by seller. Used for any mode of transportation.
  • DES – Delivered Ex Ship — Title, risk, responsibility for vessel discharge and import clearance pass to buyer when seller delivers goods on board the ship to destination port. Used for sea or inland waterway transportation.
  • DEQ – Delivered Ex Quay (Duty Paid) — Title and risk pass to buyer when delivered on board the ship at the destination point by the seller who delivers goods on dock at destination point cleared for import. Used for sea or inland waterway transportation. DDU – Delivered Duty Unpaid — Title, risk and responsibility of import clearance pass to buyer when seller delivers goods to named destination point. Used for any mode of transportation. Buyer is obligated for import clearance.
  • DDU – Delivered Duty Unpaid — Seller fulfills his obligation when goods have been made available at teh named place in the country of importation
  • DDP – Delivered Duty Paid — Title and risk pass to buyer when seller delivers goods to named destination point cleared for import. Used for any mode of transportation.

Note: EXW, CPT, CIP, DAF, DDU and DDP are commonly used for any mode of transportation. FAS, FOB, CFR, CIF, DES, and DEQ are used for sea and inland waterway.

Logistics

What are Incoterms and when are they used?

Monday, November 12th, 2007

The goal of the Incoterms is to alleviate or reduce confusion over interpretations of shipping terms, by outlining exactly who is obligated to take control of and/or insure goods at a particular point in the shipping process. Further, the terms will outline the obligations for the clearance of the goods for export or import, and requirements on the packing of items. The Incoterms are used quite frequently in international contracts, and a specific version of the Incoterms should be referenced in the text of the contract.

Although the Incoterms are widely used and exceedingly handy, they are not meant for every type of contract. Specifically, the terms used in a contract state exactly when the shipper unloads and relinquishes obligation, and when the buyer takes over for carriage and insurance. The Incoterms are not meant to replace statements in a contract of sale that outline transfers of ownership or title to goods. Therefore, the Incoterms may not be of use when looking to resolve disputes that may arise regarding payment or ownership of goods.
What are some examples of Incoterms?

The 13 Incoterms fall into four different groups. These four groups are

  • Departure (E)
  • Main Carriage Unpaid (F)
  • Main Carraige Paid (C), and
  • Arrival (D)

Each group’s letter makes up the first letter of Incoterm. For example, if your agreement with a buyer calls for the release of goods by the seller to occur at the seller’s location, the Ex Works (EXW) Incoterm would be used. This term states among other things that the buyer is to take over carriage and insurance responsibilities at the sellers dock. Alternatively, if the seller were to deliver goods to the buyers dock, including all carriage and insurance, a term from the Arrival group such as DDP would be appropriate. The DDP term stands for Delivered Duty Paid and includes in its definition that the seller will deliver goods to the buyers dock with all carriage, insurance, and duties paid. DDP represents the most obligations for the seller, whereas EXW represents the least.
Caution must be exercised when using Incoterms because the Incoterms relate to particular modes of transportation. For example, some of the Incoterms deal solely with transport by sea. Terms such as FOB and CIF can be used only for ocean bound freight. FOB, meaning Free on Board, translates to the shipper (seller) having upheld his/her part of the agreement when the goods pass the ship’s rails at the port of exit. The receiving party (buyer) assumes risk and costs associated with the goods once they pass the ship’s rail in the seller’s home port. Due to the specific mention of the ship’s rails, an aircraft or other mode of transport could not be used with FOB. For a shipment scheduled for delivery by air, rail, or some other form of transport with the same agreement as FOB one would need to use the Incoterm FCA, or Free Carrier. FCA can include other modes of transportation such as road, rail, interland waterway, and air. Whereas transfer under FOB takes place when the cargo passes the ship’s rails, transfer with FCA occurs when delivery of goods has been made at a destination previously outlined by the buying party.

Export, Logistics

Common Export Documents for Air Freight

Sunday, November 11th, 2007

The following documents are commonly used in exporting; but which of them are necessary in a particular transaction depends on the requirements of the U.S. government and the government of the importing country.

Shipper’s Export Declaration (SED or form 7525-V) The SED is available through the Government Printing Office and a number of other commercial outlets. It can be electronically filed using AESDirect.

A NAFTA Certificate of Origin is needed for shipments to Mexico and Canada. This tool can help you through the process of filing this certification.

CE Mark requirements must be met to market goods in the European Union. Once a manufacturer has earned a CE mark for its product, it may affix the CE Mark to its product, and then the product may be marketed thoughout the EU without having to undergo further modifications in each EU member country.

Export license – a U.S. Government document required for “dual use” exports (commercial items which could have military applications), or exports to embargoed countries. Most export transactions do not require specific approval from the U.S. Government. Before shipping your product, make sure you understand the concept of dual use and the basic export control regulations.

Commercial invoice – a bill for the goods from the seller to the buyer. These invoices are often used by governments to determine the true value of goods when assessing customs duties. Governments that use the commercial invoice to control imports will often specify its form, content, number of copies, language to be used, and other characteristics.

Certificate of origin – The Certificate of Origin is only required by some countries. In many cases, a statement of origin printed on company letterhead will suffice. Special certificates are needed for countries with which the United States has special trade agreements, such as Mexico, Canada and Israel. More information about filling out these special certificates is available from the TIC.

Bill of lading is a contract between the owner of the goods and the carrier (as with domestic shipments). For vessels, there are two types: a straight bill of lading which is non-negotiable and a negotiable or shipper’s order bill of lading. The latter can be bought, sold, or traded while the goods are in transit. The customer usually needs an original as proof of ownership to take possession of the goods.

Insurance certificate – is used to assure the consignee that insurance will cover the loss of or damage to the cargo during transit. These can be obtained from your freight forwarder.

Export packing list – considerably more detailed and informative than a standard domestic packing list, it itemizes the material in each individual package and indicates the type of package, such as a box, crate, drum, or carton. Both commercial stationers and freight forwarders carry packing list forms.

Import License – Import licenses are the responsibility of the importer. Including a copy with the rest of your documentation, however, can sometimes help avoid problems with customs in the destination country.

Consular invoice – Required in some countries, it describes the shipment of goods and shows information such as the consignor, consignee, and value of the shipment. If required, copies are available from the destination country’s Embassy or Consulate in the U.S.

Air way bills – Air freight shipments are handled by air waybills, which can never be made in negotiable form.

Inspection certification is required by some purchasers and countries in order to attest to the specifications of the goods shipped. This is usually performed by a third party and often obtained from independent testing organizations.

A dock receipt and a warehouse receipt are used to transfer accountability when the export item is moved by the domestic carrier to the port of embarkation and left with the ship line for export.

A destination control statement appears on the commercial invoice, and ocean or air waybill of lading to notify the carrier and all foreign parties that the item can be exported only to certain destinations.