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THE ABC’S OF
INTERNATIONAL SHIPPING &
CUSTOMS COMPLIANCE
THE MERCADO INSTITUTE OF
INTERNATIONAL TRADE
DECEMBER 18, 2019
2proprietary + confidential © Mercado 2020
• Help importers and their supply chain partners to
be more competitive in their trade endeavors
– Heighten awareness of the strategic, tactical, and
financial considerations inherent to the import
process
– Broaden perspective on the multi-functional and
multi-player nature of importing
SIX- INSTALLMENT WEBINAR SERIES:OBJECTIVE
3proprietary + confidential © Mercado 2020
• 1/8/20: Buy & Move: Five Ways to Reduce Import Costs
SIX- INSTALLMENT IMPORT WEBINAR SERIES:REMAINING SCHEDULE (ALL EVENTS 10 :30 A .M. PST)
4proprietary + confidential © Mercado 2020
• Introduction to Mercado Labs
• Fundamentals of maritime transportation
– Full Container Load shipping
– The role of the freight forwarder
– Ocean freight pricing models
• Fundamentals of air freight shipping
– Direct vs. Consolidated shipping
– The role of the freight forwarder
• U.S. CBP Compliance
– Classification & Valuation
TODAY’S AGENDA
5proprietary + confidential © Mercado 2020
Digitize your First Mile,
Transform your Global Supply Chain
? ? ?
CURRENT STATE – Importers have systems to plan and sell products, however no system to manage product supply.
PLAN SELLBUY MOVE
Order Planning Systems
Demand Planning
Systems (DPS)
Enterprise Resource
Planning (ERP)
Demand Fulfillment Systems
Warehouse Mgmt.
Systems (WMS)
Enterprise Resource
Planning (ERP)
No – System.- 1st mile. Inventory.
Disconnected Supply Chain
THE MISSING L INK IN YOURSUPPLY CHAIN
6proprietary + confidential © Mercado 2020
Affordable. Easy to Implement. Easy to Use.
MERCADO PLATFORM -
PLAN SELLBUY MOVE
Order Planning Systems
Demand Planning
Systems (DPS)
Enterprise Resource
Planning (ERP)
Demand Fulfillment Systems
Warehouse
Management
Systems (WMS)
Enterprise Resource
Planning (ERP)
Networked Supply Chain!
Mercado - Order Management System
BRING ORDER TO YOUR IMPORTS
7proprietary + confidential © Mercado 2020
• Who needs Mercado?
– Importers and your supply chain ecosystem
• Why do you need Mercado?
– Increase sales
– Decrease landed cost
– Compress cumulative lead-time
– Optimize inventory levels
TRANSFORM YOUR GLOBAL SUPPLY CHAIN
8proprietary + confidential © Mercado 2020
• Regardless of whether you work full time in
logistics or in a related field (purchasing,
sourcing, IT, etc.), there are two essential
requirements for getting the most out of an
international logistics program:
– Know who all of the players are in the global
logistics chain and what they do
– Understand the business models of Logistics
Service Providers (how they create value and
make money)
INTERNATIONAL TRANSPORTATION & COMPLIANCE:
OVERARCHING THEMES
9proprietary + confidential © Mercado 2020
• Steamship lines specialize in the
containerized transport of goods
– Also know as “ocean carriers”
• The Federal Maritime Commission (FMC)
definition is a, “Vessel Operating Common
Carriers (VOCC) that specializes in the
transport of containerized cargo”
• Through a “Liner Service” SS Lines offer
scheduled routes and sailing dates
KEY OCEAN FREIGHT PARTICIPANTS:
STEAMSHIP L INES
10proprietary + confidential © Mercado 2020
• Steamship lines work closely with port
operators, terminal operators, ocean freight
forwarders, rail companies, intermodal
companies, drayage firms and long-haul
truckers to carry out their service offering
• Container lines can contract directly with
importers or with NVOCCs (freight forwarders
who in turn offer multiple services to shippers)
– Some container lines have their own logistics
divisions that compete with freight forwarders
KEY OCEAN FREIGHT PARTICIPANTS:
STEAMSHIP L INES
11proprietary + confidential © Mercado 2020
KEY OCEAN FREIGHT PARTICIPANTS:
FREIGHT FORWARDERS
• The FMC defines an ocean freight forwarder as
a person that dispatches shipments via a
common carrier and books or otherwise
arranges space for those shipments on behalf
of shippers
• The types of services that an ocean freight
forwarder can provide depends on the type of
Ocean Transport Intermediary (OTI) approval
they receive from the FMC
– Ocean freight forwarder
– Non-Vessel-Operating Common Carrier
(NVOCC)
12proprietary + confidential © Mercado 2020
KEY OCEAN FREIGHT PARTICIPANTS:
FREIGHT FORWARDERS
• When used strategically, forwarders can serve
as a liaison between multiple supply chain
players
– Supplier(s)
– Drayage provider at origin
– Consolidation facility (Consolidated Freight
Station) at origin
– Steamship line
– Origin Customs
– Destination Customs Broker
– Destination drayage provider
13proprietary + confidential © Mercado 2020
• Ocean freight forwarders and/or NVOCC’s
offer a number of services to U.S. importers:
– Origin services (container booking,
documentation, consolidation, drayage, et al.)
– Main mode of transportation (Full Container
Load and Less Than Container Load…licensed
NVOCC only)
– Destination services (Customs clearance if
licensed as a customs broker, port drayage,
deconsolidation, domestic on-forwarding)
THE OCEAN FREIGHT FORWARDER:
SERVICE OFFERING
14proprietary + confidential © Mercado 2020
• Depending on the Incoterms® Rule, the
charges that may be levied on an FCL import
may include:
– Container stuffing fee at origin (when done by
the ocean freight forwarder)
– Drayage to origin port of export
– Chassis usage at origin
– Origin Container Yard fee
– Importer Security Filing
FULL CONTAINER LOAD SHIPPING:
PRICING MODEL
15proprietary + confidential © Mercado 2020
• Depending on the Incoterms® Rule, the
charges that may be levied on an FCL import
may include:
– Automated Manifest charge
– Origin Terminal Handling Fee
– Verified Gross Mass (VGM) weighing fee
– Main mode of transport
– Bunker Adjustment Factor (BAF)
– Low Sulfur Surcharge
– Documentation fees
FULL CONTAINER LOAD SHIPPING:
PRICING MODEL
16proprietary + confidential © Mercado 2020
• Depending on the Incoterms® Rule, the
charges that may be levied on an FCL import
may include:
– Destination Terminal Handling
– Currency Adjustment Factor (CAF)
– Chassis usage fees at destination
– Destination demurrage fees
– Destination detention fees
FULL CONTAINER LOAD SHIPPING:
PRICING MODEL
17proprietary + confidential © Mercado 2020
• The two key players in the air freight
transportation eco-system are the airlines and
freight forwarding community
• Whereas an importer can work directly with
an airline, most choose to work with an air
freight forwarder
– “Direct” vs. “Consolidated” freight movements
KEY AIR FREIGHT PARTICIPANTS:
AIRLINES & AIR FREIGHT FORWARDERS
18proprietary + confidential © Mercado 2020
• The main feature of the forwarder’s air cargo
service portfolio is freight consolidation
• The freight forwarder serves as an intermediary
between the air carrier and the importer
– Negotiates space and rates with airlines based on
an aggregate of cargo volumes tendered to the
airlines (from multiple shippers)
– Forwarders then mark-up the per-kilo buy rate
from the airline and offer air freight consolidation
services to the shipper community
• NOTE: The same principle of freight
consolidation applies to Less Than Container
Load (LCL) ocean freight
THE AIR IMPORT SERVICE MODEL:
AIR FREIGHT CONSOLIDATIONS
19proprietary + confidential © Mercado 2020
• All aircraft (and ocean carriers/containers) have
both weight and space restrictions
• The concept of “Actual vs. Volume Weight” (aka
“Actual vs. Chargeable Weight”) is based on the
need for the carrier to optimize the return on its
assets
• On any given flight an airline can handle cargo
with different characteristics
– The classic example of shipping ping pong balls
vs. ball bearings
ACTUAL VS. VOLUME WEIGHT
20proprietary + confidential © Mercado 2020
• In order to maximize payload and revenue
potential, freight is subject to charges based on
the actual or volume weight of a given shipment
(how much it weighs or how much space it
occupies)
• Both air carriers and freight forwarders employ
actual vs. volume weight calculations
• In order to negotiate the best rates possible,
importers need to know the density/volume of
their cargo
ACTUAL VS. VOLUME WEIGHT
21proprietary + confidential © Mercado 2020
• Depending on the Incoterms® Rule, the
charges that an importer may be charged for
an air freight shipment are:
– Inland freight to forwarder’s facility
– Origin consolidation fee
– Airport transfer
– Security surcharge
– Fuel surcharge
– Air freight (per kilo)
AIR FREIGHT CONSOLIDATION:
PRICING MODEL
22proprietary + confidential © Mercado 2020
• Depending on the Incoterms® Rule, the
charges that an importer may be charged for
an air freight shipment are:
– Airway bill preparation fee
– Destination transfer fee
– Deconsolidation fee at destination
– Break bulk charge
– Customs clearance (if forwarder is broker)
– Local delivery
AIR FREIGHT CONSOLIDATION:
PRICING MODEL
23proprietary + confidential © Mercado 2020
• Two of the most important activities related to
preparing and submitting a Customs entry are
Classification & Valuation
• Classification – The process of matching
product descriptions with the numeric
nomenclature found in the Harmonized Tariff
Schedule of the U.S.
• Valuation – The process of determining the
true value of imported merchandise for
purposes of assessing Customs duties
CUSTOMS CLEARANCE IN THE UNITED STATES
24proprietary + confidential © Mercado 2020
• In the U.S., importers can choose to submit
(electronic) entries to Customs & Border
Protection themselves, or use the services of
a Customs Broker
• In either scenario, all entries must be
submitted electronically, with the majority of
required information coming from the following
documents:
– Commercial invoice (supplier)
– Packing list (supplier)
– Transport document (carrier or forwarder)
CUSTOMS CLEARANCE IN THE UNITED STATES
25proprietary + confidential © Mercado 2020
• The process of Classification & Valuation
allows U.S. CBP to answer some very
important questions:
– What is the merchandise (essential character
and/or intended use)?
– What is the country of origin?
– What was the price actually paid or payable for
the merchandise?
– What is the product’s Harmonized Tariff
Schedule number?
– What amount in duties (if any) is owed to the
U.S. Treasury?
CUSTOMS CLEARANCE IN THE UNITED STATES
26proprietary + confidential © Mercado 2020
SAMPLE OF A CUSTOMS ENTRY (CBP FORM 7501)
27proprietary + confidential © Mercado 2020
• The Harmonized Tariff Schedule of the United
States provides guidance on how to classify
merchandise
• Whereas essential character and intended use
are very important principles, the specific guidelines
for classification are provided by the Harmonized
Tariff Schedule of the United States (HTSU)
• Classification guidance can also be found in
Section and/or Chapter Notes
HOW TO CLASSIFY GOODS USING THE HTSUS
28proprietary + confidential © Mercado 2020
• Product classification is based on the principle of
progressing from a general description of an item to
its most specific and appropriate
• Within the HTSUS, that progression is based on:
– Guidance from the General Rules of Interpretation
– Section Notes
– Chapter Notes
– Chapter Heading
– Chapter Subheading
– Eight digit legal classification
– Ten digit statistical classification
HOW TO CLASSIFY GOODS USING THE HTSUS:
FROM THE GENERAL TO THE SPECIFIC
29proprietary + confidential © Mercado 2020
CLASSIF ICATION RESOURCES:
SCREEN SHOT OF USITC HTS TOOL (WWW.ITC.GOV)
30proprietary + confidential © Mercado 2020
CLASSIF ICATION RESOURCES:
SCREEN SHOT OF USITC HTS TOOL (WWW.ITC.GOV)
31proprietary + confidential © Mercado 2020
HTSUS EXCERPT:
NUMERICALLY CONTROLLED LATHE
32proprietary + confidential © Mercado 2020
• In the U.S., the rate of duty (if any) assigned
to a product depends a great deal on its
country of origin
• The varying rates of duty applied to countries
is found in Columns 1 & 2 of an HTS Chapter
page
• Column 1 is broken down into two columns:
– General
– Special
ANALYSIS OF HOW CUSTOMS DUTIES
ARE ASSESSED IN THE UNITED STATES
33proprietary + confidential © Mercado 2020
• The General column is reserved for countries
that have, “Normal Trade Relations” with the
U.S.
– Duty rates applied equally among countries
with NTR
• The Special column is for countries with,
“Special Tariff Treatment” programs with the
U.S.
– Preferential Duty Programs
– Free Trade Agreements
• Column 2 is for countries that have neither
NTR or Special Tariff Treatment programs
ANALYSIS OF HOW CUSTOMS DUTIES
ARE ASSESSED IN THE UNITED STATES
34proprietary + confidential © Mercado 2020
CUSTOMS DUTIES & THE HTSUS STRUCTURE:
RATES OF DUTY COLUMN TWO
NOTE: At the time of recording this
Section, NAFTA was still in effect.
35proprietary + confidential © Mercado 2020
CLASSIFICATION EXAMPLE:
THE IMPORTANCE OF THE COMMERCIAL INVOICE
36proprietary + confidential © Mercado 2020
HTSUS EXCERPT:
NUMERICALLY CONTROLLED LATHE
37proprietary + confidential © Mercado 2020
• Website: mercadolabs.com
• Brian Nacci, Chief Strategy Officer
– 1 302 893 3750
THANK YOU!