Understanding the Customs Clearance Process

Success in global trade involves finding quality suppliers, transporting goods in a volatile freight market, navigating trade wars and related tariffs, and a host of other factors. But one of your most critical day-to-day tasks is mastering the complexities of the customs clearance process which, if not managed well, can stop your cargo dead in its tracks. To gain more insight into this process, we gathered Dimerco’s customs brokerage experts for a discussion on Customs Clearance 101.

What is a Customs Clearance and Why Is It Required?

All goods crossing the border from one country (or region in the case of the European Union) into another require a customs clearance. In the US, the customs agency is US Customs and Border Protection (CBP). A primary goal of customs agencies is PROTECTION. They aim to:

• Protect the revenue of the country and enhance the nation’s economic prosperity by ensuring proper duties and taxes are collected
• Protect consumers – make sure product standards are upheld so, for instance, food products are safe to eat and electrical products won’t malfunction
• Protect and safeguard the country’s borders from smugglers, terrorists and other bad actors who would use the global supply chain to harm others

What’s the Goal of the Importer in the Customs Clearance Process?

Pretty simple. Bring goods into the country without delay, in full compliance with laws and regulations, and at the lowest possible cost.

Speaking of Cost, How Much Does Customs Clearance Cost?

When calculating the financial impact, you’ll pay the following fees:

• Import Duties: The percent of the declared value you pay will depend on the product’s classification code and country of origin.
• Customs Clearance Fee: A broker oversees the customs clearance process, completes and files the necessary paperwork on your behalf, and acts as your expert partner to help assure your company remains compliant.
• Inspection Fees: If your cargo is among the small percentage of import cargo that gets physically inspected, and delayed several days in the process, you’ll pay for the privilege.
• Fees to Regulators: If your products are regulated by an agency other than Customs, you may have additional costs and paperwork to clear customs.

Taking the US as an example, these specific fees may also apply:

• Bond Payments: You’ll need to post a bond to guarantee duties and taxes that may be due on your imports. One option is to secure that bond through your customs broker. If you import regularly, you’ll probably buy a continuous bond that covers all imports into the US for a year. If you import cargo sporadically, you can post a single-entry bond for each customs clearance instead.
• Merchandise Processing Fee (MPF): This fee is calculated and paid to CBP on all imported products at 0.3464% of the declared value of the cargo with a $27.75 minimum and $538.40 maximum charge (as of 10/1/21).
• Harbor Maintenance Fee (HMF): This fee is calculated and paid to CBP on ocean shipments only at 0.125% of the declared value.

Here is a summary of specific US-based fees and their structures:

What’s the Role of the Customs Broker?

Customs brokers help you navigate the complexities of global commerce, including entry procedures, admissibility requirements, HS code classification, product valuation, and the duties and taxes imposed on imports. As the importer, your company is ultimately responsible for making proper declarations and complying with regulations from Customs and other agencies. If you are not a licensed customs broker, then you need an expert broker working on your behalf – either as part of an independent customs brokerage firm or as part of your freight forwarder’s team. A good customs broker service provider will:

• Vet your products for priority trade issue and other government agency reporting requirements
• Review and prepare required documents, making sure they are complete and compliant, then submit them
• Vet your products for correct classification and valuation so duty payments are accurate
• Advise on a range of issues that can save you time and money

HS Classifications: What Are They and Why Do They Matter?

Every product you import must be assigned the proper Harmonized System code (HS code). These codes answer a very simple but important question for any customs agency: What product are you importing? There are approximately 19,000 HS codes that identify not just the broad category, like shirts, but every variety of shirt – each of which could have a different duty and different regulatory requirements assigned.