There’s no question that cross-border trade is a complicated process. There are important decisions that need to be made every step of the way — which International Commercial Terms (incoterms) to use, whether to ship by air freight or ocean freight, where to house your goods...the list goes on. Customs clearance is one particular area that causes confusion. To help you better navigate the complexities of cross-border freight, we’ve broken down what customs clearance entails and why you should enlist the skills of a licensed customs broker to manage your freight imports.

What is customs clearance?

Customs clearance is a required process to permit the entry or exit of goods into or out of a country. It involves submitting documentation with specific information, such as the commercial invoice, packing list, and certificate of origin. Governments use the customs clearance process to collect revenue, monitor trade, and prevent criminal activity. Every port in every country puts cargo through customs clearance and the regulations all vary.

What is a customs broker?

Customs brokers are licensed trade and compliance individuals, associations, partnerships, or corporations who assist importers and exporters in preparing documents for clearing goods through customs.

Why should I consult with a customs broker?

There are several benefits to working with a customs broker, some of which include:

• They make the complicated customs clearance process easy. Customs brokers file all required documents on your behalf to present to government agencies, saving you time and reducing stress.
• They are knowledgeable in complex customs regulations and procedures. Customs brokers stay up to date with all regulatory requirements and can relay any changes relevant to your product categories. For instance, a customs broker can help determine whether your goods are subject to special requirements mandated by Partner Government Agencies (PGAs) like the Center for Disease Control and Prevention (CDC) and the Food and Drug Administration (FDA).
• They advise on product classifications to ensure duties and tariffs are properly determined. All goods shipped must be classified according to the Harmonized Tariff Schedule (HTS), the primary resource for dictating tariff classifications on products imported into the US. Finding the correct classification can be a difficult process. Working with a customs broker helps to ensure that all products are classified correctly.

How do I know who is responsible for customs clearance in a trade agreement?

The agreed upon incoterm determines whether the importer or exporter is responsible for the customs clearance process. An incoterm provides one universal definition for a series of responsibilities, liabilities, and decisions related to transactions in cross-border trade. It’s imperative that you understand what the agreed-upon incoterm entails, as it determines the shipping cost and who is responsible if something goes wrong.

As an example, if the agreed-upon incoterm is Delivered Duty Unpaid (DDU) or Delivered Duty Paid (DDP), the exporter is responsible for fees and managing the customs clearance process into the destination country. That means the importer does not need to work with a customs broker. However, while DDU and DDP terms for freight may offer more convenience for inexperienced importers, there is less visibility into shipping and customs clearance. You can learn more about choosing the correct incoterm here.

There is a lot to consider when approaching customs clearance. A customs broker can make the process easier and avoid headaches down the road. The key is understanding what your responsibilities and liabilities are as described by your agreed upon incoterm and making an informed decision.

Interested in learning more? Watch our latest fireside chat to learn how to avoid common customs pitfalls in small business importing. Ben Bidwell, Director of North America Customs and Compliance at C.H. Robinson, and John Paul Makilya, Senior Manager, B2B logistics at Alibaba.com, demystify the customs clearance process and dive into the core documents required.

Researching product compliance and customs requirements before finalizing your trade contract can go a long way.