Customs Clearance Guide
A freight forwarder's guide for you to understand customs clearance
Customs clearance is a mandatory process when shipping internationally – whether you choose air or sea freight. The shipper has to obtain the export clearance before the cargo can leave the port or airport of origin. Upon arrival at the destination country, import clearance is required before the freight can be delivered to the consignee.
Customs clearance can be complex for novice and seasoned shippers alike as there is no single global standard. This guide will answer your main questions around customs clearance and help you gain a general understanding of the procedures involved.
What is customs clearance?
To define customs clearance is easy. It is the process of obtaining permission from a country’s government, through its customs authority, to either take goods out of its territory (export) or have goods enter its territory (import). However, explain the process to complete customs clearance is a more hardous task
The processes for import and export customs clearance are very similar. However, importing materials and products will involve an assessment of the goods and payment of import taxes and duties.
When is the procedure for customs clearance required?
In general, customs clearance is necessary whenever you transport commercial goods internationally from one country to another by land, air, or sea. There are certain exceptions, though.
For example, transporting goods between countries within the Schengen Area in Europe is feasible without customs clearance as borders have been eliminated. Also smaller shipments may be excused from the need for a formal customs clearance process. For instance, if you are shipping to the United States and your goods are valued less than $800 (USD), the shipment is exempted from the clearance process and payment of duties.
Which are the necessary customs clearance documents?
There are five documents that the customs authorities are most likely to request. You will find an explanation of each of them below.
1. Commercial Invoice
The seller of the goods issues the commercial invoice to the buyer. It’s a legal document that serves as proof of sale between the two parties. When importing, the customs broker uses the commercial invoice to determine the true value of the goods and assess the duties and taxes due. Here are some of the details that customs authorities look for on commercial invoices:
- Invoice number and date
- Prices, quantities, descriptions, and HS codes of the products being sold
- Information about the seller and buyer (incl. their tax identification numbers)
- Agreed Incoterms
Customs authorities in some countries may allow pro forma invoices (preliminary invoices) to determine the import duties and taxes. Other countries may require a separate customs invoice, which essentially has the same information as a commercial invoice, but in a specified format. In any case, the customs broker can clarify what type of invoice is needed to clear your shipment.
2. Packing List
The packing list includes all details about the contents of a shipment and plays an important role in the shipping process. In addition to being used by the customs broker for the clearance, freight forwarders need the details to create a booking with a carrier and issue the bill of lading. Here are some of the details that usually appear on packing lists:
- Information about the seller, buyer, and shipper
- Invoice number
- Date of shipment
- Mode of transport
- Information about the carrier
- Description of the goods
- Type of package (e.g., box, crate, drum, or carton)
- Total net and gross weights
- Package marks (e.g., container and seal numbers)
3. Certificate of Origin
The certificate of origin declares in which country a material originated or a product was manufactured. The document typically contains information about the good itself, its destination, and the country of origin. It’s required in every case by some countries, and in others only for specific products. The certificate of origin helps determine whether your goods are eligible for import, subject to duties, and entitled to any preferential treatment.
There is no standard form for a certificate of origin. Generally, the exporter or the manufacturer prepares the document. It might require an official certification by an authorized third party, such as a chamber of commerce. We recommend that the exporter verifies with the buyer and/or an experienced freight forwarder whether a certificate of origin is required.
4. Letter of Credit or Other Payment Terms
A letter of credit is essentially a letter from a bank guaranteeing that the seller will receive his payment on time and for the correct amount. If the buyer is unable to pay, the bank will be required to cover the full or remaining amount of the purchase, hence protecting the seller.
While letters of credit are still widely used, other payment instruments are available:
- Advance payment – The exporter will receive the payment via wire transfer or credit card prior to the delivery of the goods.
- Open account – The goods are shipped and delivered before the payment is due, which is preferable for buyers but can be risky for shippers.
- Documentary collection – A bank in the country of the importer will act on behalf of the shipper and collect the payment for the goods.
5. Bill of Lading or Airway Bill
The bill of lading is a legally binding document issued by a carrier to a shipper. It outlines details such as the type, quantity, and destination of the goods being carried. The bill of lading serves as a contract between the freight carrier and the shipper. It’s a document of title and can be transferred by endorsement. No matter the mode of transportation, this document must always accompany the shipped goods.
The term bill of lading is typically used for goods transported via sea. For air freight, the term airway bill is more common. Both documents serve the same purpose. When you transport your cargo with a freight forwarder like Shipa Freight, they will issue the bill of lading or airway bill to you.
6. Other customs clearance documents
Sometimes, customs authorities request other documents to complete the process.
- Import and export licenses
- Inspection certificates
- Dangerous goods declarations
Your customs broker will inform you in due time if this is the case and provide further guidance. If you’d like to learn more about the different types of documents and see some examples, have a look at our documents list.
Who Is responsible for customs clearance?
In most international shipping scenarios, the seller is responsible for export customs clearance and the buyer for the import clearance. However, the precise arrangement will depend on the agreed Incoterm for the sales transaction.
The customs process itself is performed by a customs broker – a logistics expert who ensures that shipments meet all standards, laws, and regulations for the import and export of the goods. The customs broker creates the customs entry and assists with all necessary paperwork, assessment of duties and taxes, and the payments thereof.
Can I do customs clearance myself?
Unfortunately not. Only customs brokers have the necessary license, knowledge, and experience to perform the duties of clearing goods through customs. We highly recommend that you engage a seasoned customs broker for the task as mistakes in the clearance process can lead to delays and additional costs.
How can I find a customs broker?
The easiest option is to let your freight forwarder handle the customs clearance for you, a service for which you will need to pay a customs fee. Shipa Freight, for example, has licensed customs brokers all over the world to clear our clients’ freight.
Our online compliance engine ensures that all necessary customs documents are in place for your shipment by prompting you for the required information. This makes completion and submission of the paperwork easy, saving considerable effort for you and your team.
Even when working with a freight forwarder, such as Shipa Freight, you can choose to engage your own customs broker. Remember, though, that you’ll need a customs broker at the port of origin for export clearance and the port of arrival for import clearance. You also need to be aware that your freight forwarder won’t be liable for any additional costs that you might incur if the third-party customs broker causes any delays in the shipment process.
What is the cost of customs clearance?
There are two main parts to the customs cost. The first is the customs clearance fee. This is the cost of preparing and submitting the customs entry. The fee has to be paid to the customs broker—or freight forwarder if the brokerage services are part of the service.
The second part is the duties and taxes. These are calculated by the customs broker and are usually a percentage of the value of the goods and the transport charges. Duties and taxes typically have to be paid directly to the customs authorities.
The type of goods you are importing will determine the tariff that the customs broker has to apply. The broker will find the right tariff via a customs code lookup based on the description of your goods. Be aware that tariffs are country-specific and can vary significantly. Often, certain goods can be imported in a country without having to pay any import duties. It’s worth checking with your customs broker beforehand to see if your products are free.
Custom inspection fees might apply if the authorities subject your shipment to a customs intensive exam. Unfortunately, it’s not possible to know beforehand if your goods will be selected for such treatment.
How long does it take to complete customs clearance?
Predicting the length of the customs clearance process is difficult due to the great diversity in systems and protocols worldwide. Usually, the import customs clearance can begin when goods are still in transit and prior to their arrival in the destination country, assuming the necessary documents are in place. Many countries provide online systems for submitting customs entries, enabling the authorities to release the goods in as little as 24 hours.
If customs authorities have queries, request further documentation, or insist upon an inspection of the goods, the duration can be extended to a few days and even weeks. To avoid storage charges at the port or airport of arrival, it is paramount that the seller and buyer cooperate to provide the necessary documents.
Can I track the status of the customs clearance?
Your customs broker or freight forwarder should be able to keep you up to date with the status of your customs clearance. They should immediately inform you if there are any holdups or delays. When you ship your cargo with Shipa Freight, you can benefit from our real-time tracking available on our online platform, so you are always aware of your shipments’ progress.
Do you have any questions?
While this page covers the main points around customs clearance, you still might want to know more about the process. Feel free to contact us if you have any questions. We are here to help!
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