A reoccurring comment we hear from LCL importers is “Why is it that our charges are so inconsistent?”. On investigation, we find that it all comes back to the agreed incoterms of sale. Generally finding that it is that the importer is buying on CIF terms.
CIF is “Cost Insurance Freight”, the buyer is paying the seller for the cost of the goods, transit insurance and Freight to port of entry at destination country. This for importers seems like the “easiest” option.
However, what this can create is limit control on timing, create additional work for the buyer to stay on top of shipping details to plan for the goods on arrival and local charges being charged according to which ever consolidation handling office the suppliers consolidator uses.
Does that mean you should not buy CIF? No, this is still a good option for many importers. To solve the common issues with control and inconsistent charges, communicate with your supplier and your freight agent. Make your expectation clear and ask that your supplier(s) and your freight agent work together to ensure that your expectations on timing and costs are still being met.
3 easy tips that may assist:
- When accepting a CIF quote from the overseas seller, issue them with a Purchase Order that outlines expectation on arrival time into Australia
- Provide a copy of the quote, purchase order and specific details of the seller to your freight agent. Ask they communicate with the seller to determine the consolidator details and associated arrival charges when arriving in Australia. Your freight agent can advise the seller what are the acceptable arrival charges so this can be negotiated when the seller is booking with the consolidator at origin.
- Establish a landed costing model with your freight agent. A landed cost is establishing what your goods are worth when they arrive at your door in Australia prior to being sold into the market. This will give you a value window of acceptable costs to pay on import rather than specific costs.
The key to limiting inconsistencies is EXPECTATION AND COMUNICATION!
Many Importers have been enjoying a saving of 5% on their import duties since the China-Australia Free Trade Agreement took affect 20th December, 2015.
For importers, both experienced and new who still think “My goods ship from China, therefore they are Duty Free” please take time to completely understand the implications of the Free Trade Agreement and specifically how the goods you are importing are affected.
It is not correct to make the assumption that because your goods ship from China they are automatically duty free and if your representation who handle your border clearances are declaring them as such with out the correct documentation, it is you as the importer who will be held liable for the 5% duty not paid at the time of importation. 5% of your total imports for the year would certainly add up, in additional to interest and fines.
A good starting point is asking the following questions of your representation:
- Are my suppliers providing a certificate of origin for each shipment?
- If they are, does the certificate of origin state a HS code for each item in each shipment?
- If they are, does the certificate correctly link to all the other commercial documentation for the shipment?
If any of these answers are no, but your duty rate has dropped on your customs declaration. Work with your freight agent and your suppliers to get this right for past and future shipments.
It may be that your items have not dropped to 0% duty at all and will not do so until 2019, in fact if you are importing items that fall under the likes of HS Code 62304300 Boys Shorts, and provide a Certificate of Origin you will end up paying 6% duty!
see http://www.chinaaustraliafta.com.au for further guidance.
As your freight forwarder we will liaise with your supplier to ensure documentation for importing your goods is correct leading up to departure from the port of loading and prior to arrival to Australia. We do however like our clients to have a working knowledge of requirements when it comes to documentation.
There is a few reasons for this:
1. These are your goods and ultimately your responsibility. A customs declaration (which is created through the information provided on the shipping documents) is a legal document that through the information provided will provide the amount of duty and GST that is payable to Australian Customs on arrival. The shipping documents along with the corresponding customs declaration is to be kept on record by the importer for a minimum of 5 years. Treat it as you do your tax return!
2. Some required documentation such as import permits can only be applied for by the importer (not the freight agent), guidance will be given but again it is the importers responsibility to ensure these are in place prior to arrival.
3. When negotiating terms of sale with your supplier, ensure they are prepared to provide all necessary documentation. Treatment certificates and packing declarations are the most common that a supplier would need to provide in addition to a commercial invoice. Getting into a position where by you have purchased the goods and engaged a freight forwarder to move the goods to then find out the supplier will not provide a crucial document for clearance may result in costs that have not been planned for or time delays on arrival.
Some Important links to provide further guidance and information on your documentation requirements:
Australian Quarantine – Examples of Acceptable Documentation
We are also always available to discuss requirements specific to your business, contact us anytime!