The International Shipper’s Guide to Unexpected Fees and Minimizing Risk

Nelson CabreraGeneral, Shipping Guide2 Comments

Damaged shipping containers

If you’ve ever tried to stick to a budget, whether for your business or your personal life, you understand how frustrating it can be. This is, quite simply, because life almost never goes as planned. Many of us learned this lesson the hard way as young adults trying to build up a savings account. One month the car breaks down, a few weeks later you have to deal with a medical bill, then you lose your phone and have no choice but to replace it. There’s always something!

Budgeting is no different in the business world, and organizations with limited flexibility in their spending are doomed to endless frustration. Especially in international shipping, the various fees that could send your expenditures soaring are practically boundless – and it can be hard to keep track of the biggest financial threats.

7 Unexpected Fees You Should Expect (Eventually)

You can limit damages by preparing for and understanding the numerous unexpected situations that international shippers face. With some shrewd planning and analysis, you’ll reduce the risk of potential problems, but you’ll also be ready if they find a way to affect your supply chain. These 7 unexpected fees are the result of just a handful of the predicaments you could find yourself in:

#1) Customs Examinations

What You Don’t Expect to Happen:

Right off the bat, we should mention that problems with customs can be a huge drain on shippers. Take customs exams, for example. Officials might randomly select your containers for screening, or you might be subject to search because your cargo is of a particular type. On the less invasive end, customs might simply request to review your documents. However, you might also have to deal with VACIS (Vehicle and Cargo Inspection System), which uses x-ray technology to scan your containers without breaking their seals. More involved methods of inspection include physically unloading and visually examining your goods or even sampling/testing certain products (this is most often a concern for shippers carrying goods that must meet stringent FDA guidelines).

What You Should Expect to Pay:

In almost all cases you’ll have to pay an exam fee, but that could end up being the least of your problems. Lengthy exams could put you seriously behind schedule and make you vulnerable to demurrage and detention charges.

#2) Customs Clearance Blunders

What You Don’t Expect to Happen:

That’s right, there’s more than one way customs can cause problems! Even if you manage to avoid drawn out examinations, you’ll still need to provide accurate information about all the goods you are importing or exporting. This is a component of the trade where being detail-oriented is essential, so if you don’t have someone neurotic handling your manifest, you might want to consider a personnel change. If there is even the slightest problem with the way you have reported the content of your containers, you could be in for a world of pain. Customs officials might get the impression that you are trying to trick them (aka commit fraud) and it could end up costing you thousands of dollars to sort out the problem.

And it’s easier than you might think to get pinned with fraud. For example, consider what might happen if you accidentally misclassify your goods. Maybe you label the item as something that is duty free, but the actual product has a 5% duty charge. If you’re lucky, customs will interpret this blunder as a simple mistake, but they could also see your actions as fraud or gross negligence. This is a particularly important point for large companies that handle frequent shipments. If you end up on a customs official’s radar, you’ll likely have to deal with intense scrutiny on future cargo until you can restore your reputation.

Another easy way to get in trouble with customs is to mislabel the country of origin. This would seem like a straightforward process, but what if the product includes components from multiple countries? What if the product was assembled in a different country altogether? In these cases, the country of origin is usually determined in one of two ways:

  1. The country that sourced the majority of the product’s parts
  2. The country responsible for manufacturing the product’s “essential character”

If you’re not careful, you could end up with charges for mislabeled cargo – not to mention rough relations with customs authorities. It’s also imperative to keep in mind the variations between different countries but we’ll get more into that further down.

Accurately evaluating your cargo’s worth can make for equally risky business. Some companies try to use different valuations when shipping to customers vs. subsidiaries, but the general rule is that you should be consistent with your price assessment. Even so, countries differ on whether or not they expect you to include the cost of packaging/transportation in your valuation – and given that cultures vary substantially on their definition of value anyway, it’s unlikely that you’ll be able to calculate a quote that will please everyone.

What You Should Expect to Pay:

If you’re upfront about the mistakes on your manifest (for example mislabeling an item as duty free) you might only have to pay back the costs of the duty – plus accrued interest, of course. On the other hand, the price you’ll pay for altering the valuation of your shipment is by no means set in stone. It will mostly depend on the discrepancy between your original assessment and the receiving country’s and how that affects the duties and fees for which you are responsible.

But more importantly, serious and/or frequent mistakes could pin you with all sorts of fines related to fraud and negligence, which could quickly end up costing you more than the value of your cargo. And if customs officials decide to keep a closer eye on all your shipments, you might want to get used to spending long hours at the port – and paying the demurrage and detention fees that await.

#3) Damaged Freight

What You Don’t Expect to Happen:

Understandably, you are under the impression that all your cargo is precious and should be handled with the utmost care. Unfortunately, accidents happen, and Mother Nature isn’t all that concerned with your opinion of your shipment. Whether due to strong storms, tall waves and water damage, poor leashing, or simply improperly secured containers, it’s only a matter of time before your cargo is compromised if you’re a regular shipper. Even if your shipment makes it safely to shore, goods could fall or crash into other objects during the unloading process.

What You Should Expect to Pay:

In some cases, it can be difficult to place blame with regards to who is actually responsible for the damages. Hopefully, you have cargo insurance that can help you recoup some of the lost profit. Dented containers and crushed goods can often be traced back to the source – maybe a dockworker mishandled the shipment or an employee on the ship didn’t fasten the container properly. It may be possible to receive compensation from the appropriate party, depending on the terms of your contract. However, it is important to act quickly and file a claim within the stipulated time-frame, otherwise you’re out of luck (and money). If you shipped with a reputable freight forwarder and purchased cargo insurance, they will submit all the necessary claims on your behalf.

#4) Missing Items

What You Don’t Expect to Happen:

We all lose items from time to time. Just think about how often you lose the remote or misplace your car keys. But many of us presume that when it comes to the really important items in our life (or business), attentiveness is a given. And yet when you consider the constant congestion and parade of people at shipping terminals, it’s not so surprising that lost items are a daily reality.

It’s probably most common to misplace documents – especially the all-important Bill of Lading. A courier might lose the document in transit or any number of officials could lose track of it at the port. Without an official B/L, the terminal won’t release your freight, which will send you scrambling to find a copy to avoid costly delays.

However, you might also incur fees from lost cargo. Given the size of an average container, you’d think a misplaced shipment would at least be easy to spot. But port storage areas are often so vast that if a container doesn’t end up in the exact spot it was assigned, the resulting search is more analogous to finding a needle in a haystack. After all, most containers look exactly the same! Even if dockworkers start hunting immediately, it could be days or weeks before you are reunited with your cargo.

What You Should Expect to Pay:

While there is no official fee for losing documents or containers, the trouble comes when you can’t release your shipment for the next leg of its journey. These delays inevitably bring demurrage and detention charges with them, and you have limited recourse in these situations. There are some preventative measures you could take with the B/L, such as by securing an indemnity letter from the shipper or from the consignee at the bank (if the B/L was cosigned), but that process itself carries an extra cost and can be time intensive.

If the terminal was responsible for your misplaced cargo, there’s a good chance they’ll waive any demurrage fees that you would otherwise have to bear. However, the driver who was waiting to take your goods inland may not be as understanding, thus detention fees may be unavoidable.

#5) Cumbersome Cargo

What You Don’t Expect to Happen:

There’s an art to correctly packing your containers, and it’s not just for aesthetic value! You will need to be mindful to pack the containers in a way that both evenly distributes the contents and doesn’t exceed weight requirements; otherwise you’re headed for serious trouble. For example, if you cram a container full of goods to try to maximize space, a trucker might find that it is too heavy for some of the roads on his or her route. What does this mean? The driver will need to find alternate roads or figure out a way to redistribute the weight so your cargo doesn’t exceed the limit.

Lopsided containers can pose just as much of a problem. If your cargo isn’t packed well and it puts too much pressure on one of the tractor-trailer’s axles, the driver will have to stop everything, revisit the facility, and repack the entire truck to achieve a more equitable distribution of weight.

What You Should Expect to Pay:

Any sort of delay due to overweight or poorly packed containers could result in an extra charge to the importer, especially since it takes so much extra work on the part of the driver to correct the problem. But these direct fees could actually be minor when you think about the big picture. Issues with your containers could add substantial time to the delivery route, and between the money you’ll spend to pay the driver overtime and the lost income from missing your deadlines, you could end up waving goodbye to your profit margins altogether.

#6) Employee Strikes

What You Don’t Expect to Happen:

In the wake of the recent crises at U.S. West Coast ports, most industry professionals feel a little too familiar with the negative impact of labor strikes. It doesn’t matter if the strikes occur at a point of export, at the cargo’s destination, or at some intermediate stop off – these mass worker protests can be devastating to your supply chain. Congestion builds up, documents go unchecked, and any work that does get done likely takes two to three times as long.

What You Should Expect to Pay:

Strikes that continue for several weeks can be torture for shippers and carriers alike. The list of ways you could incur fees is practically endless. If you reroute cargo to a completely different port, the journey could take longer – and that comes with a cost. If you take your chances and send your shipment to the terminal, you could end up treading water for weeks – and that comes with a cost. Once your cargo makes it onto dry land, your containers could get lost or simply sit unattended in storage – and that comes with a cost. The lack of organization could make it difficult for your driver to get out of the port – and that comes with a cost. You get the idea!

#7 Holidays

What You Don’t Expect to Happen:

Why are holidays on our list? Aren’t holidays times of celebration, events full of great memories and fun activities? Well sure, but that’s only if you’re the one celebrating! Imagine the difficulties you could face if you try to import/export goods to/from another country, only to find the entire town on holiday. Whether the whole city has shut down or the streets are overrun with parades and tourists, neither will benefit your bottom line. And the weeks following the holiday season can be equally difficult. More and more transporters will overrun the ports in an attempt to catch up on business, and the congestion could easily paralyze your own operation.

What You Should Expect to Pay:

The biggest risk here is the potential for delay-related fees – namely demurrage, detention, and per diem costs. You can’t control the cultural customs and national holidays of other nations, so your best bet is simply to plan ahead. Otherwise you’ll end up a sitting duck, waiting for local workers to head back to work or fighting through crowds just to get attention. Demurrage and detention fees are typically assessed on a per day and per container basis, and they add up surprisingly quickly. In other words, you could find yourself buried under a pile of bills faster than you can say “Happy Holidays.”

Import Violations, the King of Fees

The real budget breakers are import violations. Importers are responsible for an incredible amount of paperwork related to their shipments, and to many shippers, filling out the forms might feel like decoding another language.

With all the convoluted legalese and extraneous clauses, it’s a wonder forms ever get filed correctly. Your best bet here is probably to work with a freight forwarder that can help you keep your affairs in order. If you’re not convinced, consider this (partial) list of the many reasons a customs agency could slam you with penalties:

Absent or Incorrect Importer Security Filing: Also known as an ISF or 10+2, this document has been mandatory since 2010. An ISF is required for any shipment coming into the United States via sea freight. You must file all ISF information prior to releasing your goods from their origin point, which requires proactive thinking on your part. If you don’t file these documents promptly or correctly, you could be subject to as much as $5,000 in charges.

Customs signing paperwork

Improper Documentation: In addition to the problems you could have with appropriate valuation and classification of goods (mentioned above), the U.S. Customs and Border Protection (CBP) could assess fees if you neglect to declare goods entirely. If your documents don’t accurately report all your imports – or if you attempt to import an inadmissible product – expect a fine of substantial proportions. In addition, improperly filing other shipment paperwork, not following set importation procedures, and not promptly bringing requested goods into Customs’ custody could all set you back a pretty penny.

Unpaid Duties: Occasionally, you might miscalculate the duty you owe or mislabel your imports in a way that inadvertently lowers your duty costs. Either way, the CBP isn’t likely to shrug it off. Whether you underpaid or didn’t pay at all, Customs has the authority to charge you as much as the domestic value of your goods (in the case of fraud) or two to four times the duty you actually owe (in the case of negligence/gross negligence).

Government Agency Violations: The CBP is just one of the U.S. entities you will have to navigate. From the FDA to the EPA, violating the regulations of any one of these agencies will land you in hot water – the government may even seize your cargo and pursue you for criminal prosecution!

Electronic Export Reporting: As of 2008, all exporters are required to electronically file all of their paperwork before their goods leave the port. Failing to heed this mandate will cost you upwards of $1,100 a day, and if you file late you might end up owing a whopping $10,000. On that note, late filing of any kind almost always comes at a price, so mark your calendar well in advance!

An occasional error in filing probably won’t make or break your success as a company, but you should nonetheless make every effort to stay on the right side of the law. Carriers that try to bend the rules or cut corners can only survive for so long. In fact, in August of 2015 the Federal Maritime Commission issued over $1.2 million in civil penalties split between seven non-vessel-operating common carriers (NVOCCs) and one vessel-operating common carrier (VOCC). A long-running investigation revealed numerous violations on the part of these carriers, including charging unlawful rates to customers, enacting charges not covered in a contract, misrepresenting shipper accounts in service contracts, and unlawfully obtaining rebates from other carriers. Under the terms set forth by the FMC, the least an offender paid was $80,000. If you want to read more – including what set the #1 offender back over $500k – head to the Federal Maritime Commission website.

It’s worth mentioning that if you are hit with import penalties, you can always apply for a relief petition that could overturn the charge. For more information about import penalties in the United States, check out this handy reference.

Different Duties for Every Country

As mentioned earlier, one of the complicating factors in the labyrinth of fees is the difference in operating procedures between countries. Export.gov offers invaluable assistance to exporters, including a full breakdown of regulations per country. We hand picked specific examples to emphasize the importance of thinking ahead and doing your research:

  • Afghanistan: There is a 2% tax on all FOB+DUTY, business receipt taxes, and an additional “Red Crescent” tax.
  • Canada: 5% VAT taxes as well as a “harmonized sales tax” and additional charges based on province.
  • China: In general, there is a 17% applied tax on CIF+DUTY, and there could be provincial charges as well.
  • Eritrea: Value-added taxes of 22% apply to most goods, although certain basic foodstuffs and necessities may be permitted at a reduced rate.
  • India: Taxes could include CVS, Customs Education/CESS, and special additional duties.
  • Iraq: Most goods receive a 5% tax, but there are a number of exceptions to the rule, including medicine, food, books, clothing, and humanitarian goods.
  • Mexico: There is a 16% applied tax on CIF+DUTY, as well as other charges for imports. VAT could be reduced to 11% if the shipment is incoming from certain “border regions” of the United States.
  • Senegal: On top of a base 15-20% value-added tax, there is a 1% statistical tax and a 1% “community solidarity levy,” plus additional charges for agricultural, fishing, and industry products.

How can you reduce your risk and avoid fees?

That’s the million dollar question. We wish we could tell you there’s a secret formula, but as you probably guessed, nobody can avoid fines and fees with 100% certainty. The reality of global trade is that unexpected fees are inevitable if you’re shipping on a regular basis. The bigger your supply chain becomes, the less you’ll be able to insulate yourself from unforeseen costs – and many of them will truly be out of your control.

Much of it boils down to a few simple pieces of advice.

  1. Prepare for any possibility. Be proactive and consider shipping ahead of schedule so unforeseen delays don’t throw you completely off track.
  2. Collaborate with trustworthy partners and develop a relationship with carriers and trucking companies. Keeping up your reputation is equally important, so do your best to make nice with customs authorities and comply with even the most trivial regulations.
  3. File paperwork early and meticulously. Many countries require as many as 10 documents for imports. It’s easy to make a simple mistake that could cost thousands of dollars or priceless hours.
  4. Do whatever it takes to be informed. Research the cultures and government agencies associated with the countries in your supply chain and think critically about how these factors could affect your cargo.
  5. Develop a backup plan such as an alternate route in the case of sudden congestion or a second copy of your paperwork in case documentation is lost.

When in doubt, seek the advice of a professional. Trusted business providers will assist in all of the aforementioned areas, from providing cargo insurance, to acting as a customs broker and filing documentation on your behalf. In logistics, the difference between failure and success – and satisfaction and stress – lies in the details, and hiring a conscientious expert will undoubtedly make you more competitive in a notoriously volatile industry.

Nelson Cabrera
Nelson leads global business development efforts within ShipLilly and has been featured as a logistics expert in numerous publications, including SupplyChainBrain, The Bulletin Panama, Logistics Management, and the Miami Herald.

2 Comments on “The International Shipper’s Guide to Unexpected Fees and Minimizing Risk”

  1. Avatar
    Antonette Symes

    I am retiring to Punta del Diablo, Uruguay. I will be leaving the US on Jan. 11, 2016 and my container should be there around the last week in Feb., 2016. I am using an American moving company called *redacted*. My Uruguayan movers that will liaison with *redacted* will be *redacted*. Is there any information that you could tell me about either one of these international movers? Did I make good choices in my shippers or should I be aware of difficulties that will affect my move negatively?

    I appreciate any advise or information you can give me at this time.

    Thank you,

    Antonette Symes

    1. LILLY + Associates
      LILLY + Associates

      Antonette –

      Congratulations on your retirement to Uruguay! You must be thrilled. We can certainly sympathize with your concerns about shipping your life via ocean in a container. It can seem quite daunting. Unfortunately, we have never heard of the companies you mentioned so we can’t comment on their services. I don’t want to leave you empty handed though – so please do check out this resource for additional information on shipping personal items overseas: https://www.shiplilly.com/blog/top-5-personal-shipping-questions-answered/

      We assist with international moves every day, so if you have more questions and want to speak with someone on our team about a quote, please don’t hesitate to give us a call (888.464.5459)! Thanks for your comment and good luck with your move!

      Regards,
      Philip DiPatrizio

Leave a Reply

Your email address will not be published. Required fields are marked *