For most international shippers, the terms of sales are clear. After payment, the goods are shipped via a common carrier. The buyer then pays any applicable duty and taxes. Sounds simple. Yet there are some complexities to consider regarding international trade terms and conditions of sale.
Terms of Sale and Incoterms
The international organization, The International Chamber of Commerce or ICC, publishes globally recognized international trading terms known as Incoterms (the term itself is trademarked by the ICC). In this blog, we review only the general terms used commonly for international courier package shipments and invite our readers to visit ICC's site directly for more detailed information.
What are the default Shipping Terms for parcels?
When shipping via a common carrier, the goods are shipped - by default -delivery duty unpaid. The seller / exporter is responsible for preparing a customs invoice that can be used for a customs declaration in the destination country but is otherwise not responsible for the importation or payment of import fees.
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Delivery Duty Unpaid or EXWWhile often referred to as Delivery Duty Unpaid, EXW is the default method of shipping international parcels from Canada when sent via FedEx, UPS and DHL. The international trade clause EXW comes from the term " Ex Works." It implies that the buyer is responsible for all shipping costs. This condition is used even when the seller pays the shipping costs as it gives the carrier more flexibility when it comes to assigning various import related costs to the the receiver.
Import related costs to the receiver can go beyond simply duty and taxes and can include:
- Entry preparation fees
- Disbursement Fee
- Import bond Fee
- Import processing / administration fee
- Paper transfer fee
- Other government agency approval fees
International shipments transported under the EXW term give the carrier authorization to charge the receiver for all import related fees.
Delivery Duty Paid or DDP
Often companies who ship internationally want to ensure the buyer is not charged import duty and taxes. This is often the case when shipper such things as product samples and warranty or replacement parts.
There are multiple terms related to delivery duty paid and can include DAP (delivery at place) and DAT (delivery at terminal) but, for practical purposed DDP is the most commonly understood term for shipping individual orders or parcels.
Delivery duty paid is not an option for goods shipped via postal services (Canada Post, USPS, Royale Mail, La Poste, Japan Post, Correos , etc).
Delivery Duty Paid but what about Import Tax?
The largest single aspect of import fees is often not duty, but taxes. Many countries have a form of valued added tax that can average around 20% to Europe, for example. If the goods are for a business, they can often be claimed back. For online orders, the payment of value added tax to the UK, European Union and Australia is actually mandated to be made by the seller and at the time of import.
Incoterms rules: The more you ship, the more you should know
For the vast majority of shippers and shipments, Incoterms are simple and easily understood. However, shippers should become familiar with the concepts and terms as they change often and cans significantly impact international transactions. This is especially true for large transactions, carriage by sea and multimodal complex logistics processes.
To confirm the correct meaning of conditions of carriage, it is best to have clear written communication backed by the official up to date definitions directly from ICC publications.
Shipping Terms for Shipment of Online Orders
International online orders are, by default, shipped delivery duty unpaid. However, some countries are demanding pre-payment of value added tax be facilitated by Shopify, eBay and other online platforms.