Global ecommerce is on the rise, leading to an influx of business owners looking to market and sell their products overseas. While tapping into this global market is profitable, it comes with its fair share of challenges, especially when businesses try to classify the products they need to ship.
When a business ships a package to another country, the items being shipped must be classified. Classifications are required because they provide notice about what the package contains and the amount of taxes and duties that will need to be paid for the package to reach its intended destination.
Providing classification for each product is easier said than done. Without the proper classification, merchants can face several problems including having their delivery delayed or held at customs and accruing additional fees.
Although there is a lot to gain from selling to other countries, understanding how to calculate taxes and duties and clear customs can prove difficult for many business owners who are unfamiliar with how to navigate the complexities of product classification.
Classifying goods for customs
In order to speed up this classification process and prevent packages from getting stuck at customs, the World Customs Organization developed The Harmonized Commodity Description and Coding System (HS code). Imagine how long it would take for customs authorities to sort through millions of descriptions from millions of merchants across the globe. This code was created to help authorities classify roughly 5,000 different commodity groups, simplifying the customs declaration process.
A product’s HS code is comprised of six digits that serve three unique functions:
The first two digits of an HS code identify the chapter in which the product belongs. The chapter is the most basic category that can be used to describe a product. For instance, edible vegetables begin with the numbers 07 and printed books begin with 49.
The next two digits of a product’s HS code represent the grouping of the product within that chapter. A printed book, for example, can be a children’s book, a journal, or a traditional hardcover book. This provides a more specific category for a product being sent through customs.
The last two digits of the six-digit HS code identifies the sub-grouping of a product within its chapter. This is where merchants are able to express exactly what type of product is being shipped. Their printed book might be a dictionary or it might be a collection of single sheets that make up a manuscript.
This tariff code listing the chapter, grouping, and sub-groupings of goods is used by over 200 countries as an internationally standardized system to classify goods for customs. While this is an efficient way to ship goods through customs, it is only the beginning of the cross-border shipping process.
Shipping goods to Europe
Most merchants think that as long as they figure out the six-digit HS code for their products, they will be able to get their products through customs quickly and with ease. However, to clear customs in the European Union (EU), merchants need to use additional product commodity codes referred to as a Harmonized Tariff Schedule (HTS) code. This is where things can start to get tricky for businesses.
These HTS codes require an additional four digits that tell customs critical information about the products a business is shipping to Europe:
Combined Nomenclature (CN) codes consist of the six-digit HS code and a two-digit CN subheading. There are approximately 10,000 different CN subheadings that can be used to help merchants pinpoint their specific products.
TARIC codes are two-digit subheadings that are added to the end of CN codes to provide an additional classification for a company’s products. These codes take into account specific measures and guidelines surrounding EU customs tariffs, legislation, and other rules. This code was created to make sure that no rules are violated and that appropriate measures are taken by all parties when an item is sent through customs for clearance.
In order to clear customs in Europe, companies in the United States need to make sure all of their products are classified using this ten-digit, HTS code.
The dangers of using incorrect commodity codes
While finding this HTS can prove challenging in and of itself, there are also many rules, exclusions, and stipulations that can make it incredibly difficult to classify products correctly.
Using the wrong HTS code can be a nightmare for any ecommerce business. A simple error, even when made unintentionally, comes with severe consequences. Penalties can range from border delays and non-compliance fines to having the product seized at the border and receiving charges for import fraud. In some cases, customs can even deny import privileges for companies who fail to classify their products correctly.
Merchants that use the incorrect code might end up paying too much or too little in customs duties. In addition to being subject to fines and sanctions, if a business pays too little in customs duties or taxes, customs can claim these unpaid duties up to three years after the fact.
This costly error will not only be harmful financially, but it can also damage the relationship between the business and its customers. Shipping delays and unforeseen costs can cause customers to look elsewhere for future purchases and damage the business’ reputation. In a growing industry where competition is high, businesses cannot afford to lose money or customers due to classification errors. Businesses that are not able to deliver their products in a timely manner can kiss their international customers goodbye.
In order to find the right ten-digit code to ship products from the United States to Europe, merchants need to shift through thousands of possible subheadings within different chapters and groupings. This is not only time consuming, but it is can also be tricky for businesses to choose between the multiple possible options for a single product.
While it is possible for you to figure out all of the HS codes for your business’ products by yourself, you can save time and make sure that you avoid repeating any of these custom mapping horror stories by partnering with a company that can handle all of this complexity for you. Zenda, a shipping provider powered by British Airways, is the perfect solution for business owners that need help navigating the art of custom mapping.
Using Zenda for product classification
With Zenda, your business can focus on developing and marketing great products and leave the commodity codes to the experts. Zenda is a Delivered Duty Paid (DDP) shipping service that makes sure that your business takes care of any taxes and duties or landed costs owed to Europe’s customs prior to shipment.
During onboarding, Zenda will map all of your SKUs to commodity codes for you so that our tax and duty calculator is accurate, and your customer knows at the checkout page exactly fees it needs to pay in order to clear customs.
Thanks to Zenda, you never have to worry about misclassifying your products, under or overpaying taxes and duties, or delaying packages for your customers. While navigating the dark art of commodity codes can be difficult, Zenda will help your business classify products and clear customs without hassle.
For more information about Zenda and how our shipping service can help your company, get in touch with us!