Many ecommerce merchants are attracted to selling products to consumers in other countries. But the complexities of international sales can include tariffs, customs and export laws. For United States-based merchants, the U.S. Department of Commerce can help. It has just published a free PDF guide called Preparing Your Business for Global Ecommerce to help merchants with export sales.
The official responsible for the guide is Ken Walsh. He is an international trade specialist with the U.S. Commercial Service, an agency of the Department of Commerce, and he spoke with us about it.
Practical eCommerce: Tell us about the U.S. Department of Commerce’s international ecommerce guide and why it exists.
Ken Walsh: “The guide is there to help businesses understand what they need to do to get their back-of-the-house systems in place in order to export efficiently. This includes new data to be collected on their products and from their customers, specialized training that’s needed to comply with export laws, shipping considerations, terms of sale — a lot of items that need to be addressed. The manual does this in a logical order that explains not only the reasons for these new business processes, but strategies on how to implement them.
“The guide includes case studies from successful online exporters that walk them through the issues they faced and how they handled them. What we noticed is that there are a tremendous amount of resources out there on marketing your website globally or localizing your website to appeal to foreign customers, but there’s not a lot of comprehensive information in one place about what changes you need to make in your business once these orders begin rolling in. This guide attempts to address that issue.”
PEC: What changes are you referring to?
Walsh: “Businesses need to look at their entire business process when they’re planning on exporting. Exporting is not just selling to a new territory. It’s taking new information about your products and what you’re selling and being able to integrate that into new export documentation and new types of information that you need to provide to foreign governments and to your shipper in order to successfully get these products to your customers.”
PEC: In a hypothetical example, say a U.S.-based ecommerce merchant needs to ship to the country of Australia. Can you give us some idea of some of the export laws and the paperwork that merchants might not be aware of?
Walsh: “Let me first talk about some of the different things that you need to consider and then I’ll walk you through the Australia example.
“When retailers begin exporting, a lot of their most frequent questions are about documentation and tariffs. Tariffs are taxes that are applied by foreign governments on imports. So, when you ship products internationally, there’s a whole set of information that’s needed by your shipper, by foreign custom services, and sometimes by the U.S. government, that’s not needed for domestic sales. This information can be very confusing, and many times the retailer either gives up or makes mistakes that could prove costly for them.
“Let’s say you’re a retailer that sells diapers and you decide to move into a complementary product like baby formula. The marketing is going to be pretty easy, but now you face a lot of business challenges. You need to track expiration dates, which you didn’t need to do for diapers. You need to post allergy notices on your product descriptions. You need to be concerned with the physical environment of your warehouse, like dampness or heat. Well, exporting is similar. If you really want to be successful, you need to look at it as kind of a new way of doing business and not just selling into a new territory.
“The Australia example is a great example because the United States has a free trade agreement with Australia. That means the vast majority of U.S. products enter the country tariff-free or tax-free.
“What you need to do first is communicate with your buyer about who’s responsible for shipping, for insurance, for taxes — who’s paying for everything — and let’s say the buyer has agreed to pay all those charges. If you’ve read our guide and done some additions to your business processes, it should be fairly simple to ship. You’ll need to prepare your shipment with a packing list and a special document called a commercial invoice. The commercial invoice contains all the information that Australian customs needs to calculate the tariff.
“Some specialized information you place on this commercial invoice includes something called a ‘harmonized number,’ which is a numerical code that identifies your product type. It is something that’s going to be very new to you if you haven’t exported before, because it’s not something you need for domestic sale. Then you’re also going to need to include the country of origin of this product.
“With those two pieces of information, Australian customs determines what the tariff is going to be to bring this product into the country. Your shipping company will then bring the item through customs, pay the tariff on your behalf and deliver the product to your customer. At that time, the customer is going to be asked to pay those tariffs because you’ve agreed that in advance.
“Now, you can see why it’s very important to clearly communicate with your buyers or with your customers who are paying for these types of charges so that they’re not surprised. You definitely don’t want to send an item all the way to Australia, have it go through customs, have paid to have it shipped all the way, and then they refuse the shipment because they didn’t know they needed to pay tariffs. You need to be very clear on how you’re communicating. Then at that time, the customer either will accept the order, pay the tariffs and there you go. If you have all the information that you need to get this product to the customer in advance, it’s actually a pretty simple process.”
PEC: Do shippers such as USPS or UPS automatically calculate tariffs so that the U.S.-based merchant can collect those monies during the online checkout process?
Walsh: “Yes. This is one of the more complicated tasks in terms of exporting. When something is delivered to a customer overseas or internationally, when it gets to their door, the cost that they’re paying is called a landed cost. The landed cost includes not just the price of the product, but also the price for shipping, insurance, taxes and tariffs. In a perfect world, the customer would like to know the landed cost before they click ‘yes’ on the shopping cart, and there are a lot of the third-party service providers that you can hire to integrate that into your website to help you calculate those landed costs.
“You can kind of follow two paths. The best customer service is to provide the landed cost at the time of the order (collecting those taxes and shipping charges and tariffs in advance), so that when the product arrives at their door, all they need to do is sign their name and collect the product. There are some risks because you can never be a hundred percent accurate on what the tariffs or shipping charges are going to be. You really have to make a best guess estimate and that’s where those third-party shipping providers can help you estimate those tariffs.
“Like I say in the manual, you may lose some money on one order, but you’re going to make some money on another order in terms of the shipping charges. Hopefully all those charges are going to break even. What you’re really making money on is providing the product. So, keep your profit margin on the product and make sure that you’re breaking even on the shipping and the tariff charges.”
“So, shipping companies like UPS can certainly do those things, and there are also [third-party] companies that are designed to take over your shopping cart on your website. They calculate all the shipping and tariff codes and the payment actually goes through that third party, or they can put a widget, or some sort of a software, on your site so that the calculation is done in real time and you can collect the money directly. There are a lot of different options out there that you should explore.”
PEC: Can you mention some of those third-party companies’ names?
Walsh: “One is BongoUS. Another is GlobalShopex. You can search for international shipping solutions or tariff calculation on any search engine and you’ll find a whole list of companies.”
PEC: Tell us about the U.S. Commercial Service, its mission, and why it has published this guide.
Walsh: “The agency I work for is the U.S. Commercial Service, which is part of the U.S. Department of Commerce. Our sole function is to help U.S. companies increase their exports. One way we do this is by producing guides and educational programs like this ecommerce exporting manual.
“We have offices all over the United States in about a hundred different cities, and we have trade specialists who are able to answer these very questions that we’re discussing today. They can sit down with you, in your business, in your office, to develop a plan about how you are going to be a successful exporter.
“In addition, we also have offices all over the world in about 80 countries where we have individuals called commercial officers who know how to conduct business in those countries. They can assist with any customs issues and help you figure out what are the best search engines there, how do people purchase products there, and what are the best prospects in those markets. It’s a full service export assistance program that’s funded by the U.S. Department of Commerce and they are ready to assist you in all your exporting needs.”
PEC: What are some common mistakes that you see merchants making with exporting?
Walsh: “If you want to look at the big picture, it’s treating an international sale the same as a domestic sale. In fact, one of our case studies in the manual is Red Rocket Hobby Shop. They were getting orders from Canada and they just filled them like a regular domestic order and didn’t take into consideration those taxes and tariffs that we talked about. They were filling these orders for maybe a month or two, and eventually they got a bill from their shipping company that said, ‘You owe us on all of these tariffs that we’ve been collecting on your behalf.’ It was a total surprise to them, and on a lot of those orders they lost money or broke even.
“What they didn’t realize is that shipping internationally is a different way of doing business. You need to really understand what the implications are when sending a product overseas — who’s taking the risk of that product and who’s paying all these extra charges — or you may find yourself with a bill in a couple of weeks or a couple of months after the fact and you haven’t accounted for that in your sales price. That’s a common mistake on a broad level.
“Specific mistakes are they just don’t know how to fill out particular documentation or they don’t know how to put the correct codes into specific forms. That’s where we get a lot of our calls from the first time exporter. That often leads into a process of us looking at the whole business and how we can make the exporting process more efficient and more profitable for you.”
PEC: Are there certain types of products that merchants may not realize are illegal to ship to certain countries?
Walsh: “Yes, absolutely. I don’t want to scare people away, but we do have to be realistic that there are export laws and export laws control certain commodities. Some obvious ones are guns. There are a lot of sporting equipment companies that supply hunters and shipping ammunition, shipping bullets, shipping riffle scopes, shipping riffles overseas. A lot of times you’re going to need a license to do that.
“Some more benign things are night vision binoculars. There are certainly a lot of uses for those that are not military specific; security guards can certainly use them, hunters can use them, naturalists can use them. But, those are some controlled items, and unwittingly sending those kinds of things overseas could cause some real liability in terms of fines and even jail time.”
PEC: Can merchants contact the U.S. Commercial Service if they have concerns or questions about products that they’re selling, or is that covered in your ecommerce guide?
Walsh: “Yes, absolutely. The ecommerce guide is an overview of the regulations, including specific sites that you can access to get training on the regulations. But you can always call a U.S. Commercial Service officer in those 100 cities throughout the U.S. To find your local office, go on the Internet to Buyusa.gov and put in your zip code. Just call them [with your question] and we’ll find the correct solution for you.”
PEC: Anything else on your mind today for our readers?
Walsh: “We talked a lot today about issues and problems and hassles, and I don’t want to leave retailers with the feeling that exporting is too complex and not worth it. So, let me just leave off with some basic facts. Small- and medium-sized companies account for almost 97 percent of U.S. exporters, and more than two-thirds of exporters have fewer than 20 employees. So, you don’t need to be [a giant company] to export. You can be a small company that just wants to increase its sales. Ninety-five percent of the world’s customers live outside the United States and 70 percent of the world’s income is generated outside the United States. There’s a growing middle class out there — lots of consumers, lots of disposable income — and we want U.S. retailers to capture that market. You’d be amazed at how many retailers post on their website ‘We do not ship outside the United States’ or ‘We do not fulfill international orders.’ How many retailers simply discard inquiries from other countries? Using the U.S. Commercial Service, third party suppliers, your shipping company, and our free PDF guide is a good step to help you capture this amazing market.”