U.S. Customs, or, How to Get Screwed and Pay for the Privilege

Thinking about having goods made overseas? You may want to consider the cost of shipping and customs before you set price points for your merchandise. I budgeted my costs based on a quote from my customs agent, and still came up about $500 short. Here’s a basic list of what you’ll need:

Freight: getting your cargo where it needs to go. If you have small or perishable items, you can use air freight. For bigger stuff, like a whole container’s worth of meat-shaped plush toys, you can use ocean or rail freight, depending on whether the country you’re importing from is connected to you by land or sea.

A customs broker: this guy gets your stuff off the dock and onto a truck. Unfortunately, many of these folks operate like bad movers — they claim zero responsibility for what happens to your stuff and sometimes hold it for ransom. The Dept. of Homeland Security requirement that a customs broker be “of good moral character” is clearly not enforced. Finding a trustworthy customs broker is like finding the holy grail. If you’re in the market for one of these guys, here are some charges to get in a quote:

  • “Door-to-door” freight: this is really dock-to-door freight, since most manufacturers will charge F.O.B. (freight on board) prices for your products, meaning that what you pay for manufacturing includes what it costs to box up your merchandise and get it onto a boat/plane/etc. I was quoted $1,717 for ocean freight from Hong Kong to Oakland, with door delivery in San Francisco. This was for a full 20 ft. container. Transporting less than a container load (LCL) was quoted at $125/cubic meter of cargo. This is because there is a lot more labor involved in separating, moving and accounting for your merchandise when it is mixed up with other people’s stuff. A full container load (FCL) doesn’t need to be opened at all between the overseas factory and your warehouse in the States. When my warehouse turned out to be in Fairfield rather than San Francisco (an extra 30 minutes away from the dock, but in another “zone”), my delivery cost went up $200. If gas prices rise between your quotation and shipment, expect to pay for that as well (an additional $50 in my case).
  • Customer Power of Attorney: allows your broker to conduct Customs business on your behalf (i.e. pay for your inspections to move your cargo through quicker, take your container off the dock, etc. I was quoted $0.35-$0.55 per $100 of merchandise value for this.
  • Insurance: this was included in my freight quote, but you NEED to make sure you have it. Containers fall off those barges on choppy seas all the time, and the last thing you want is to have your entire business end up at the bottom of the ocean.

Money for U.S. Customs fees: here’s the list:

  • Merchandise Processing Fee: 0.21% of Commercial Invoice., Min. USD25 and Max. USD485. $25 for me.
  • Harbor Maintenance Fee: 0.125% of Commercial Invoice. $8.85 for me.
  • Single Transaction Bond: a one-time $50 fee per import. If you import more than 10 times a year, you can use a $500/year bond instead.
  • Customs Clearance: $115.
  • C-TPAT security fee: protects the docks against terrorists. $7.50 per shipment.
  • Document turn-over fee: $55
  • Inspection: this is my personal favorite. Not all containers get inspected, but if you’re a new importer, yours will be. If they inspect by x-ray, you pay an additional $160. If they decide to do a FULL inspection, however, in which they open and rifle through every single box, they will charge you for the labor, which is more like $400-$500.

In the end, just getting my merchandise to the Fairfield warehouse cost almost a third of what it cost to manufacture it. That means I had to figure in a 33% mark-up in my prices, not including the cost of warehousing. If I could have had my plush toys made in the U.S., I would have, and it makes me seriously re-consider what my next product line will be.

**Tip: if you arrange for your freight early enough, you can sometimes “lock in” a rate for local delivery from the dock to your warehouse that won’t go up when your cargo arrives. Get this in writing.

US Customs FAQ on Duty Rates

your shipment of fail has arrived

Image courtesy of the Fail Blog at http://failblog.wordpress.com/2008/01/29/shipments-in

Dear Diary, Today I Went to Starbucks

If you are self-employed and either eat out or drive on the job, chances are you’ll want to deduct what you spend on those things. But meals and car expenses are two of the most likely things on your tax return to get scrutinized by the IRS, and who wants to organize hundreds of receipts for small dollar amounts? An easy alternative is to keep a spending diary — or two or three. A spending diary eliminates the need for you to keep tons of receipts for tiny amounts and is also one of the only spending records the IRS will accept as legitimate.

I have two spending diaries: a small notebook that I keep in my purse for meals/entertainment/public transportation, etc., and a pad taped to the dashboard of my car for mileage and car expenses. I recommend a separate diary for your car because it will be organized slightly differently than a regular diary. Some people like to use a digital or cassette recorder in lieu of paper (Blackberry/iPhone users, I’m looking at you) but either method is fine as long as it contains the proper information.

Like all documentation prepared for the IRS, a spending diary must follow a series of somewhat complicated rules in order to be admissible. Here’s how to set up an iron-clad meals and entertainment diary, for example:

  • Include only entertainment and meals you ate out (not groceries!) that totaled $75 or less. You will need to keep a receipt for any meal or entertainment expense over $75 (no matter how many people you paid for).
  • Create the following set of columns for your diary:
    • The date
    • The amount you spent
    • Where you spent it (establishment and city)
    • The names and business relationships of anyone you entertained
    • The business you were doing or discussing
  • Fill out the information the day you spend the money

For your car diary, just follow the format from this IRS example:

mileage log

Source: http://www.irs.gov/publications/p463/11081l08.html

Tip: record the entries from your diaries into a spreadsheet every week when you do the rest of your bookkeeping. This will help you to budget future spending and will save you time when you need to prepare your taxes.