Shipping Basics
International shipping requires SMEs to have a proper understanding of few critical pillars: Documentation, Incoterms, Customs Duties, Import VAT, LCL / FCL Shipments & Chargeable Weight. Managing these components correctly prevents border delays and unexpected supply chain costs.
Documentation
Every international shipment requires a standard set of documents to clear customs and verify cargo ownership.
- •Commercial Invoice: Serves as the primary bill of sale detailing the buyer, seller, goods value, and country of origin.
- •Packing List: Specifies the weight, volume, dimensions, and exact packaging breakdown of the cargo.
- •Bill of Lading (BL) / Airwaybill: Acts as the official contract of carriage issued by the carrier to acknowledge receipt of goods.
- •Certificate of Origin: Proves where the goods were manufactured, which is essential for claiming lower tariff rates.
Incoterms
Incoterms are standardized trade terms that define whether the buyer or the seller is responsible for shipping costs, risks, and customs clearance.
| Incoterm | Risk Transfer Point | Freight Cost Responsibility | Customs Clearance Responsibility |
|---|---|---|---|
| EXW (Ex Works)Buyer-centric | Seller's factory floor | Buyer pays all freight costs | Buyer handles export and import |
| FOB (Free on Board) | Goods loaded onto the vessel | Buyer pays main international freight | Seller exports; Buyer imports |
| DAP (Delivered at Place) | Destination address | Seller pays freight to destination | Seller exports; Buyer imports |
| DDP (Delivered Duty Paid) | Destination address | Seller pays all freight costs | Buyer to provide docs for clearance |
Customs Duty
Customs duties are taxes levied by governments on importing goods to protect local industries and generate revenue.
- •Determine the HS Code: Identify the 6-to-10-digit Harmonised System code that classifies your specific product type globally.
- •Establish Valuation: Calculate duty based on the total customs value, which usually includes the product cost, shipping, and insurance.
- •Check Trade Agreements: Look for Free Trade Agreements (FTAs) between the trading countries to see if you qualify for zero or reduced duty rates.
Import VAT
Value Added Tax (VAT) is a consumption tax charged on goods imported into a country, usually calculated on top of the customs duty and value.
- 1Calculate Taxable Basis: Add the goods value, shipping costs, and any customs duty together to find the VAT baseline.
- 2Apply the Local VAT Rate: Multiply that baseline by the destination country's standard or reduced VAT rate.
- 3Utilise Deferral Schemes: Use mechanisms like Postponed VAT Accounting (PVA) where available to declare and recover import VAT on the same return instead of paying upfront at the border.
LCL / FCL Shipments
The choice between LCL and FCL dictates your shipping costs, transit speeds, and cargo safety.
Defining LCL and FCL
- •FCL (Full Container Load): You book and pay for the exclusive use of an entire 20-foot or 40-foot shipping container.
- •LCL (Less than Container Load): Your cargo shares container space with goods from other shippers because your volume is too small to fill a whole container.
| Feature | LCL (Less than Container) | FCL (Full Container) |
|---|---|---|
| Volume Best For | Small shipments (1 to 15 cubic metres) | Large shipments (Over 15 cubic metres) |
| Pricing Model | Charged per cubic metre (CBM) or weight | Charged at a flat rate per container |
| Handling Risk | Higher risk due to frequent unpacking/sorting | Lower risk as the container stays sealed |
| Transit Speed | Slower due to consolidation at port | Faster because it goes directly to destination |
LCL Pros & Cons
- Cost-efficient: Pay only for exact space.
- Inventory control: Ship smaller batches more frequently.
- Delays: Customs checks on other goods can delay yours.
- Damage risk: Increased handling raises chance of damage.
FCL Pros & Cons
- Security: Goods sealed until destination.
- Speed: Saves 3-5 days by skipping sorting.
- Higher upfront cost: Pay for entire container even if half empty.
- Delivery logistics: Requires equipped warehouse.
Chargeable Weight
It is the exact weight carriers use to calculate your freight invoice, determined by comparing how heavy a shipment is against how much physical space it occupies.
Volumetric vs Actual Weight
- •Actual Weight (Gross Weight): The physical weight measured on a scale in kilograms or pounds.
- •Volumetric Weight (Dimensional Weight): A calculated weight based on length, width, and height.
- •The Rule: Carriers compare both and bill whichever is larger.
How to Calculate
- 1Measure Dimensions: Multiply Length x Width x Height in centimetres.
- 2Apply the Freight Factor: Divide by the carrier’s divisor: Air Freight ÷ 6,000; Courier/Express ÷ 5,000; Ocean Freight LCL ÷ 1 CBM = 1,000 kg.
- 3Select the Higher Number: The greater value between the scale weight and the dimensional weight is the billable chargeable weight.
Example Calculation
Actual Weight: 120 kg Dimensions: 125cm x 100cm x 80cm Volume: 1,000,000 cm³ Volumetric Weight: 200 kg (1,000,000 ÷ 5,000)
Result: Carrier bills at 200 kg (higher than actual 120 kg).