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A Founder’s Guide to Importing with Canadian Fulfillment

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A Founder’s Guide to Importing with Canadian Fulfillment

Since the year 2010 when it overtook the United States, it is no longer news that China has become the world’s leading nation in terms of manufacturing. The United Nations Statistics Division (UNSD) released data that estimated China’s contribution to global manufacturing in 2019 at a massive 28.7 percent. This has turned the attention of many ambitious entrepreneurs to the East where the most populous nation on earth presents itself as an irresistible manufacturing market.

On the other hand, the trade war between the US and China – which has seen both parties slap heavy tariffs on each other’s goods has made it economically difficult to import goods directly from China, and by extension frustrating the efforts of American businesses that are trying to explore the Chinese market.

So, how can the American entrepreneurs that want to take advantage of the booming Chinese market beat the harsh economic demands of direct importation from China? The answer is in taking Canada as a smart China-to-US route and leveraging Section 321 and Canadian Fulfillment.

What is Section 321 and how does it work?

Section 321 is one of the most common US Customs and Border Protection (CBP) statutes known by ecommerce businesses. Introduced in 2019, the section authorizes low-value merchandise below the minimum of $800 to be exempted from paying custom duties or taxes.

What does Canadian fulfillment mean?

Canadian fulfillment companies are third-party companies in Canada that receive and provide warehousing and logistic services, as well as handle the shipping processes, checking in imported stock for business organizations, and helping them to deliver orders directly to their customers. Their delivery service makes sure the processing and shipping of orders to the US are carried out on the same day just as would be the case from a store in the States.

How do you take full advantage of Section 321 through Canadian fulfillment?

As mentioned above, Section 321 is a bridge for direct importation from China to the US. It is important to note, however, Section 321 alone, is not enough. There are certain conditions and best practices that could make the process tedious and difficult for business owners to ship their goods through the border. These conditions, if not complied with, may also lead to serious punishments and delays in shipment.

Here is how you as an entrepreneur that has an ecommerce business can take advantage of Canadian fulfillment, maximize the benefits of section 321 and bypass its constraints:

1. Importers are only allowed to claim Section 321 once daily. If you are going to be importing goods that are worth above the $800 value threshold (which is very likely), this means you will not be able to ship your entire goods through the US border all at once. As an entrepreneur, using the services of a Canadian fulfillment company will aid in maintaining business-to-customer and business-to-business delivery operations across the border at an economy-friendly cost, and without having to worry about the import duty and tax.

2. Apart from the daily limit, the logistic effort of receiving very large ecommerce shipments from China, shipping them to the U.S., and the cost of transporting them to your warehouse could be very overwhelming and unnecessary. E-commerce business owners have settled with using the warehousing services of Canadian fulfillment to save cost and prevent stress.

3. An entrepreneur that does not have to worry about the logistic and warehousing aspect of their business would have the opportunity of focusing on other things.

Summarily, leveraging on Section 321 through Canadian fulfillment can help entrepreneurs conveniently maximize their exploits in the Chinese market without feeling the economic heat of the trade war.

section 321

How Your Business Can Benefit from Importing Under Section 321

Import taxes often have a huge impact on businesses, especially U.S. e-commerce companies that rely heavily on goods made overseas. Many of these companies are drastically lowering their import costs by taking advantage of a little-known U.S. customs statute, Section 321. Let’s look at how these businesses are benefiting.

Section 321 Cuts the Costs of Chinese Imports

What you’re importing and where you’re importing from can considerably affect the duty rates you have to pay. While this applies to lots of countries around the world, China is a central focus for many U.S. businesses. In 2020, Chinese exports to the United States topped a whopping $430 billion! And shipping directly from China to the U.S. can often cost around 20% in import taxes.

The high price of bringing goods from China to the United States was exacerbated by recent trade tensions between the U.S. and China, respectively the world’s largest consumer of goods and the world’s largest manufacturer of goods. Over half of the overall trade between the U.S. and China has been negatively impacted. The affected U.S. businesses report that the increased tariffs have considerably raised their operating costs, and many of these companies turned to Section 321 and Canadian fulfillment companies for economic relief.

How Does Section 321 Work?

Section 321 allows for the duty-free importation of qualifying goods into the United States that are valued at $800 or less. But most companies buy from China and other countries in much higher quantities at much higher dollar values. A problem, right? There’s a simple workaround to that: bring the goods to Canada, where import tariffs are much lower than they are in the United States.

A company can, for example, buy a shipment of Section 321-eligible goods valued at, say, $8,000 from China, and have them sent to Canada. Then they can have those goods brought to the U.S. in ten separate $800 shipments, on ten separate days, without paying about $1,600 in total U.S. tariffs they would otherwise incur if they imported in bulk directly from China to the United States.

Who Handles Section 321 Goods on the Canadian Side?

That’s where a Canadian fulfillment company comes in. Using a “pick-n-pack” process, Canadian fulfillment companies receive bulk shipments at a Canadian warehousing facility that’s usually strategically located close to the U.S. border. The “picking” part includes pulling items from large shipments and readying them for smaller orders that often go to multiple locations. The “packing” gathers these items according to customer needs and requirements.

From receiving the goods to final delivery confirmation, a good fulfillment company will have the ability to handle and electronically track every shipment. A good fulfillment company is also skilled in “kitting,” taking items from multiple SKUs and bundling them together under one SKU for a more economical and streamlined shipping process.

Section 321 is a Speedy Solution

Can anybody bring goods into the U.S. under Section 321? Technically, yes, but not everyone can do it with the same speed and efficiency as fulfillment companies. The detailed documentation that U.S. customs requires has to be perfect and delivered before the shipment gets to the border if you want to get the goods through smoothly. How? Fulfillment companies enjoy participation in the Section 321 Data Pilot Program, allowing them to submit the needed documentation electronically to ensure their clearance is ready before the shipment arrives at the border crossing.

And the closer to the border the better. Many Canadian fulfillment companies are close enough to the U.S. border to guarantee same-day fulfillment, bringing products into the United States that are then handed off to U.S. carriers including FedEx, UPS, and DHL for swift delivery to their ultimate destinations.

It’s been famously said that the only two certainties in life are death and taxes. But that may not be entirely true. At least not the second part if you’re taking advantage of Canadian fulfillment and Section 321.

section 321 freight-forwarders

HOW TO CAPITALIZE ON SECTION 321 TYPE 86 U.S. CUSTOMS ENTRIES

As the world adjusts to life with COVID-19, the surge in popularity of online shopping shows no signs of slowing down. According to the U.S. Department of Commerce, ecommerce sales during the first quarter of 2020 were an estimated 14.8% higher than the previous year and accounted for 11.5% of total retail sales. At the ecommerce behemoth Amazon, North American sales for Q1 2020 increased 29% over last year to $46.1 billion, with international sales growing 18% to $19.1 billion.

The ongoing growth in ecommerce sales is driving a shift in how goods are crossing the U.S. border, putting pressure on freight forwarders and customs brokers to streamline operations to handle escalating volumes of shipments. Many of these ecommerce shipments are processed as low-value, Section 321 Type 86 customs entries in an effort to simplify the entry/release process, expedite shipments, and increase visibility into ecommerce imports for U.S. Customs and Border Protection (CBP) and Partner Government Agencies (PGAs).

What is Section 321 U.S. Customs Type 86 Entry?

To help manage the flow of goods, CBP introduced the voluntary Section 321 Type 86 entry on September 28th, 2019. This entry type eliminates duties and taxes for merchandise shipments valued at less than de minimis level of US$800, imported by one person on one day. Goods may enter the country by air, land, and sea through all commercial ports of entry (except for merchandise imported by mail).

This new Automated Commerce Environment (ACE) entry type simplifies the import process for the estimated 1.8 million package shipments valued at less than $800 that arrive in the U.S. each day. Plus, Section 321 Type 86 expands the number of imports that are eligible for informal entry, including cosmetics, food items, and other products typically regulated by PGAs.

Customs brokers and self-filers can use Entry Type 86 to submit low-value entries electronically through CBP’s Automated Brokerage Interface (ABI), which previously did not support small-package ecommerce.

So what does all this mean for freight forwarders and brokers?

automating customs clearance to drive revenue

With ecommerce volumes on the rise and the pandemic, trade wars, and rising freight costs threatening profits, customs brokers and freight forwarders must find a cost-effective and efficient way to keep pace with the accelerating stream of shipments and keep revenue flowing.

The good news is the ability to process high volumes of Section 321 Type 86 filings clears the path to revenue growth. The bad news is the standard manual “release from manifest” process is time-consuming, error-prone, and impractical for handling large volumes of this entry type.

Processing efficiency is the key to capitalizing on the financial and operational benefits of Section 321 Type 86 entries. Freight forwarders and customs brokers looking to use Type 86 filings to their advantage require a system that can automate and consolidate a high volume of transactions in a single filing to boost clearance efficiency. Solutions that can submit thousands of house bills on one master, automate rating, and enable automatic billing can further streamline operations for increased productivity.

EXPECT SCRUTINY

Section 321 Type 86 entries are subject to a higher degree of scrutiny from CBP, especially regarding accurate valuation. U.S. Customs is using multiple methods, including pricing comparisons, to ensure accuracy and verify that goods do not exceed the $800 threshold.

Adding complexity to the process, compliance for goods filed under Entry Type 86 involves multiple exceptions and exemptions. Certain types of goods are ineligible, including tobacco and alcohol products, goods requiring inspection or subject to quota, goods taxed under the IRS code, and goods subject to anti-dumping and countervailing duties (AV/CVD).

Given the intricacies of Type 86 eligibility and the need to maintain an audit trail for high volumes of low-value shipments, customs brokers and freight forwarders require an automated compliance solution that can flag exceptions, enable accurate record keeping, and demonstrate reasonable care. With technology on their side, brokers can leverage Type 86 filings to improve productivity and accelerate shipment clearance—all while helping their customers pay zero dollars on duties and taxes.

CUSTOMERS DEMAND VISIBILITY

In today’s digital world, customers expect continuous visibility into ecommerce shipments as goods move throughout the shipment lifecycle—and they’re leaning more on their logistics service providers to provide that insight.

To meet the needs of their customers, forwarders and customs brokers are turning to technology. Automated solutions enable end-to-end visibility for Type 86 shipments, from purchase order to the point-of-delivery, by sending in-transit updates and delivery and clearance status reports without the need for manual queries by user or customer.

Deploying a digital front-end to freight forwarding operations not only provides a convenient and efficient customer experience but can also improve internal operations and streamline previously manual processes, such as carrier rating, invoicing, and tracking.

USING SECTION 321 TYPE 86 TO THRIVE

With customs brokers and freight forwarders looking for ways to trim costs and boost the bottom line in the wake of COVID-19 supply chain disruptions and escalating ecommerce demands, the introduction of Section 321 Type 86 entries was a well-timed gift for importers bringing low-value goods into the U.S.

Although the sheer volume of ecommerce shipments poses both customs compliance and customer service challenges, the ability to automate the customs clearance—en masse—for these types of shipments creates an opportunity for growth. By using a robust solution to automate and consolidate Type 86 entries and digitally submit import data to ACE through ABI, customs brokers and freight forwarders can expedite clearance, cut costs, and improve operational efficiency and accuracy to create a streamlined customer experience. Is your organization maximizing the potential of Section 321 Type 86 entries yet?