HS Codes for Cross-border Ecommerce
January 27, 2020
Have you ever tried to ship an international order only for your shipping partner to request something called an “HS code” for every product in the shipment? Then you Google “HS code” only to get overwhelmed with complicated jargon and intimidating instructions?
Quick intro to HS codes
The Harmonized Commodity Description and Coding System (known as the Harmonized System or “the HS”) is the international system for identifying physical goods using numeric codes. Think of these codes as a common language for describing products. That way, governments worldwide have a shared understanding of what goods are crossing their borders. HS codes are currently used by 200+ countries as the basis for their customs tariffs and regulations and are maintained by the World Customs Organization (WCO).
HS codes are known by many aliases depending on country and situation. Aliases include: customs commodity code, harmonized codes, tariff codes, HTS codes, etc. This article simply refers to them as HS codes.
HS codes are a trending topic
We can no longer talk about cross-border ecommerce without talking about tariffs (or customs duty) and tariffs are a hot topic these days. Customs duty is determined by the tariff applicable in a consumer’s country on certain imported goods. It is a form of tax and a necessary cost of doing cross-border business. We can’t talk about tariffs without talking about HS codes.
HS codes are the basis of all cross-border activity. In the cross-border ecosystem, think of HS codes as the sun. However, many ecommerce merchants are unfamiliar with them. When selling internationally, merchants are expected to be familiar with cross-border compliance activities, like HS codes, that enable shipment delivery to the consumer’s doorstep and revolve around the HS code.
What merchants need to know about HS codes
The HS code triggers the domino effect of steps involved to physically deliver a cross-border shipment.
These codes are necessary if merchants want to offer DDP shipping because they determine the appropriate customs duty in each country. The duty is necessary to calculate the total price of a cross-border order including duty & tax – or landed cost. The HS code also identifies any country-specific regulations or restrictions required and is necessary to complete customs clearance which unblocks last mile delivery to the consumer’s doorstep.
Missing or inaccurate HS codes lead to shipments getting stuck in customs. This causes delivery delays, missed targets, frustrated consumers, and (usually) additional costs.
The HS code problem
The act of assigning HS codes to products is referred to as “classification.” HS code classification is the most basic (but arguably most complicated) cross-border compliance activity. It was only recently that ecommerce merchants had to start dealing with the concept of HS codes. Until the increase in cross-border ecommerce, it was only big companies that did international business. They hired specialized staff to handle HS code classification. Today, ecommerce merchants who sell cross-border must figure out HS codes for all the products they sell for all the countries they sell to. Problem is – classification requires knowing specific product information and how to apply the HS rules to get the right code and, thus, the correct customs duty. This is difficult because the HS rules are complicated, ambiguous, and subject to interpretation and legal precedent.
What is a merchant to do?
FlavorCloud has recognized the HS code struggle and has solved this problem for ecommerce merchants by automating the classification process. This enables a guaranteed landed cost calculation at checkout and expedited customs clearance in one end-to-end solution at no additional cost.
Merchants who use FlavorCloud to manage their international shipments have an easier time. FlavorCloud helps provide HS codes for all products in their catalog using automated tools. Then, the merchant simply inputs the codes into their online store – FlavorCloud does the rest.
The act of HS code classification is difficult for ecommerce merchants without expensive human resources. Fortunately, there are new technologies that minimize the work for ecommerce merchants without significant investment. With less time and resources dedicated to figuring out HS codes, merchants can focus more on increasing sales than dealing with cross-border activities.