由 caicai8478 In the foreign trade community, there’s a saying: “If you haven’t had your goods detained by customs, you can’t talk about life.” While somewhat self-deprecating, this statement also captures the challenges of practical experience. Today, I’d like to share a personal experience with a failed customs clearance process, one that cost us nearly $50,000. I hope this review will help you avoid the pitfalls we’ve encountered.
I. Case Background: A Seemingly Successful Order
Date: Early 2023
Product: A batch of customized smart home devices (including gateways, sensors, etc.)
Destination: Indonesia
Value: $48,000
Trade Terms: FOB
Client: A reputable importer in Jakarta with whom we’ve worked twice before.
Everything seemed normal. We followed the standard procedures for stocking, booking, export declaration, and sending the full set of documents (bill of lading, invoice, packing list, Form E) to the client. We all assumed this would be a standard transaction.
II. Storm Strikes: Goods Detained Upon Arrival
The goods arrived at the Port of Jakarta as scheduled. Three days later, we received an urgent email from the customer:
“The goods were detained by customs! Customs has identified two serious issues with our declaration:
The commercial invoice was under-declared, suspected of tax evasion.
The HS code classification was incorrect; the product required SNI certification, which we did not have.”
This news was like a bolt from the blue. Following this, daily demurrage and storage fee notices were incurred, the figures fluctuating relentlessly.
III. In-Depth Review: Where Did We Go Wrong?
After repeated discussions with the customer, the local customs broker, and our own freight forwarder, we painstakingly identified the root cause of our failure:
Trap 1: Compromise and a naive approach to “low-cost customs clearance”
What happened: Before shipment, the customer strongly urged us to change the invoice amount from US$48,000 to US$32,000, citing the need to “reduce import costs.” Although we were apprehensive, we compromised to maintain our customer relationship and, hoping everyone else was doing it, we compromised.
Why it’s a trap: Indonesian Customs has a robust database and market price assessment system. For smart devices like ours with branding and technological content, our declared price of $32,000 was far below their internal reference price, triggering a red alert.
Consequence: Customs initiated a valuation process and directly used their determined market price for tax calculation. Not only did the customer have to pay the tax difference, but they also faced a hefty fine of 50% of the goods’ value. The initial intention of tax savings led to even greater losses.
Trap 2: Assuming HS Code Classification
What Happened: When declaring our export to domestic customs, based on past experience, we classified our core device, the “smart gateway,” under a lower-tax code for communications equipment.
Why it’s a trap: After inspection, Indonesian Customs reclassified the product as an “automatic controller,” based on its core function (controlling home appliances). This code not only carries a higher tariff rate, but more importantly, falls under Indonesia’s mandatory SNI certification.
Consequence: Because we were unable to provide the SNI certificate within a short period of time, the goods were deemed “non-compliant” and prohibited from import. Applying for certification at this point would take months and be expensive, leaving us with no time to spare.
Trap 3: Over-reliance on the client and lack of proactive verification
What happened: We assumed the client was familiar with their country’s customs clearance requirements and placed all our hopes on them. The client claimed they “could figure it out” and told us not to worry.
Why it’s a trap: We completely handed the decision-making power over the fate of the goods to the client. We later learned that this client was also importing this type of product for the first time, and their customs broker had limited capabilities.
Consequences: When the problem arose, we were in a desperate position. Unfamiliar with local regulations, we couldn’t even judge whether the solutions offered by the client and their customs broker were reasonable.
IV. The Painful Resolution Process and Cost
After over a month of back-and-forth, we finally made the difficult decision: to return the shipment.
We shipped the goods from Jakarta back to China, covering the round-trip freight.
We paid a staggering $11,000 in demurrage, storage, and handling fees.
Because of the delayed delivery, we compensated the client for some of their losses as per the contract and lost the client.
The team invested a significant amount of time and energy in handling this matter, resulting in a significant opportunity cost.
We ultimately suffered a significant loss on this order.
V. Lessons Learned Through Hard Work: “Survival Rules”
This failure taught us a profound lesson. We now strictly adhere to the following internal principles:
Adhere to compliance guidelines and have zero tolerance for “low-cost customs declarations.”
Action: Clearly stipulate in the contract that “all customs clearance documents will be based on the actual transaction amount, and any form of under-declaration will not be accepted.” Explain to the client that this is to protect the long-term interests of both parties and avoid customs risks.
Invest in HS code pre-classification and seek authoritative rulings.
Action: For new products, especially those with integrated functions, it is necessary to entrust a professional customs broker or apply for a “Pre-classification Decision” from customs. Furthermore, require the client to conduct double confirmation in the destination country to ensure consistent understanding of the Chinese and foreign HS codes.
Complete a “Due Diligence Checklist” before shipment.
Action: We created a checklist that must be jointly verified by the salesperson and merchandiser before shipment:
Has the customer confirmed that the product does not require mandatory certification (such as SNI, SIRIM, etc.) in the destination country?
Has the customer confirmed that the HS code provided is accurate?
Are the amounts and product names on all invoices 100% true and consistent?
Have we explained to the customer the importance of compliance declarations, and have we maintained records of these communications?
Prioritize risk management over the customer relationship.
Action: Professional customers will understand the importance of compliance. Any customer who presupposes non-compliance is a significant source of risk. Losing such a customer is not a loss in the long run.
Conclusion:
After that failure, we posted a message on the wall of our office: “Customs rules are not to be challenged, but to be understood and followed.”
Customs clearance is an open-book exam, and the answers are all written in the laws and regulations of each country. Failure is often not because the questions are too difficult, but because we always want to take shortcuts, or blindly believe in the “shortcuts” that others say.