Despite their central importance in international trade, shipping tariffs are an often misunderstood measure of economic regulation. Many people tend to think of them in reductionist terms as unnecessary add-on fees for country-to-country shipping, or worse, a weaponized form of taxation meant to penalize bad behavior on the world stage.

The reality is that tariffs fulfill far more complex and vital functions than simple greed or pecuniary punishment. If you work in a business that involves international shipping, your very livelihood may depend on how well you’re able to understand and adapt to these functions.

What exactly are tariffs, and how do they impact warehouse shipping?

What Are Tariffs?

Basically, tariffs are taxes imposed on goods coming into or going out of a particular country.

The U.S. Congress sets tariffs, which are levied by the President, and collected by the United States Customs and Border Protection agency (CBP). The payments collected on tariffs are known as “duties.”

If you’ve ever taken a trip to another country and brought back souvenirs for your loved ones, you know that you have to pay duties on items that pass through the customs checkpoint at the airport.

This same general principle also applies to international shipping, except instead of transporting the items yourself, you’re relying on a team of logistics experts and freight carriers to get them where they need to go.

How Are Tariffs Used?

While there are many reasons for instituting tariffs, they serve two primary purposes: fundraising and foreign trade regulation.

International trade is an enormous enterprise that is carefully regulated to ensure that commerce occurs within the bounds of safety, legality, and general ethics. Planning and enacting regulation requires staffing, infrastructure, and other such resources, and those resources require funding.

In other words, tariffs generate money for the federal government—money that is put toward hiring personnel, building and maintaining facilities, and carrying out other responsibilities.

Though shipping tariffs account for only about 2% of the U.S.’s gross revenue, they’re nonetheless an important source of income that allows international business to proceed smoothly, fairly, and without exploitation.

The other utility of tariffs is aiding in the regulation of production and foreign trade. Since shipping tariffs make it more costly to exchange goods with some countries than others, they tend to have the reflexive effect of either increasing domestic production or encouraging trade with other less advantaged countries.

In this way, tariffs can be useful for fostering economic relationships and preventing global monopolies and the undesirable power dynamics they often produce.

Making Sense of Tariff Rates

Tariffs aren’t a one-size-fits-all fee tacked onto every overseas transaction indiscriminately.

There are three main types of tariffs, each reflecting the nature of the goods being imported or the country from which they originate.

Ad Valorem Tariffs

Ad Valorem tariffs, which derive their name from a Latin phrase meaning “according to value,” are calculated as a fixed percentage of the value of a single unit of the goods to which they’re applied.

Imagine, for example, that you were to purchase and import $500,000 worth of foreign-made automobiles. If these automobiles were subject to an Ad Valorem tariff with a rate of 20%, you would be expected to pay an additional $100,000 in import taxes, putting you out of pocket for $600,000 in total.

Specific Tariffs

As their name suggests, specific tariffs charge a specific dollar amount derived from the baseline value of each unit of goods under their purview. Specific tariffs reflect the type of goods being imported rather than their value.

If you buy 5,000 pairs of sneakers and each pair is assigned a specific tariff of $0.50, you would end up paying the purchase price of the sneakers plus $2,500 in associated fees.

Preferential Duties

Preferential duties (also known as “preferential rules of origin”) are contrasted with Ad Valorem and specific tariffs in that they have nothing to do with the type or number of goods being brought in and everything to do with where they’re coming from.

This is because preferential duties are meant to promote trade between nations with vastly different economic standings.

In the U.S., for instance, goods imported from China are subject to steep tariffs. However, goods imported from places like Chile, Jordan, and Singapore are not subject to tariffs. Freedom from taxation incentivizes companies into opening trade relations with developing countries, thereby helping them become more prosperous.

How Do Tariffs Affect Warehouse Shipping?

warehouse shipping

If you work in shipping or logistics, tariffs aren’t just abstract economics concepts or obscure technicalities—they’re an unavoidable part of day-to-day operations. It’s therefore critical to make sure you’ve factored in tariffs and tariff-related conditions when calculating expenses and coordinating the movement of goods.

By miscalculating the amount you owe in duties on a given shipment or failing to account for duties altogether, you could be setting yourself up for an unpleasant surprise later on down the line. If you don’t catch your mistake soon enough, such a miscalculation could have costly repercussions.

Similarly, an inability or unwillingness to pay fees on imports could result in your goods being impounded or stuck at a warehouse until the shipper either pays to have it sent back or cuts their losses and gives up on it. Needless to say, these sorts of setbacks have the potential to wreak havoc on your shipping timetables, logistics projections, and inventory management tasks.

Conclusion

Tariffs are more than just taxes on goods moving from Point A to Point B. They’re an unspoken agreement to deal fairly with one’s partners in international commerce, a symbol of ever-shifting economic power structures, and practical consideration of the highest order.

For these reasons, it’s strongly recommended that you familiarize yourself with the shipping tariffs that apply to your country and the countries you frequently do business with, as well as the ways that they’re most likely to affect your bottom line.

Managing shipping and tariffs is no small feat, using a program like topShelf from Scout can help keep everything running smoothly throughout.

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