Inventory Management (part 2)

In a previous post I gave a brief overview of inventory management. All companies are interested in reducing inventory as long as the result is no lost sales, customer service issues, or material shortages. One way to reduce total inventory is to consolidate DC’s or warehouses. This is due to the fact that safety stock is held at each location, so fewer locations equals less safety stock. The effect on inventory levels by adding or eliminating warehouses can be calculated by using the Square Root Rule. I am attaching a summary of the Square Root Rule and an example.



How to Determine Invoice Value for Customs

Customs entries on imported merchandise involve calculating duties and taxes based on commodity classification (HTS), country of origin, and invoice value. In a previous post we discussed the importance of making sure that correct HTS codes are used. In most cases the commercial invoice or CI value is used for duty calculation. In situations where the transaction is not so clear Customs has established an “appraisement hierarchy” to determine entry value. The details can be found in US Customs and Border Protection regulations 19 CFR part 152.  Here is a summary:

Appraisement Hierarchy

1) Transaction Value- actual invoice value

2) Transaction Value of identical merchandise- same country, same class and kind

3) Transaction Value of similar merchandise- same country, commercially interchangeable

4) Deductive Value – start with US retail selling price and deduct commissions, transportation, insurance, duty/tax, and value of further processing

5) Computed Value- sum of the following. Importer can request computed instead of deductive.

  • Cost of Materials
  • Cost of Packaging
  • Assists
  • Profit
  • Overhead
  • G&A

6) Value if other values cannot be determined- if the value of imported merchandise cannot be determined it will be appraised on the basis of a value derived from the methods set forth in parts 152.103 thru 152.106.

Transaction Value cannot be used and the hierarchy comes into play when:

  • There is a restriction on sale (except geographic)
  • Merchandise is sold on consignment
  • There is a barter transaction
  • There is “goodwill” value involved
  • Parties are related, unless relationship did not influence price

Unacceptable bases of appraisement:

  • The selling price in the US of merchandise produced in the US
  • A system that provides for the appraisement of imported merchandise at the higher of two alternative values
  • The price of merchandise in the domestic market of the country of exportation
  • A cost of production other than a value determined under 152.06
  • The price of merchandise for export to a country other than the US
  • Minimum values for appraisement
  • Arbitrary or fictitious values

EEI filing

Ad Hoc Logistics currently assisting a New Hampshire electronics distributor with EEI (Electronic Export Information) filing options.

EEI has replaced the paper SED (Shippers Export Declaration) forms.

What are Incoterms?

Incoterms are rules used to facilitate global trade. Incoterms were created and are administered by the International Chamber of Commerce and are updated every 10 years. Incoterms 2010 published by ICC Services Publications, Paris FR is a very good reference. Some of the important points covered in the book are:

  • Incoterms must be in the contract of sale to apply
  • > 120 countries have endorsed Incoterms 2010
  • Now 11 rules in 2 groups
  • 2 new rules deal with geographic place
  • Incoterms is not a law…older versions can be used as long as all parties agree
  • Incoterms replaces Uniform Commercial Code (UCC) in domestic commerce
  • for reference
  • Incoterms cover;
    • Who does what
    • Who pays for what
    • When risk of goods passes from seller to buyer
    • Who is responsible for insurance, export clearance, import clearance, and other costs pertaining to delivery of goods
  • Incoterms do not cover;
    • Ownership or title to goods
    • Payment terms
    • Detailed requirements
    • Complete contract of sale

Incoterms 2010 includes several rules changes:

  • Now referred to as rules not terms
  • Remove DAF DES DDU DEQ
  • New Rules  DAT DAP
  • 2 Groups…Any Mode and Ocean/Inland Waterway Only
  • Ocean or Inland Waterway Only…FAS FOB CFR CIF

Attached chart is a quick guide to Incoterms 2010

Incoterms 2010 Quick Reference Chart 120610