What is customs duty in supply chain management?

Customs duty in supply chain management refers to the tax imposed by a government on goods that are imported into (or sometimes exported out of) a country. The duty is typically calculated as a percentage of the product’s value, weight, or quantity, and it is collected by customs authorities at the border.

In supply chain operations, customs duties are a key part of the landed cost of goods. They directly influence sourcing strategies, trade lane decisions, and overall profitability. Properly classifying goods and managing duty obligations is critical to ensuring compliance and avoiding costly delays or penalties.

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How customs duty works in supply chains

• Product classification: Goods are assigned an HS (Harmonized System) or HTS (Harmonized Tariff Schedule) code that determines the duty rate.
• Valuation: Customs duty is calculated based on the declared value of goods, quantity, or weight, depending on the country’s tariff schedule.
• Collection: Importers are responsible for paying duties at the border, often managed through customs brokers.
• Integration with processes: Transportation management systems (TMS) and global trade management (GTM) platforms integrate duty rates into landed cost calculations.
• Compliance monitoring: Customs authorities verify documentation, origin, and classification to ensure correct duties are applied.

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Why it matters

• Cost planning: Customs duties can significantly impact total landed cost, influencing pricing and profitability.
• Sourcing strategy: High duty rates may encourage businesses to source from alternative regions or suppliers with favorable trade agreements.
• Compliance: Accurate classification and payment of duties is legally required; errors can result in fines, shipment holds, or seizure of goods.
• Customer pricing: Duties are often passed along in the product price, affecting competitiveness in different markets.
• Resilience: Understanding duty structures helps organizations adapt quickly to changes in trade regulations or tariffs.

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Common questions about customs duty in supply chain management

How is customs duty different from tariffs?
A tariff is a type of customs duty applied to imports and exports. Customs duty is the broader term that encompasses tariffs and other import/export taxes.

What is the role of HS/HTS codes in customs duty?
HS/HTS codes classify goods for international trade and determine the duty rate applied at customs.

Who is responsible for paying customs duty?
The importer of record is typically responsible, though duties may be included in shipping terms depending on Incoterms agreements.

Can customs duties be reduced or avoided?
Yes. Companies can reduce duties through free trade agreements (FTAs), duty drawback programs, tariff engineering, and correct product classification.

How do customs duties affect supply chain visibility?
Customs duty data, when integrated into visibility platforms, provides accurate landed cost calculations and helps anticipate clearance timelines.

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Putting it all together

Customs duty is a crucial financial and compliance factor in global supply chains. It impacts sourcing decisions, landed costs, and customer pricing while serving as a major checkpoint for cross-border shipments.

By combining accurate product classification, real-time visibility, and trade compliance tools, businesses can better manage customs duties, reduce costs, and ensure smooth cross-border operations.

In short: customs duty in supply chain management is the tax on imported or exported goods, and managing it effectively is essential for cost control, compliance, and global trade efficiency.