“Calgary Mom” challenging DHL’s charging and communications practices has been trending in recent days, and this has generated quite a bit of media coverage in an area close to our hearts, i.e. Customs Charges
Michelle Sinclair says she found out the hard way that ‘import duty/tax and clearance fees‘ i.e. customs charges, owed on an imported Irish football jersey were mostly processing fees that went to DHL. (Colin Hall/CBC – image credit)
So what has happened?
Well, Calgary Mom, Michelle Sinclair, ordered a football shirt for her son Aodhan from O’Neills https://www.oneills.com, a large Irish sportswear company, which specialises on sportswear for Gaelic sports.
When the shirt was shipped to Canada and was ready for delivery Michelle was contacted by DHL in Canada and advised as follows: “There are duties/taxes and clearance fees due on your shipment. The amount is CAD23.25.”
When Michelle queried the amount, she was directed to the Canada Border Services Agency (CBSA) website, whereupon she found to her great surprise that there was no duty as such but an amount of CAD5.40 in GST to be collected, and that the balance of CAD17.85 was actually customs declaration charges levied by DHL.
So, lets do a breakdown analysis of the above costings.
- Is DHL justified in charging the reported CAD17.85 to collect CAD5.40 in GST?
Before I answer that let us look under the hood of this transaction.
Who is Michelle actually buying from, how does DHL get to be involved, and what is Michelle’s link with DHL?
Michelle is buying from the aforementioned O’Neills of Ireland, and DHL in Ireland is O’Neills appointed transportation partner for the export from Ireland, and DHL Ireland hands the shipment over to DHL Canada for final delivery.
This is a fairly common arrangement, wherein a business appoints a single transportation partner for all of its shipping activity. This however does not automatically create a relationship between Michelle and DHL Canada.
If Michelle has paid O’Neills for a door to door delivery, with no explicit mention of the buyer (the “consignee”) being responsible for customs clearance processing and duties and taxes, then it could be argued very strongly that the cost that Michelle has suffered should actually be borne by the seller (the “shipper”).
- Does it states clearly on O’Neills’ website that the buyer is responsible for all of this and Michelle should really have looked more closely at what she was committing to at the time of confirming the purchase, and that by committing to the purchase Michelle is implicitly obligated to DHL Ireland’s final delivery partner, in this case DHL Canada for customs formalities?
Well, that’s the thing. O’Neills’ website makes no mention of customs, duties, taxes, or anything other than that the shipping will be handled by DHL, and the cost breakdown by destination.
Yes, there is a whole separate section entitled Delivery and Shipping on their website. This section carefully explains what happens when an order is placed, where order tracking can be found, and what to do in the event of a missing shipment, but excluded any information on the subject of customs, duties and taxes.
- Why is DHL Canada not contacting DHL Ireland and instructing them to bill O’Neills for the customs clearance charges, and duties and taxes?
This comes down to three letters. D-A-P.
DAP is short for Delivered At Place and is a shipping term under Incoterms 2020, the rules published by the International Chamber of Commerce, which sets out who is responsible for various process in international trade.
It is highly likely that O’Neills is giving instructions to DHL Ireland on DAP terms, meaning that as far as DHL Ireland, and therefore by extension DHL Canada, is concerned the duties, taxes and customs formalities at destination are the responsibility of the consignee, Michelle in this case.
- Why do I say that DAP terms in this case are ‘highly likely’ and not a cast iron certainty?
Because by far and away, vast majority of business are conducted on the basis that the buyer is responsible for custom clearance, and payment of duties and taxes in the destination country, but there are also instances of goods being bought on DDP (Delivered Duty Paid) terms where the seller is responsible for all duties and taxes at destination.
Hence in many respect, DHL is just fulfilling its commitment to its client, O’Neills, to hold Michelle responsible for these aspects, although Michelle is unaware of the arrangements between DHL and O’Neills.
- After laying out who is responsible for what, let’s get back to the question of whether DHL is justified in charging the reported CAD17.85 to collect CAD5.40 in GST.
In my view it is not.
At least it is not entitled to process the customs entry and levy charges without first consulting the client and offering them the opportunity to handle the customs declaration and payment of duties and taxes themselves.
Given the circumstances of this transaction, Michelle may well have chosen to proceed with allowing DHL to process the customs declaration, had a quiet grumble to herself, and then got on with her life, making a mental note to look out for such charges in the small print in future.
Alternately, in my view, she would have been (and in fact still is) well within her rights to go back to O’Neills and ask them to cover this hidden cost, or at least ask O’Neills to request DHL for a waiver or to reduce their processing charges.
And the reason I offer this alternative is that O’Neills fails to mention anything about the buyer being responsible for customs and taxes, at least prior to entering credit card details and committing to buy a product. We visited the www.oneills.com website and tested this for ourselves. No mention whatsoever of the additional fees.
- Should Michelle not have made a reasonable assumption that taxes and duties are not included in her purchase?
Again, in my view, it is not reasonable to expect someone who is clearly purchasing as a bona-fide consumer to have armed themselves with the rules of international trade, knowledge of HS codes, de-minimis values, or customs clearance requirements.
Someone with some knowledge of international trade might be able to tell from the cost of shipping offered by O’Neills that there is no possible way that customs duties, taxes and processing fees could be included in such a low-cost item, but there are all kinds of deals out there including $1.00 freight or even completely free international shipping. Therefore, shipping cost is not really an indication.
- Why would DHL or any express company allow a third party to process customs for a shipment its solely responsible to deliver?
For the very simple reason they have an obligation to do so.
The importer is the party responsible for customs and can appoint any party they deem fit to do so. They then must provide the express company with the document issued by customs advising that the goods are cleared for free circulation (the cargo clearance permit, the entry permit, etc).
Whilst this might make for a somewhat ‘clunkier’ process by potentially introducing a third party to process customs on the buyer’s behalf, it puts the buyer in the driving seat with regards to their processing charges. At the same time, the buyer can declare the goods under preferential duty schemes made available to them as well as the ability to accurately select a harmonized system (HS) code, and by working with a single broker to maintain a single data warehouse for all of their customs and trade data.
Express companies reserve the right to charge for allowing a third party to process customs and in this case the charges of CAD15.00 would likely have been comparable with the actual processing fee levied by DHL Canada.
(Leaving Michelle’s case to one side for a second, more and more businesses are realising that there are a great many advantages to appointing a customs broker as a single broker for all their shipments. TNETS explains how this works here).
- What should have happened in this case?
Let’s start with what O’Neill’s could and should do differently.
Well firstly and most obviously, O’Neills should state clearly on their website that all import formalities including customs processing, and payment of duties and taxes at destination are the responsibility of the buyer.
Going further, O’Neills could include a duties and taxes customs clearance charges calculator on its website. This would have helped Michelle what to expect and consequently, no surprise when she was contacted by DHL.
An alternative would be for O’Neills to offer a DDP terms option whereby Michelle would have been able to pay the duties, taxes and any processing charges up front. This is a long shot, as it would require O’Neills to maintain a comprehensive database of all customs duties and taxes for all the jurisdictions into which DHL ships on its behalf.
- Why does O’Neills not disclose to the buyer of their responsibility towards duties and taxes?
It sounds like such an obvious thing to do, but many businesses selling online fail to disclose this, and there are three main reasons for this in our experience.
The first reason is, the selling organisation is simply ignorant of such requirements. Businesses which have recently moved into the international e-commerce space or newly established traders might reasonably plead ignorance of international trade practices, rules, and regulations, but it would only take a few shipments to establish that these requirements exist.
Secondly, the business might operate primarily or exclusively in the business to business (B2B) space. In such a situation, it could be reasonable to expect buyers to be aware of trading terms and their obligations with regards to customs. E-commerce transactions in such a situation could be part of a wider commercial relationship where terms of trade have already been agreed.
Lastly, the business wishes to minimise what e-commerce practitioners call ‘cart abandonment’. This occurs when a potential e-commerce buyer loads up a virtual shopping cart and fails to purchase. One of the leading causes of this is the emergence of hidden costs such as shipping immediately before the transaction is concluded.
We will not speculate here as to which of the above or any other alternative explanation might be the reason for the reticence of O’Neills to cover of duties, taxes, and customs clearance obligations on their website.
- How else could DHL handle this matter differently to have avoided being the subject of Michelle’s ire?
To be perfectly fair to DHL, when a business does not make it clear that buyers may have to pay additional duties and taxes or incur customs clearance charges when transacting with them, such as the case with O’Neills, then damage is already at least partially done.
I’m very sure, with the tremendous growth in cross-border e-commerce shipments, those working at express companies such as DHL who are responsible for notifying buyers at destination of the duties and taxes due, have had to develop a very thick skin dealing with the emotions of irate consignees who have not been informed by their seller that they are at the mercy of the express company
DHL on the other hand, as per Michelle’s account of things, did not cover themselves in glory on the communications front. Glibly pointing to the CBSA website when queried about the charges without:
- firstly identifying that 77% of what Michelle was being charged was actually DHL’s own processing fee.
- secondly advising Michelle could have self-declared or appointed someone else for the custom declaration.
It is not wise, and might lead some to conclude, as Michelle did, that DHL believes it holds all the power in the relationship, which is not a portrayal of the DHL branding.
- While improving communication between parties may be one aspect, is there something more fundamental that DHL (and other express companies) can do to lubricate the flow and reduce the costs of such business to consumer transactions?
Firstly, CAD17.85 for a single line item customs entry is expensive. There may be many reasons to why DHL suffers a correspondingly high processing cost, but most jurisdictions allow for automated processing of such transactions which bring the costs way down. DHL Canada should explore how it can introduce greater automation and pass at least some of the savings on to clients, especially to consumer clients such as Michelle.
DHL should also use its platform to speak up on behalf of buyers / consignees who are being taken for granted as e-commerce buyers. Without buyers, there is no e-commerce and this reduces the opportunities for express businesses. Buyers frequently complain of being held to ransom by express companies where the real culprit is often the e-commerce vendor or the e-commerce platform.
What amazes me in all of this is, and this is not directed just towards DHL, given that most if not all of us are willing e-commerce buyers, why express companies increase their effort to recruit consumer customers at destination, in advance of any shipping activity. With an army of consumer consignees, they would then be able to recruit exporting clients far more easily.
De-minimis values have already started falling around the world. Personal imports that were previously duty / gst exempt will soon fall into the range of duty / gst payable, and consumers will insist on a choice as to how goods are cleared on their behalf, including self-declaration or the ability to appoint a third party.
Express companies who have spent years unnecessarily being seen to be making enemies of the general public may soon come to regret their actions as consumers appoint their own personal customs brokers, or learn how to self-declare.
TNETS has a range of customs solutions which are fast, cost effective and, relative to the above, compeletely transparent. Take a look at some of our services and solutions here.