From excess duties and heavy fines to a tarnished reputation and complete disruption of your or your customers’ supply chain, HS code misclassification is not a trivial matter. In fact, misclassification is so consequential that the success of your business may just hinge on having a reliable, fast, and precise classification method, such as AI technologies, that can reach a high level of accuracy, monitored on-line.
All HS codes are not created equal
Consider the following mind-boggling statistic: according to Pitney Bowes Parcel Shipping Index, 2,760 packages were shipped every second in 2018 worldwide, totaling over 87 billion packages annually. This number is expected to climb to 200 billion by 2025.
The Harmonized Commodity Description and Coding System, a.k.a. The Harmonized System (HS) was established in 1988 in anticipation of today’s eCommerce driven delivery economy, to help standardize how different countries classify goods for purposes of customs tariffs, security and others. While the concept is correct and has been universally adopted, factors such as the deluge of goods available for shipping and the flexibility given to countries to create their own low-level codes, have made HS code classification a highly complex endeavor requiring expert involvement. However, technology in the sector has remained fairly static and cannot cope well with the proliferation of HS codes (that is, until recently with the advent of AI-based HS coding).
Misclassification – A Multi-Edged Sword
With so much room for misclassification (intentional or not), regulators around the globe have opted for a heavy hand and substantial fines, such that misclassification can have a grave, direct financial impact. At the same time, the repercussions for your business can be much worse, even catastrophic.
Here are a few of the most severe consequences of HS Code misclassification:
- Overpaying Duties – By definition, HS codes are used to determine the customs levied against goods imported into a country. If you don’t classify your products correctly, you might pay more than you need to.
NOTE: The compounding effect – It’s important to keep in mind that if you are overpaying due to misclassification, then you are overpaying every time you import/export the misclassified product.
- Regulatory Compliance and Fines – As mentioned, governmental authorities take customs seriously (already in 2011, studies showed that over $22 billion in duties were owed to government treasuries), and because HS code assignment is the legal obligation of importers and exporters, they are the primary targets for compliance actions and fines. These penalties can sum to several multiples of the value of the goods in question, Moreover, regulators often impose fines retroactively when misclassification is found.
- Follow-on Costs – Much to the dismay of importers and exporters, when customs authorities identify a misclassification, it is very often only the tip of the iceberg. After detecting a misclassification, authorities will most likely comb through your past shipments in search of additional classification errors, collecting unpaid customs and issuing additional fines as they find them. Worse yet, they may hold future shipments until a customs agent can conduct a physical inspection.
- Delays and Storage Fees – Improper tariff classification is one of the primary reasons for shipment delays at borders, all the more so when shipments contain a large number of differently classified items. Businesses or their customs brokers must provide a correct HS code prior to goods arriving at their destination. Failing to do so, or if misclassification is uncovered, can result in the goods being held until the issue is resolved, very often requiring storage and other fees to be paid.
- Legacy Errors – Once a misclassification embeds itself into your system, it can linger there for a very long time and lead to other misclassifications of related items, items that contain it as a component, etc. The discovery of the original misclassification can then cause a domino effect, leading to an even greater economic impact.
Cody to the Rescue
Do not despair! As grim as the picture may look (and we haven’t even spoken of the very tough challenges of correct classification), AIDock has developed a revolutionary solution to the problem that will help you dramatically improve the productivity and efficiency of your import/export activities.
Incorporating leading-edge artificial intelligence, AIDock’s automated HS code classifier, Cody, offers:
- An unmatched 95%-99% classification accuracy rate, as compared to the 78% average global accuracy rate (manual and automated).
- Super-speed – Cody can classify millions of HS codes every second.
- Simple and Seamless integration
- Pay per correct HS code