Rising costs for containers – how does this impact your Lump Sum agreement?

Since the rise and age of Corona, the costs for hiring shipping containers have exploded tremendously. This has a massive impact on international trade and – in particular for customs minded people - influences the customs value. This value is measured to decide how much duties and VAT is owed to the authorities.

Thus, a correct calculation of the customs value is crucial. However, several companies have a so called 'lump sum' agreement with the Customs authorities, and these companies are benefitting from their arrangement as they seem unaffected by the rise in container costs in relation to the customs value. We have noticed though, that these specific companies have different approaches for the future and that they receive mixed signals from the Customs authorities.

What actually is a 'Lump Sum' agreement?

It can be really challenging to near impossible for companies to deduct freight charges / container costs to a level that is used for transactional based declarations. The Customs authorities offer a permit system, that allows companies to request and receive a Lump Sum based permit. Based on the actual costs of the previous period (year), a percentage is determined that will serve as freight charges for the coming year (or duration of permit). Considering the fact that the actual costs in this year far exceed the previous one, the permitholders reap a huge benefit compared to companies that declare the actual container costs per shipment.

What comes next?

There are permitholders which are contacted by Customs officers to point out that they have not been paying the correct amounts due to the explosive rise in actual costs, and that they need to pay afterwards (end of the year) in order to correct the discrepancy. When we review the permit the approach that the Customs officers seem to take seems inaccurate. The percentage that was agreed upon in the permit is valid for the duration of the permit and therefor “fixed”. It is somewhat similar to households “fixing” their gas and energy bills for a certain period of time. Considering the massive benefits of 2021, it is absolutely not to be foreseen that these benefits will continue in 2022. Whenever the permit needs to be extended or prolonged, a new calculation is made based on the previous year (actual container costs). This scenario can put a permitholder on a real financial disadvantage when the prices eventually drop to a lower level in 2022. In the end there are only 2 options:

  • Not prolonging the permit. It is not mandatory to resubmit the application for the coming year. However, the obvious disadvantage here is that all freight charges need to be calculated per shipment/transaction/declaration, and this will consume a tremendous lot of time, money and resources. One has to wonder if this is beneficial to the company.
  • Re-apply for the permit. At first glance, this might seem as a unsatisfactory step to undertake. However as said in the above, this will prevent additional costs that have to be made in the absence of the permit. It’s imperative to calculate both scenarios as to see which is more cost-efficient. One of our customers suggested to implement a Lump Sum based on future freight charges, and while this is an interesting approach, it does not seem obvious that the Customs officers are inclined to agree with this approach. In any case, it would be wise to confer with the Customs authorities.

The corona-crisis has affected our ways of conducting business on various levels. Therefore, it is of the utmost importance to keep track of developments that you might not had foreseen in the past. Should any questions or remarks arise due to the above or would you like to know how this dynamic affects your company? Our Customs Specialists would be happy to think along with you. Fill in the form at the bottom of this page and we will get in touch with you soon.

29 Nov 2021 at 4:11 pm
3 min
Published by:
Steven Sewberath Misser
Customs Specialist
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