Last updated on May 29th, 2020 -
What is an HS code?
A few decades ago, a group of countries acknowledged that a system must be put in place to better understand the types of products getting exported from and imported into their respective countries. They also needed a more streamlined way to know the amount to collect in duties and taxes as a shipment moves across borders. This is when the HS code was born.
Introduced in 1988, the international Harmonized System (or HS), was designed to streamline international trade by using a system of names and numbers to classify goods. Since then, over 180 countries have adopted the Harmonized System. These countries use the HS code similarly to how businesses use a part number.
An HS code is simply a number that represents a type of product.
With an HS code:
- Shipments clear faster.
- The import country knows how much duty to collect and what items to restrict, and
- There is a basis for improved statistics.
Determining an HS code
While the HS code has streamlined and automated many processes in global trade, the process of determining an HS code for a product has been anything but automated.
Determining an HS code can often be subjective and complex, making it a barrier to entry into the international ecommerce market. In fact, it’s so subjective and manual, that it’s not uncommon to see similar products get classified differently by trained professionals.
After all, the HS Schedule was pieced together and maintained by many experts across hundreds of countries, cultures, and industries. What could possibly go wrong?
Let’s walk you through a few common hurdles that must be dealt with when classifying products:
- You must understand the General Rules of Interpretation and General Notes, which is a legal language that can be hard to understand.
- The nature and use of your products don’t always line up perfectly with any particular HS code.
- Determining the correct code may require details that you don’t have readily available (e.g. You’re an ecommerce retailer selling products that you didn’t manufacture).
- The language used in the HS schedule is outdated and doesn’t always line up with today’s jargon.
Automating the process
Many global trade experts will argue that, due to the hurdles outlined above, it is impossible to fully-automate HS code assignment. These experts may be right in certain applications, but the reality is that advancements in AI technology are regularly turning the impossible into the possible. Automated HS classification is extremely difficult to accomplish and is not to the point (yet) of being viable for everyone and everything, but it definitely has its place within global trade.
Below are some basic guidelines you can use to know if automated HS classification is a fit for your business.
Automated classification may be a good fit if:
- You have a large number of SKUs.
- You ship to a large number of countries.
- Your shipments are primarily low value (e.g. < $800 for goods importing into the U.S.)
- Your products are not often restricted.
HS code automation in ecommerce
Based on the list above, automation of HS code classification is a great fit for many ecommerce companies. Ecommerce retailers did not go into business to become global trade experts, and they typically will not have the resources necessary to handle the burden of manually classifying all their products to all of the countries they want to sell to. There just simply isn’t enough of an ROI in taking that approach, and it can be a major distraction to the growth and success of a business. This is where technology can help!
Current AI and machine learning technology have advanced to the point that automatic HS classification is now very much a reality in ecommerce. In fact, when done correctly, the automated classification can often be more accurate than human classification. Humans are far from perfect and, as previously mentioned, there are times that even experienced experts classify products incorrectly.
The main goal for a low-value ecommerce shipment is to use “reasonable care” to assign an HS code that customs will deem as representative of your product. A machine is more than capable of accomplishing this for ecommerce.
Fully-automated classification can be an extremely powerful tool for businesses when used appropriately. It will save countless man-hours and money that can now be spent on growing your business. It’s well worth your time to determine if automation makes sense for you.
If you are interested in learning about the classification tools that Zonos has to offer: