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What Are HS/HTS Codes and How Do They Work?

Everyday your business’ warehouse ships products to customers and probably does this like a well-oiled machine, over and over again. Of course, there are always challenges that may occur and if your business is just starting to import products from different countries new requirements will come up. Whenever you have to deal with customs it becomes important to have the right documentation from invoices, certificates of origin, and HS codes.

Although this might sound like a whirlwind of complexity that you begin asking yourself 'why even bother', don’t worry because once you get the hang of it, you’ll be off and running. We’ll do our best to explain what HS codes are, their purpose and some considerations and background when using them.

The idea of a standardized nomenclature for classification of goods for tariffication is as old as the Roman Empire. And while there have been different forms of tariffication nomenclature, over time the HS Convention, managed by the World Customs Organization (WCO) as we know it today came into effect January 1st, 1988, with 37 countries officially ratifying the convention and participating in the system. As of 2020 there are 160 countries that are contracting parties (ratified the convention) of the HS Convention. And while not all countries have officially ratified the convention almost all countries use it in practice.

HS stands for Harmonized System, sometimes also referred to as Harmonized Tariff Schedule (HTS). The main difference between HS and HTS codes is that HS is global while HST is country specific. Both though are used globally to classify imported goods. Essentially these codes allow customs organizations to track exactly what importers are bringing into the country and ensure that only authorized products are allowed to enter through the systems set in place to control this movement of goods.

Here is an example of an HS/HTS code for coffee in the United States:

These codes are important as they determine the tariff/duty rates as well as track the global statistical information of trade for goods. Since 2002 the HS code system is also reviewed every five years to keep pace with changes in technology and patterns of international trade. Just to give you an idea of the number of changes that can take place, on January 1st more than 351 changes, amendments, and revisions were announced to the classification system.

Now, all of this might seem complicated, but from the perspective of your business and warehouse all that is essentially required for you to do is to keep track of the codes that pertain to each product you are importing or else exporting. And fortunately, a simple online search for the product your importing will help you identify the HS code.

So how can you keep track of all of these codes related to your inventory? Your WMS can help tremendously in organizing and clarifying the HS codes associated to your products. For example, in Akatia's WAM solution a custom field can be configured for this type of tracking and associated to what we call the itemmaster of a product. The itemmaster is essentially the definition of the product, everything from the name of the product, the supplier, its dimensions, and so on. By adding an HS and HTS field the number can be applied as part of the itemmaster. As inventory of the product is received you will be sure that it has the HS information related to it. If a code changes in the future not to worry, since you will be able to look up the product in your WMS and make the needed adjustment. You can even run periodic checks through a report to see if any changes are needed, thus avoiding any issues that might arrive by supplying a wrong or outdated HS code to customs authorities. Often exporters and suppliers provide the HS code for their product so you can verify this versus what you currently have on file within your WMS.

Furthermore, information such as the country of origin can be tracked by your WMS. At times you may source the same products from different countries and that have the same HS/HTS codes, but if you do not supply the country of origin you can be open to fines and delays. Your WMS can segregate these types of product by tracking which inventory came from which country of origin. In this way you know exactly where the inventory stored in your warehouse originally came from, even if it happens to be the same product. You can then supply the correct information to customs authorities and provide a clear picture of where a product was sourced from.

HS codes are also important for your customers as they want to know where products came from and if duties are applied, why this is the case.

This information can also be utilized to help create shipping labels for export as well as producing invoices and filling out any necessary forms or documentation like a bill of lading. In this way your WMS can help to track and organize your product HS codes and ensure that your business is up to date with the latest information.

As we can see the HS code system is relevant in making sure that goods are tracked properly when it comes to global trade. It creates a standardization that businesses and countries can rely on and isn’t all that complex once you understand the basics. As well by implementing technology like a WMS you can further optimize how your business tracks and manages your HS codes thus ensuring your business runs smoothly and predictably while conforming to global trade norms.

If you are looking to optimize the way you manage your inventory click the link below to get in contact with us. We be happy to speak with you.


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