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Why Are Transit Trade Risks Consistently High? What Are the Core Causes and Potential Hidden Chain Risks?
or complex compliance issues.
clearance and fund security.
I am the head of a foreign trade enterprise in Shanghai specializing in hardware product export. Last month, I finalized a large order from the EU. To avoid local anti-dumping duties on hardware products from China, I planned to operate through transit trade and have contacted a transit freight forwarder in Singapore.
However, last week I learned that a batch of the same type of goods from a peer was detained at the transit port, which not only incurred more than RMB 100,000 in demurrage charges, but also had the order canceled by the customer due to delayed delivery, with a direct loss of nearly RMB 500,000. Now I neither want to give up this order nor fear repeating the same mistake, and I am very anxious.
I would like to ask why transit trade risks are so high? Will there be problems such as loss of cargo title control and compliance penalties? Can you specify the core risk points and prevention and control methods?
Linda GaoYears of service：7Customer Rating：5.0
Documentation SupervisorStart a Chat
Many foreign trade enterprises have a common misunderstanding: they believe that as long as they find a freight forwarder that can provide transit services，they can successfully complete transit trade. Even to reduce costs，they purchase forged core documents such as third-party certificates of origin and bills of lading through informal channels，completely ignoring the compliance supervision requirements of transit ports and destination ports，which is the core source of high risks in transit trade.
If document fraud is detected by the customs of the transit port or destination port through big data comparison and on-site inspection，it will directly trigger a chain of negative reactions: goods will be forcibly detained，resulting in daily increasing demurrage and storage fees，and demurrage fees in some ports will double after 7 days，if compliant supplementary documents cannot be provided within the specified period of 15-30 days，the goods may be auctioned or destroyed by the local customs. At the same time，the enterprise will be included in the dishonest blacklist by the destination port customs，and all subsequent trade to the region will be subject to strict supervision of 100% inspection，and even permanently barred from entering the local market.
In terms of physical risk isolation measures，it is necessary to select a transit warehouse with independent customs supervision qualification to store goods，avoid mixed loading with goods of other enterprises，and prevent the goods from being implicated and detained due to violations of other goods，at the same time，monitor the whole process of cargo transportation trajectory through the real-time positioning system of the freight forwarder to ensure that the cargo title is controllable at each node.
Exclusive loss mitigation tip: be sure to sign a cargo title locking agreement with the transit freight forwarder，clarifying that the goods shall not be transferred or released at will before receiving the written instruction affixed with the official seal of the enterprise，at the same time，purchase exclusive freight insurance for transit trade，with the sum insured covering 120% of the cargo value plus logistics costs. In case of special risks such as customs detention and demurrage，losses can be minimized through insurance compensation.
Victor SunYears of service：5Customer Rating：5.0
Trade Risk Control ManagerStart a Chat
The customs declaration risk of transit trade is mainly concentrated in the document review and secondary declaration links of the transit port. Many enterprises fail to truthfully disclose the origin information of goods when declaring at the transit port, or use forged certificates of origin to muddle through, which will trigger the customs valuation and origin verification mechanism. Once it is determined as false declaration, the goods will be detained, and the enterprise needs to cooperate with the customs to complete the investigation lasting 3-6 months.
The accumulated demurrage and storage fees during the period may exceed the value of the goods. In addition, some enterprises ignore the differences in customs declaration rules between transit ports and destination ports. For example, the EU requires that transit goods must provide a certificate of non-manipulation from the transit port. If it cannot be provided, it will be regarded as direct import and face retroactive payment of anti-dumping duties, which can be up to more than 50% of the value of the goods.
Andy GuoYears of service：3Customer Rating：5.0
Supply Chain Management ExpertStart a Chat
The core of logistics risk in transit trade lies in cargo title control and transit link connection. Many enterprises choose small unqualified freight forwarders, who may consolidate the goods with goods of other customers in the same container. If a batch of goods is in violation of regulations, the entire container will be implicated and detained. In addition, some freight forwarders endorse and transfer the bill of lading to the destination port customer without the written instruction of the enterprise, resulting in the enterprise losing control of the cargo title and being unable to recover the payment for goods.
The free storage period of the transit port is also key. For example, the free storage period of Singapore Port is only 7 days. If transshipment is not arranged in time, the detention fee can reach 200-300 US dollars per day, and the storage fee will be doubled after more than 10 days. It is recommended to choose a freight forwarder with an exclusive transit warehouse, lock the cargo title throughout the process, confirm the free storage period in advance and reserve a 3-day buffer period.
Evelyn LiYears of service：3Customer Rating：5.0
Cross-border Compliance SupervisorStart a Chat
The tax risk of transit trade mainly stems from non-compliance of cross-border related party transaction pricing and VAT declaration. Many enterprises declare at low prices through related companies at the transit port to reduce costs, which will trigger the BEPS (Base Erosion and Profit Shifting) verification mechanism, and be judged by the tax authority as profit shifting, facing tax payment and fines, which can be up to 2 times the tax payable.
In addition, some enterprises ignore the VAT deferral policy of the transit port and fail to carry out VAT declaration in time, which will be included in the dishonest list by the local tax authority and can no longer enjoy the tax preferences of the transit port. It is recommended to plan the pricing of cross-border related party transactions in advance before conducting transit trade to ensure that the pricing conforms to the arm's length principle, and entrust a local tax agent to complete VAT declaration in time.
Eric ZhouYears of service：6Customer Rating：5.0
Senior Manager of Foreign Exchange & Tax RebatesStart a Chat
The compliance risk of payment collection and payment in transit trade is mainly concentrated in the filling of SWIFT messages and the management of offshore accounts. Many enterprises fail to truthfully mark the transaction nature of "transit trade" when filling in SWIFT messages, but mark it as "direct export", which will trigger the bank's anti-money laundering verification mechanism, resulting in fund freezing for 1-3 months, which seriously affects the capital turnover of the enterprise.
In addition, some enterprises use unqualified offshore accounts for payment collection and payment, and the accounts may be shut down by local regulatory authorities, making it impossible to withdraw funds. It is recommended to accurately mark the transaction nature as "transit trade" when filling in SWIFT messages, and provide documents such as transit port bills of lading and certificates of origin as support; at the same time, choose offshore banks with formal qualifications to ensure the compliance of capital flow.
Cindy ChenYears of service：3Customer Rating：5.0
Key Account ManagerStart a Chat
The core of legal risk in transit trade lies in the agreement on cargo title transfer and force majeure clauses. Many enterprises fail to clarify the ownership and transfer conditions of cargo title in the contract signed with the freight forwarder, resulting in the freight forwarder disposing of the goods without authorization, and the enterprise cannot safeguard its rights through legal channels. In addition, some enterprises fail to agree on force majeure clauses for the special situation of transit trade in the contract with customers.
If the goods are detained at the transit port and cannot be delivered on time, the customer will pursue the liability for breach of contract, and the compensation amount can reach 20%-30% of the contract amount. It is recommended to clearly stipulate the cargo title locking clause when signing the contract with the freight forwarder, and the cargo title can only be transferred after receiving the written instruction of the enterprise; at the same time, add the clause "delay caused by transit port customs supervision can be regarded as force majeure" in the contract with the customer to reduce the risk of breach of contract.
Jason WuYears of service：10Customer Rating：5.0
International Logistics & Supply Chain ManagerStart a Chat
The on-site inspection risk of transit trade is mainly concentrated in the devanning inspection of the transit port and the authenticity identification of seals. Many enterprises use inferior seals to save costs, or fail to keep photos and records when replacing seals at the transit port, leading the customs to suspect that the goods have been swapped and triggering devanning inspection. Devanning inspection will not only incur additional inspection fees, but also delay the transshipment of goods and incur demurrage charges.
In addition, the packaging of some enterprises' goods has residual origin marks, such as the words "Made in China", which will be judged as direct import by the customs and face retroactive payment of anti-dumping duties. It is recommended to use customs-approved seals with unique numbers, and keep photo and video records when replacing seals; at the same time, arrange special personnel to remove the origin marks on the goods packaging at the transit port to ensure no residue.
Daniel XuYears of service：10Customer Rating：5.0
Director of Import & Export OperationsStart a Chat
The packaging risk of transit trade mainly lies in the physical safety and compliance of the goods. Many enterprises use ordinary packaging in transit trade without considering the climatic conditions of the transit port. For example, the high humidity environment in Singapore will cause hardware products to rust, affect the quality of the goods, and be rejected by customers.
In addition, in the transit trade of some dangerous goods, enterprises fail to use UN dangerous goods packaging, which will be detained by the transit port customs and even face fines. It is recommended to choose appropriate packaging according to the climatic conditions of the transit port, such as using moisture-proof films and desiccants for high humidity environments; for dangerous goods, it is necessary to use dangerous goods packaging that meets UN standards and provide formal MSDS (Material Safety Data Sheet) reports to ensure packaging compliance.
Michael ZhangYears of service：6Customer Rating：5.0
Customs Declaration & Compliance ExpertStart a Chat
The export tax rebate risk of transit trade mainly lies in the verification of the consistency of four streams (fund flow, goods flow, document flow and contract flow). Many enterprises have inconsistent fund flow, goods flow, document flow and contract flow in transit trade, for example, funds are collected and paid through third-party accounts, or the document header is inconsistent with the contract subject, which will trigger the tax authority's verification correspondence, resulting in the temporary withholding of export tax rebates for 6-12 months.
In addition, some enterprises fail to carry out document filing in time, for example, they fail to keep documents such as transit port bills of lading and certificates of origin, which will be judged as non-compliant by the tax authority and cannot enjoy export tax rebates. It is recommended to ensure the consistency of the four streams in transit trade, the funds are directly paid to the enterprise by the destination port customer, and the document header is consistent with the contract subject; at the same time, complete the document filing in time, and keep all relevant documents for at least 5 years.