Client Question:
Why Do Import Customs Ask To See My Supplier’s Freight Invoice?
Answer:
Broadly, the global customs’ valuation system allows for two possibilities: a value including freight, and one excluding freight.
The identifying name/symbol for values excluding freight is “free on-board”, expressed as f.o.b. The name and symbol for values that include the freight can be either “cost and freight” (c&f) or “cost, insurance and freight” (c.i.f.) if insurance is in the selling price.
Whether marine insurance is allowed in the seller’s price is a matter for local legislation. (The SARS presently refer to the valuation point as an “INCO term”, an unfortunate choice of name which should not be confused with the unrelated ICC’s Incoterms Rules). For example: South Africa is an f.o.b. country whereas our neighbour Mozambique is a c.i.f. country. What this means for South Africa is that import statistics, duties (if applicable) and taxes, like VAT, are calculated from a customs value equal to the transactional value at the point prior to the international carriage – that is to say, a price excluding the freight component and beyond. Conversely, Mozambique uses the value immediately on import landfall i.e., the transactional value inclusive of freight and insurance (if applicable), bringing the customs value to the c.i.f. moment.
As always, these are broad strokes, and the devil is in the detail.
Consider two identical products sent from country X – one shipment is routed to South Africa and the other to Mozambique. For this example, the ‘freight’ costs to both countries are identical. In both cases the commercial invoice looks as follows;
Customs ex-works value………………………………………………………………10,000.00
Origin inland charges to the f.o.b. point……………………………………………..500.00
Freight and insurance to the c.i.f. point…………………………………..……….1,250.00
Total c.i.f. price………………………………………………………..……………..11,750.00
The c.i.f. value for duty purposes in Mozambique is the bottom line of 11,750.00 (the value including freight and insurance), whereas the corresponding f.o.b. value for duty purposes in South Africa is 10,500.00 (the value immediately prior to the freight.)
But commercial invoices are not accounting devices, subject to auditing checks and balances. Within reason, you can write what you like on a commercial invoice.
Consider the above invoice if the line-item values were expressed as follows:
Customs ex-works value………………………………………………………………..9,000.00
Origin inland charges to the f.o.b. point………………………………………………500.00
Freight and insurance to the c.i.f. point…………………………………..….….…2,250.00
Total c.i.f. price………………………………………………………..……….…..…11,750.00
Note that the top line value has been reduced, and the freight component has been increased.
There is no exposure for Mozambique customs with these changes as the c.i.f. value remains 11,750.00, but the corresponding f.o.b. value for South Africa has been artificially reduced to 9,500.00. In other words, the value that attracts duty (the origin landside to the f.o.b. point) has been reduced by inflating the value that does not attract duty (the freight and insurance cost).
As duty in South Africa is being calculated on an artificially reduced value, this manipulation results in a loss of revenue, and the only way this can be controlled is if the freight claimed to be disbursed by the supplier is verified. It is towards this verification that Customs call for the actual freight invoice issued to the supplier by the carrier.
If the importer cannot produce the freight invoice, any potential cross-manipulation of the elements that make up the price is neutralised by duties and taxes being applied on a c.i.f. basis, and thus how the bottom line is arrived at becomes irrelevant. It is therefore always in the SA importer’s interest to ensure they can prove the freight disbursement whenever they procure ‘freight prepaid’.
(There is an additional risk that a supplier might subsidise their selling price by recovering a freight charge lower than that which they incurred, essentially making a loss. This subsidy results in a form of ‘dumping’. Again, customs may want to see the freight invoice to counter this possibility.)
But this example of cross-manipulation of the elements that make up the price is only considering the use of fictitious values to illegally lower duties and taxes. The transactional value (the selling price) in the above examples remains the same. Yet where commercial invoices are more often abused is when transactional values are misdeclared as a means to illegally move money across borders without oversight.
The 2026 GFI (Global Financial Integrity) report, “Trade Related Illicit Financial Flows In Africa”, analyses the 10-year period ending 2022 using the UN Comtrade dataset. For South Africa, it summarises that manipulating commercial invoices so as to overvalue imports and/or to undervalue exports resulted in a loss to the country of over USD 478 billion.
By overvaluing imports, corrupt businesses extract more money from the country than is necessary. By undervaluing exports, they avoid bringing money into the country. (In many cases, often under the guise of merchanting transactions.)
USD 478 BILLION in 10-years!
Given that our national debt is around USD 320 billion, simple arithmetic indicates that if it wasn’t for the rampant abuse of misdeclaring values on commercial invoices we’d be turning a profit right now.
Maybe reflect on these numbers next time you hit a pothole.
Cross-border trade is a powerful tool. We can use it to build, or it can be used to destroy. Whatever your role in the process, know that it is an influential one.
If you’re going to do it, why not do it right. Get serious. Get trained.
Source: Freight Training
