If you are in the business of importation, it is important to know your costs and how they can affect your overall venture.
One of the importation fees that many importers tend to ignore is MPF, which is charged as a user fee.
Although insignificant to some, MPF can be the more frustrating if not well understood.
This guide helps you understand what MPF is, how it is calculated, their effect on your importation business and costs, and many more.
Please read on to avoid frustrations during international shipping.
What is Merchandise Processing Fee (MPF)?
MPF stands for Merchandise Processing Fees.
It is levied on imports transported through all modes of transport.
This fee is charged to help mitigate custom’s cost of processing imports and clearing them for entry into the country.
The fee is charged along with other import duties at the time of import.
Why and when to pay MPF
MPF is insignificant when calculated, and many shippers tend to ignore it.
However, it is critical and can lead to delays in your shipment if not paid on time.
MPF is charged on both formal and informal goods.
Whether you are importing goods for commercial reselling or just for personal use, you must pay MPF.
MPF is used to offset your shipment processing cost or to check for trade compliance.
You are supposed to pay MPF after shipping and offloading your goods at the port.
You are given a maximum of 30 days from when your goods are cleared to pay this fee.
How to calculate Merchandise Processing Fee (MPF)
In most countries, the MPF fee is ad valorem, which means that the rate (specific to the country) is calculated against the shipment’s value.
For instance, your country may charge MPF at a rate of 0.5% against the shipment’s value.
In this case, the formula for calculating MPF is as follows:
0.5% multiply by shipments value and then divide by 100.
Such that if the value of your shipment is $6000, the calculated MPF will be:
0.5% x $6000= $3000
3000/100 = $30
The calculated MPF, in this case, is $30.
Note that this is only the calculated MPF and not exactly what you will pay to customs as MPF.
Payable MPF will be based on your country’s minimum and maximum MPF fees.
You will learn more about this a little later in this guide.
Conditions applied to Merchandise Processing Fee (MPF)
MPF charges on goods vary from one country of importation to the other.
You must understand the rates applicable in your importation country before determining the applicable MPF.
For instance, the USA charges a flat rate MPF fee for shipments valued at more than $2500.
For shipments whose value is less than $2500, the following conditions apply;
- If the import is for personal goods, automatic and not processed by the Customs and Border Patrol, the fee payable is $2
- If the import is for personal use, manual, and not processed by the Customs and Border Patrol, then the fee payable is $6
- If the import is for personal use, manual but processed by the Customs and Border Patrol, then the fee charged is $9
Consequently, if the value of your imported goods exceeds $2500, then you are supposed to pay the calculated MPF plus an additional $3.
If you’re an importer dealing in Agricultural products within FTZ zones, your MPF will be charged based on the total material you use for packaging the product.
Minimum and Maximum MPF Fees
Again, this also depends on the country of importation.
The minimum and maximum MPF fees payable vary from country to country and based on the shipment’s value.
Minimum MPF, note, is the applicable MPF fees charged on goods that do not reach the set value threshold.
Maximum MPF, on the other hand, is placed on goods that exceed the set limit.
To understand this better, let’s use the US as an example again.
The CBP (Customs Border Patrol) charges a minimum MPF of $26.22 and a maximum of $508.70 at a rate of 0.3464%.
Practically, this means that if your shipment value is, say, $6000, the calculated MPF will be $20.78.
I hope you know how we’ve arrived at this figure. It is based on the formula for calculating MPF, as discussed earlier in this guide.
As the calculated MPF is less than the minimum MPF, customs will round off this value to the minimum MPF, $26.22. So you will pay $26.22 and not $20.78.
Likewise, if your calculated MPF exceeds the maximum MPF, customs will round down the figure to Maximum MPF.
Merchandise Processing Fee Exemptions
Imagine paying for the MPF, then, later on, you realize that your products were supposed to be exempted from paying the fee.
Therefore, it pays to understand that not all goods you import attract the MPF.
When your country has a free trade agreement with your importing country, you are exempted by law from paying MPF.
Your goods must meet other importation laws to quality for MPF exemption.
Such goods must:
- Be manufactured in the specific country in which there is a free trade agreement
- Satisfy all other custom border laws on the importation of goods
- Be compliant with laws regarding health and environmental safety
Difference between Merchandise Processing Fee (MPF) and Harbor Maintenance Fee (HMF)
If you import via sea freight, most customs require that you pay a Harbor Maintenance Fee (HBF).
It is charged to importers to raise funds for maintaining the country’s harbors in prime condition.
Note that this fee is exclusive to ocean shipments and is charged as a percentage of imported merchandise’s total value.
Unlike MPF, harbor maintenance doesn’t have a minimum or maximum fee.
It should also be clear that HBF is only applicable for imported goods, local shipments, passengers on cruise ships, and FTZs.
Another distinction between HPF and MPF is that the former is charged on all goods that enter the port regardless of whether they are from Free Trade Zones. MPF, on the other hand, exempts imports from Free Trade Zones.
Also, it is pretty hard to avoid paying HMF fees.
As long as you’re importing goods by sea, prepare to pay a certain amount of money as harbor maintenance fees.
Unless, of course, if your country of import does not charge it.
Effect of MPF on International Shipping Costs
Merchandise Processing Fee is a small percentage of the value of goods you import; usually it is at most 1% of a shipment’s value.
This small percentage, however insignificant it may look, counts in the long run.
When calculating the total expenditure on international shipping, MPF plays a role in increasing the figures.
For a business, every increase in expense reduces profits.
You want to keep your profits as high as you can.
Therefore, paying MPF makes you incur compulsory additional expenditures.
As earlier stated, the higher the value of your goods, the higher your MPF will be.
Nonetheless, MPF remains insignificant as compared to other shipping costs.
Ways to Avoid/Reduce your Merchandise Processing Fee (MPF)
During international shipping, importers need to know their landed costs.
This helps in evaluating the profitability of importing from overseas.
Landed cost includes;
- Cost of the product
- Packaging cost
- Inspection fees
- Packaging fees
- Insurance
- Freight charges
- Port fees
- Import duty and taxes
MPF fees are usually part of the import duty and taxes, and if importers are not careful, these fees can add up too quickly.
Consequently, this can end up reducing your profit margins and even create a loss in cases where you hadn’t anticipated MPF on your imports.
Remember, the more your business depends on importing goods, the more it will benefit from lowering the overall importation costs.
Being aware of the need to reduce the MPF cost is one important thing.
The challenging part is finding a way actually to reduce MPF or avoid paying altogether.
Below are some helpful tips on how to reduce/avoid Merchandise Processing Fees.
Importing from Free Trade Zones
The discretion when it comes to trade between countries is broadly upheld under Free Trading Zones.
Under FTZ, countries can freely export and import goods without being charged import and export duties.
Importing from FTZ zones helps your business ultimately reduce their cost of shipping and customs clearance.
Moreover, FTZ enables you to save the MPF however little it might look.
Free trading zones include:
- Australia free trading zone
- Africa free trading agreement
- North America free trading agreement
- Israel free trading agreement
- Korea free trade agreement
- Peru trade promotion agreement
- Singapore free trade agreement
The adoption of Free Trading Zones has increased, and many businesses can get to save a lot.
The total amount you will save varies depending on several factors.
You can hire a qualified FTZ consultant to advise you further.
Break or Consolidate Entries
The higher the value of your goods, the more MPF you are to pay.
To reduce this, instead of having your goods shipped in bulk, you can break them to have smaller valued goods that attract low MPF.
However, your calculations should be right before deciding to break your goods. You can end up reducing the MPF but increase your shipping cost.
You should only consider the consolidated shipping option if your calculation serves your saving needs.
Consolidation means shipping smaller quantities of goods together rather than waiting for them to accumulate and ship at once.
With consolidation, you will get to benefit from the Maximum MPF set.
That is, if your goods surpass the Maximum set MPF, you will be charged at a flat rate and hence save more on your importation costs.
Implementing the “Just In Time” Strategy
The purpose of your business is to make sales, and this will vary depending on the season.
Just in time (JIT) strategy allows you to plan on your inventory depending on your customers’ needs.
As an importer, there is no sense in placing huge orders then store them in warehouses because the demand is low.
All you will be attracting is huge expenses either in shipping or storage, which in the long run will reduce profits.
Instead, you can opt only to deliver when your customers demand.
Your shipment under JIT will not only be manageable, but it will also reduce the MPF payable.
Adopting the Weekly Entry
Weekly entry is a strategy that allows your business to save on costs by only filing one customs entry per week.
This means that you will be shipping 24/7 but only paying the maximum entry per week once.
In the long run, at the end of a financial year, your business will have saved a lot of money from MPF.
Nevertheless, weekly entry is only applicable for companies trading under trading zones.
If your business imports from non-free trading zones, you will have to pay MFP for every shipment.
Other than saving on costs, most weekly entries help save on time because they allow electronic processing.
Drawback for Merchandise Processing Fee (MPF)
Governments usually issue tax refunds, also known as duty drawback, to importers of a particular type of goods.
Many importers lack the knowledge of what a duty drawback is, leading to a lot of it going unclaimed every financial year.
If your company exports certain types of goods claiming duty drawback would help you a great deal.
Duty drawback is applicable when you import a given product, pay import duty, and then export the product as is.
Or, when you import an article and then use it to manufacturer another product for export.
In this case, a drawback is only applicable if your product directly relates to the output product you export.
Governments offer duty drawback as a strategy to strengthen economic development and eventually industrialization.
Also, duty drawback will help create employment by importing and manufacturing other products for foreign trade.
When it comes to drawbacks for MPF, the government ensures that you and your exporter share the fee.
If you are looking to claim your MPF drawback, this guide on Calculating MPF fees for Drawback may be helpful.
Facts about Merchandise Processing Fee (MPF)
There are so many misconceptions and false information regarding the meaning, applicability, and relevance of MPF.
This information is misleading and dangerous to your exporting business.
The following are the facts relating to MPF:
- It is not mandatory to physically avail yourself when paying for MPF.
Nevertheless, when you are not to make the payment in person, you should provide all applicable documents (such as the original bill) that show the particular accounts to which the amount is to be credited.
- Failure to pay for MPF can attract sanctions from the customs of the importing country. Customs can even revoke your rights to import.
- When importing agricultural products, some countries calculate the MPF only based on the shipping container’s value.
However, you must pack the product so that it conforms to the set standards of the importing country.
- Failure to pick your goods in time may accrue MPF because of increased handling at the port.
- Trade agreements between countries affect the application of MPF during importation. You can always check whether your country falls under a Free Trading Zone and the applicable rules in terms of MPF.
- MPF is paid after shipping and when you present your documented importation summary.
However, you are given 30 days from the day of computation to clear your MPF and claim your goods.
- The payment methods are limited, and you should check with the relevant port’s authority before making the payments.
- Underpayments of MPF can lead to an increase in the chargeable interests.
- If importing to the USA, when determining any court’s jurisdictions, MPF shall be treated as customs duty.
How to pay your Merchandise Processing Fees (MPF)
Not all payment methods are applicable for settling MPF.
It will help if you check with the respective personnel at the importing country.
Some commonly accepted payment methods in major countries include;
- Personal checks drawn from valid Banks and directed towards full MPF payments
- Credit cards from reputable banks
- Bankers drafts
- Certified checks drawn from a state bank
Please note;
- You can only pay using personal checks if they are to cover the full amount of the MPF.
- Personal checks are only acceptable when settling MPF on goods for personal use, and a valid customs officer must authorize the credit card.
- Bank checks are only acceptable if they are drawn from certified national banks or foreign recognized reserve banks.
The following payment methods are not applicable when paying for your MPF
- Commercial bill of exchange
- Overseas travelers’ checks
- Foreign checks from other countries
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