Navigating Tariffs in 2025: A Comprehensive Guide to Customs Duties, Taxes, and Cost-Saving Strategies

What Is It?

Automated Commercial Environment (ACE) data is the compilation of your U.S. Customs data in the ACE database—CBP’s centralized record system for tracking, controlling, and processing information related to your imports. ACE can be considered the source of truth for your U.S. import activity.

Your trade data has immense power and valuable insights. For both midsize and enterprise businesses, datasets like ACE contain meaningful information that can help you strengthen your supply chain and save money.

Benefits for Importers:

ACE analysis gives importers unprecedented visibility into their import operations, enabling them to make data-driven decisions. Through a comprehensive analysis of ACE data, companies can identify classification inconsistencies and detect duty overpayments, leading to immediate cost savings opportunities. The system also serves as a powerful tool for compliance management, allowing importers to proactively address potential issues and maintain a strong compliance record with customs authorities.

In its raw form, ACE data is unstructured and time-consuming for importers to navigate. Flexport’s proprietary ACE analysis tool structures and optimizes this complex data, which our experienced trade advisors and licensed customs brokers will then review in detail. Our experts schedule a consultation to advise on any duty minimization opportunities or compliance risks discovered within your import activity, and help you use your results to compare scenarios, devise high-impact strategies, reduce risk, and take action on your findings.

The Flexport ACE analysis will structure your import data into primary categories, allowing you to easily digest and review your activity:

• Year-over-year review (last 5 years + YTD)
• HTS analysis
• Manufacturer review
• Country of origin
• Special Program Indicator (SPI) use and missed opportunities

With Flexport’s ACE analysis, you can easily identify your highest-impact classifications for your effective duty rates and your Entered Value YoY. You can also search, sort, and filter your HTS data by chapter, full 10-digit codes, or description. Lastly, use Flexport’s dedicated classification team to validate your current classifications or future products.

When it comes to compliance, Flexport also provides dedicated dashboards for reviewing compliance risks, such as mismatched data and inconsistent activity across brokers. And if you have subsidiaries under your primary EIN, we can break down data across different business units and help you identify who is transacting customs business on your behalf.

Accuracy goes a long way in terms of cost savings. Our tool helps identify mistakes within past entries, including 301 tariff and SPI use. If we find duty savings in your data, Flexport's Trade Advisory team can support the corrections, even if filed by another broker.

Questions to Ask:

1. Are you currently leveraging ACE reports?
2. Who in your organization has ACE portal access?
3. Which metrics are you tracking?
4. Have you conducted an HTS classification review using ACE data?
5. Are you monitoring your compliance rate through ACE?

What Is It?

Customs classifications, in general, refer to the systematic categorization of goods that are imported or exported across international borders. These classifications are essential for determining the correct duties, taxes, and regulations that apply to specific goods. The process of customs classification involves assigning a Harmonized Tariff Schedule (HTS) or Harmonized System (HS) code to each product, which is a unique numerical identifier describing the type, nature, and material of the product.

These classifications are integral to international trade, as they ensure that goods are accurately and consistently identified worldwide. This standardization helps in maintaining compliance with international trade laws and facilitates trade negotiations and agreements by providing a common language and structure for the description of goods.

Why It’s Important (Especially Now)

Accurate customs classification is crucial for a number of reasons. It affects the rate of duty and taxes levied on an item, influences compliance with international trade agreements, and has implications for export and import restrictions. Incorrect classification can lead to significant financial penalties, delays in shipping, and even confiscation of goods. Therefore, companies often rely on services or experts to ascertain that their product classifications are correct and up-to-date.

Benefits of our Classification Services to Importers

Flexport's Product Classification Services provide crucial support to importers by offering comprehensive solutions for determining the appropriate Harmonized Tariff Schedule (HTS) codes necessary for their products. This service is especially beneficial for importers as it ensures compliance with international trade regulations, thereby avoiding potential penalties or costly shipping delays that arise from incorrect product classifications.

One of the unique aspects of Flexport's Product Classification Services is the integration of automation with the capability to sync Harmonized Tariff System (HTS) codes directly from platforms like Shopify into Flexport’s system. This automation minimizes manual errors and discrepancies, enhancing both accuracy and efficiency. Furthermore, by leveraging Flexport’s advanced technology tools and systems, classification is not only faster but can also significantly reduce the compliance risks involved with global trade.

Flexport differentiates itself by combining expert consultation with cutting-edge technology, offering importers a streamlined, reliable solution for all their product classification needs. The ability to view full customs milestones through Flexport’s application and obtain step-by-step updates from dedicated brokers sets it apart in delivering superior transparency and fostering long-term client relationships. Flexport’s solution ensures all regulatory aspects are duly handled, making it a unique one-stop solution for importers striving for excellence in international trade compliance.

Questions to Consider:

1. How do HS codes impact my import duties and taxes?
2. What are the potential consequences of incorrect customs classifications?
3. What documentation do I need to accurately classify my products?
4. Are there specific rules or guidelines for classifying my type of product?
5. How do I determine the "essential character" of a product if it's made of multiple materials or has multiple functions?
6. What is the difference between a binding ruling and an advisory opinion?
7. Do you foresee any potential challenges or ambiguities in classifying this particular product, or any specific rulings that support this classification?"
8. If the materials, design, or manufacturing process for my product changes in the future, how will that affect its classification?

What Is It?

Incoterms®, shorthand for International Commercial Terms, are used to specify which party arranges for the payment and handling of goods during shipping, from origin to destination. Effectively, they outline responsibility throughout the supply chain.

To read more, check out our Guide to Understanding Incoterms®.

DDP, or Delivered Duty Paid, is an Incoterms rule whereby the seller is responsible for all costs and risks associated with delivering goods to the named place of destination, including import duties and taxes.

Why Is DDP Relevant?

As of April 2025, global trade remains a complex landscape: supply chain disruptions linger from the pandemic, geopolitical tensions continue to impact shipping routes (e.g., Red Sea conflicts), and the upcoming elimination of de minimis looms large. DDP is becoming a point of relevant conversation, pitched by some suppliers and providers as a way to reduce the entered value of goods—along with their applicable tariffs.

What is mDDP - Modified DDP in the context of international trade, while not a formal Incoterm, refers to a variation where the seller handles all costs and risks until delivery, including duties and taxes. The buyer acts as the importer of record, potentially avoiding certain VAT registration requirements for the seller. To put it simply, mDDP is trying to replicate the First Sale Rule. Consider this option as DDP for all intents and purposes, with the caveat that the entered value will remain the one between the factory and importer. Essentially meaning that it will be lower than the 2nd sale to the ultimate buyer in the US.

Benefits for Importers:

Some importers may consider DDP terms for a more hands-off approach, though this structure can come with trade-offs in terms of control, compliance oversight, and cost transparency. This arrangement can result in predictable landed costs and significantly reduce the administrative burden on the importing company. With the seller assuming the risks and responsibilities of the international shipment, importers can focus on their core business operations while maintaining better control over final pricing. This approach can result in more efficient supply chain management and clearer cost structures.

But Proceed with Caution:

With higher duties, we’ve been seeing companies exploring DDP and other D-Incoterms. Some suppliers are saying D-terms can help mitigate tariff impacts directly.

• Debunking this theory: The idea that D-terms can help importers directly save on duties is likely non-compliant.
• Ways to save compliantly: If DDP terms can offer duty savings, it likely comes from lowering the declared value of the goods. Shifting to DDP terms, specifically to DDP, may just be shifting the liability for import compliance to a seller who feels less responsibility for reporting accurate values and HTS and COO information.

Let’s walk through the potential risks and the transparency of DDP

1. Vendor Becomes the Importer of Record: If there are any issues, you will be out of the loop as you are not responsible for the movement or clearance of cargo. You will lose visibility and open yourself up for significant accessorial increases
2. Cost Breakdown Discrepancies: Since the vendor is responsible for import clearance you will lose the ability to control your freight & duties costs. The vendor may lower the purchase price, but may increase costs in other areas to which you will not have visibility
3. Liability Shifts: Shifting to D terms, specifically to DDP, may be shifting the liability for import compliance to a seller who feels less responsibility for reporting accurate values/HTS/COO information
4. Buyer-Consignee Liability: If the US buyer knew about and benefited from some scheme to lower duty liability, even if they are not the IOR, they could still be held liable for misrepresenting entry information
5. CBP Pressure: CBP could identify the change in record activity which many result in increased scrutiny and inspections
6. Incoterm® or Not an Incoterm®: mDDP is not a real incoterm. If something happens to the goods, there will be challenges determining ownership and responsibility.

Questions to Ask:

1. Have you compared total landed costs under different Incoterms?
2. Does your vendor have the expertise to handle customs clearance?
3. Are you comfortable with the vendor managing the import process?
4. Have you considered the impact on duty drawback opportunities?
5. What are the payment terms associated with DDP shipments?

What Is It?

What is Duty Drawback?

Duty drawback is a powerful program that allows U.S. manufacturers and exporters to recover up to 99% of the duties, taxes, and fees paid on imported goods upon their exportation or destruction. Despite its benefits, billions of dollars in eligible drawback claims go unclaimed annually due to lack of awareness, misinformation, or mismanagement of documentation. Understanding the main types of drawback and the process to initiate a program can help businesses capitalize on this opportunity.

In today’s dynamic trade environment, with the introduction of new tariffs and the uncertainty surrounding their eligibility for duty drawback, it is essential for companies to actively track these tariffs and ensure they are leveraging every available duty mitigation strategy. By staying informed and incorporating programs like duty drawback into their operations, businesses can better navigate tariff complexities and maximize potential savings.

Which Tariffs ARE Eligible for Drawback?

• Regular Tariffs: The standard duties applied to imported goods under Harmonized Tariff Schedule (HTS) Chapters 01–97.
• Section 201 Tariffs: Safeguard tariffs on products like solar cells and washing machines are eligible for drawback recovery when exported or destroyed under customs supervision.
• Section 301 Tariffs: Tariffs imposed on Chinese goods addressing unfair trade practices are eligible for drawback recovery.
• IEEPA Reciprocal Tariffs: Duties imposed to rectify trade imbalances are eligible for drawback recovery.

Which Tariffs are NOT Eligible for Duty Drawback?

• Section 232 Tariffs: National security tariffs on steel and aluminum imports are not eligible for drawback recovery regardless of export activity.
• IEEPA Fentanyl/Auto Tariffs: Duties targeting fentanyl precursors and the automotive sectors are not eligible for drawback.
• Antidumping & Countervailing Duties: Trade remedy duties designed to counteract unfair pricing or subsidies are always excluded from drawback eligibility.
• Agricultural Over-Quota Duties: Duties applied to agricultural products exceeding quota limits cannot be recovered.

The Historical and Economic Value of Drawback

Duty drawback is more than just a refund program - it is a strategic tool that empowers U.S. exporters and manufacturers to thrive in competitive global markets. By recovering up to 99% of duties, taxes, and fees paid on imported goods that are exported or destroyed, drawback provides businesses with the financial flexibility to reinvest in growth, innovation, and operational efficiency.

For U.S. manufacturers, drawback can offset the costs of imported materials used in production, making it easier to compete on price and quality in international markets. For exporters, it reduces the financial burden of tariffs, enabling them to expand their global reach while maintaining profitability. This program not only benefits individual businesses but also strengthens the U.S. economy by encouraging export-driven growth, creating jobs, and fostering innovation.

In today’s trade environment - marked by evolving tariffs and increasing competition - duty drawback is a key strategy for ensuring the long-term success of U.S. exporters and manufacturers. Companies that actively track tariff changes and integrate drawback into their operations position themselves to maximize savings, mitigate risks, and enhance their competitiveness on the global stage. By leveraging this program effectively, businesses contribute to the broader economic prosperity of the United States while securing their own growth and sustainability.

Benefits to Importer:

Duty drawback represents a valuable opportunity for importers to recoup significant customs duties, taxes, and fees. This program can dramatically improve a company's cash flow position and enhance its competitiveness in export markets. The ability to file claims retroactively for up to five years means companies can potentially recover substantial historical duties. When properly managed, a duty drawback program can transform what was previously considered a sunk cost into a recoverable asset, directly impacting the bottom line.

Let Flexport help you:

1. Identify eligible imports and exports.
2. Gather required documentation, such as import/export records and invoices.
3. File claims through U.S. Customs using accurate data and timelines.

Questions to Consider:

1. Do you export products containing imported materials?
2. Have you identified all potential drawback opportunities?
3. Do you have systems in place to track and match imports to exports?
4. Have you considered unused merchandise drawback?
5. Are you working with a drawback specialist or broker?

Remember to consult with qualified customs professionals when implementing any of these strategies, as they require careful planning and execution to ensure compliance with customs regulations.

What Is It?

The First Sale Rule (“FSR”) permits importers to use the price paid in the “first or earlier sale” as the basis for duty calculation when a product is subject to multiple transactions before being imported into the United States.

Typically, goods imported into the U.S. will be subject to several transactions along the way. For example, a product may first be manufactured in China, then sold to an intermediary in Hong Kong, and finally sold to an importer in the United States. Without the FSR, each transaction would add to the ultimate price paid by the U.S. importer.

Under the FSR, duty is calculated based on the transaction value of merchandise, or the value of the first or an earlier sale in a series of transactions.

For example:

Duty calculations, assuming 5% Normal Trade Relations (“NTR”) rate of duty and 25% ad valorem Section 301 tariff rate on goods from China:

Transaction A: $80 unit price x (5% + 25%) = $4 NTR duty and $20 Section 301 Tariffs = $24 Total duties owed per unit.

Transaction B: $100 unit price x (5% + 25%) = $5 NTR duty and $25 Section 301 Tariffs = $30 Total duties owed per unit.

Potential Savings = $6 per unit

How Does FSR Work?

It is the importer’s responsibility to show the “first sale” price is acceptable under the standard set by the court in Nissho Iwai and Synergy. Within the meaning of the statute, the importer must show:

1. Both sales meet bona fide sale tests; and
2. Involve sales for export to the U.S.

When analyzing if Transaction Value may be used between related parties, which may result in post-importation adjustments, certain factors should be examined to determine whether there is a fixed price, pursuant to an objective formula. In Treasury Decision (“T.D.”) 96-87, 30 Cust. Bull. 52/1 (January 2, 1997), CBP advised importers must provide:

1. A description of the roles of the parties involved; and
2. Relevant documentation addressing each transaction that was involved in the exportation of the merchandise to the United States.

The documents may include, but are not limited to purchase orders, invoices, proof of payment, contracts, and any additional documents (e.g., correspondence) that establishes how the parties deal with one another. The objective is to provide CBP with “a complete paper trail of the imported merchandise showing the structure of the entire transaction.” T.D. 96-87 also requires the importer to inform CBP of any statutory additions and their amounts. See also 19 C.F.R. § 152.103(b).

FSR Documentation Analyses comprise the following elements:

• Evaluate if transaction documents satisfy CBP bona fide sale and sale for export to the U.S. requirements.
• Assess if the two alternative transactions under CBP customs valuation rules are viable arm’s length transactions.
• Documenting the review and support for the conclusions.
• Obtaining concurrence/approval from CBP for using FSR value as customs value.
• Verify all required statutory additions are included in the value reported to CBP, e.g., using an add slip worksheet or value statement.

Effective Practices for Implementing FSR Readiness Assessment:

• Written procedures are documented
• Communicate procedures and documentation requirements to suppliers and customs brokers
• Test procedures to confirm they are working properly
• Discuss the set-up with CBP
• Monitor for compliance

Benefits to Importer:

First Sale presents a powerful opportunity for importers to achieve substantial duty savings by legally reducing the transaction value upon which duties are calculated. This approach can create a significant competitive advantage through lower landed costs, particularly for high-duty products or large-volume imports. When properly implemented, First Sale can transform a company's import cost structure and improve profit margins while maintaining full compliance with customs regulations.

Questions to Ask:

1. Do your transactions involve a middleman?
2. Can you obtain documentation of the first sale price?
3. Is your supply chain transparent enough to support first sale?
4. Have you conducted a cost-benefit analysis of implementing first sale?
5. Do you have the resources to maintain required documentation?

What Is It?

Merchandise processing fee (MPF) consolidation involves the consolidation of multiple bills of lading into one customs declaration. In doing so, importers can reduce the MPF—an ad valorem fee of 0.3464%, calculated using the commercial value of the goods being imported. Per U.S. Customs, the minimum MPF is $32.71, while the maximum is $634.62.

Grouping together what would’ve been multiple entries allows importers to reach the maximum faster, and only pay the MPF once. Without MPF consolidation, importers would pay the fee multiple times—once for each entry.

To qualify for MPF consolidation, you must be paying MPF today. You must also have multiple entries on a conveyance—i.e., on the same vessel, flight, or train, and at the same port of entry—along with the same entry filer (customs broker). Finally, the combined value of the goods must meet the threshold for maxing out the MPF rate.

In this example, we break down the entry process without MPF consolidation:

Now, using the same goods, let’s examine the MPF consolidation entry process:

Benefits for Importers:

By implementing MPF consolidation, importers can significantly reduce their MPF costs by taking advantage of the maximum cap being applied once instead of multiple times. For example, if an importer has five house bills of lading (HBLs) with a commercial value of $50,000 each, declared in five separate entries, the importer ends up paying a total of $866 in MPFs. But if these five HBLs are entered in just one entry, the importer would pay only $614.35 (the maximum MPF).

This strategy not only provides direct cost savings, but also streamlines the entire import process by reducing the number of customs entries that need to be processed and managed. Additionally, because the broker will configure the consolidation instead of the importer, MPF consolidation provides importers a money-saving opportunity with far fewer headaches. And lastly, unlike foreign trade zones (FTZs), there are no implementation costs for MPF consolidation. The filing broker will analyze the sailing schedules per the HBLs and file accordingly. Simplified documentation and administrative processes increase overall efficiency, while the potential reduction in broker fees adds to total cost savings.

Questions to Ask:

1. Do you have multiple shipments arriving from the same vendor within a short time frame?
2. What is your current annual MPF spend?
3. Are your shipments arriving at the same port of entry?
4. Do you have the operational capabilities to consolidate shipments?
5. Have you discussed consolidation possibilities with your customs broker?

Navigating the complexities of tariffs and trade can be challenging for businesses today. To support your customs strategies and ensure efficient handling of duties and taxes, we are excited to introduce the Flexport Tariff Simulator. This powerful tool helps estimate U.S. import duties based on shipment value, origin, and HTS classification. Utilize the Tariff Simulator to explore how sourcing decisions impact landed costs, evaluate duty trade-offs across geographies, and facilitate data-driven strategy discussions.