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How Do You Report a Drop Shipment?

Posted By rosannatorres On January 11, 2011 @ 5:11 am In Foreign Trade Regulations | Comments Disabled

By: Omari Wooden

A group of packages [1]
How do you report a drop shipment in the Automated Export System (AES)? First, let’s discuss a hypothetical scenario that involves a drop shipment. A foreign party purchases a product from a U.S. Principal Party in Interest (USPPI), (i.e. U.S. seller, U.S. manufacturer, U.S. distributor) and then that foreign party directs the USPPI to ship those goods to another foreign party. For example, Company A in Germany purchases 20 tons of yellow dent corn for $4,000 from a U.S. seller, but Company A directs the U.S. seller to ship the corn to Company B, their customer in France. Even though Company A has purchased the corn for $4,000, they are selling the corn to Company B in France for $5,000. How should this shipment be reported in the AES?

When the topic of drop shipment arises, the questions are normally related to the parties and the value to be reported. Using the example above, let’s first discuss the value required to be reported. The value to be reported in the AES is the selling price between Company A and the USPPI. You would not report the selling price between Company A and Company B because we want to capture the U.S. selling price not the foreign selling price, which typically includes mark-ups. So in this example, $4,000 is the value required to be reported in the AES.

The next question is who should be listed as the Ultimate Consignee? FTR 30.1 defines the ultimate consignee as “the person, party, or designee that is located abroad and actually receives the export shipment.” Therefore, since Company B actually receives the export shipment they are the ultimate consignee, Company B is the Ultimate Consignee. What about Company A? Company A is the Foreign Principal Party in Interest and the party that purchased the goods from the USPPI. However, as far as the AES reporting is concerned Company A is not reported in the export transaction.

If you need any more assistance or clarification on this matter or other regulatory requirements, please contact the Regulations, Outreach and Education Branch on 800-549-0595, Menu Option #3.

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Comments Disabled To "How Do You Report a Drop Shipment?"

#1 Comment By Jim Dickeson On January 13, 2011 @ 9:46 am

Hi Omari,
Why wouldn’t you report Company A as an intermediate consignee? If they are in control of the shipment, I believe that best practices regarding BIS export controls include screening Company A against restricted parties lists. Furthermore, if this is a Routed Export Transaction, it is very likely that Company A has issued the Writing to the USPPI as well as the Power of Attorney to their U.S. agent.
Jim Dickeson

#2 Comment By Global Reach Omari On January 27, 2011 @ 10:07 am

Company A would not be shown as the Intermediate Consignee because by definition within the Foreign Trade Regulations, section 30.1 it states that an Intermediate Consignee acts “with the purpose of effecting delivery of items to the ultimate consignee.” In this example, Company A, is not physically moving the item to the ultimate consignee. However, I agree with your best practice recommendation that Company A and all parties related to the export transaction should be screened to ensure compliance.

#3 Comment By Global Reach Omari On March 29, 2011 @ 6:19 am

The FTR does not regulate the commercial invoice, only what’s reported in the Automated Export Sysytem. Make sure you keep all documentation related to the shipment in case there are any questions.

#4 Comment By Aaron On April 1, 2011 @ 7:16 am

Dear Omari:
Even though Company A (the FPPI) is not reported in the export transaction since the Ultimate Consignee is Company B (as you indicated), if Company A is related to the US seller (but the US seller is not related to the ultimate consignee), would you report the Related Company Indication Code as YES?
Based on my interpretation of 30.6(10), I would say that this transaction would be reported as NO (not related), since the USPPI and ultimate consignee are not related. Can you confirm?
Thank you.

#5 Comment By Global Reach Omari On April 19, 2011 @ 10:13 am

You are correct, in your example the Related Party Identifier would be flagged as NO. By definition, the USPPI and the Ultimate Consignee would have to be related. Based on your scenario, the USPPI and Ultimate Consignee are not related.

#6 Comment By Nina On August 30, 2011 @ 8:46 am

What if company A is a US entity purchasing from a USPPI who is going to eventually sell to a foreign entity. Is the USPPI considered the export of record if they are not involved in the exportation of the goods but know they are eventually being exported?

#7 Comment By Judi Pfaff On September 13, 2011 @ 5:34 am

I would like to know, if you sell something to a US company and they want you to ship it out of the country to their customer who would be the USPPI?

#8 Comment By Global Reach Omari On September 16, 2011 @ 6:59 am

@Judi… Let me clarify your question… You sell goods to a party in the U.S. and that party, let’s call them Company A, sells it to a foreign customer, and Company A asks for you to ship the goods, who is the USPPI? Company A is making the sale with the foreign party, which makes Company A the USPPI, even though you are shipping it from your location.

#9 Comment By Global Reach Omari On September 16, 2011 @ 7:13 am

@Nina… Let me clarify your scenario… To define the USPPI, we have to look at who the foreign party is paying in the United States. In your scenario, which U.S. party is the foreign party paying? Even though the goods may be shipped from another U.S. party’s location, who did the foreign party pay? If the foreign party paid Company B in the US, but Company B asked Company A to ship the goods from their location, then Company B is still the USPPI because the foreign party paid Company B.

#10 Comment By Donna Henry On October 15, 2011 @ 11:09 am

Hi Omari,
Can you confirm that if the scenario presented is a routed transaction, the only relevance to the FTR or EEI of Company A as the FPPI, would be that this is the party from which the US Forwarder/Agent would need to obtain the Export Authorization needed to file the EEI. They would otherwise not be a party to the actual EEI that is filed.

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