Customs Value Freight Deduction: What Can Be Excluded

Key Points

• U.S. customs value is based on the price paid or payable for goods sold for export to the United States, and international freight and insurance costs incurred after the goods leave the country of exportation are excluded, provided they are identified separately.
• The statutory authority for transaction value and its deductions is found at 19 U.S.C. 1401a; the implementing regulations are at 19 C.F.R. Part 152.
• Incoterms affect what costs are embedded in the invoice price, but they do not override the statutory definition of transaction value; the buyer and seller's chosen trade term determines which costs must be identified and stripped out.
• Failing to deduct identifiable freight and insurance from a CIF or similar invoice price is one of the most common and consequential overdeclaration errors importers make, resulting in overpaid duties that can compound across hundreds of entries.
• Overpaid duties can be recovered by filing a protest under 19 U.S.C. 1514, but the window to file is limited, making timely identification of errors critical.

On this page

1. What transaction value includes and excludes
2. The freight and insurance deduction in detail
3. How Incoterms interact with dutiable value
4. Common overdeclaration errors that inflate duty
5. Documentation requirements for claiming deductions
6. What importers should do
7. Key references

U.S. customs law allows importers to exclude international freight, insurance, and certain other charges from the dutiable value of imported goods, but only when those costs are identified separately on the commercial invoice or a supporting document. When they are bundled into the invoice price and never broken out, importers routinely pay duties on costs that are not part of the price of the goods themselves. The deduction is a legal right, not an administrative courtesy, and understanding exactly how it works can materially reduce duty liability across a company's entire import program.

The links in this article go to the primary documents: the statutes, regulations, and official CBP guidance themselves. Read the source.

What transaction value includes and excludes

The primary method of customs valuation in the United States is transaction value, defined at 19 U.S.C. 1401a(b) as the price actually paid or payable for merchandise when sold for exportation to the United States, plus certain enumerated additions. Those statutory additions include selling commissions, assists, royalties, and packing costs.

The statute is equally explicit about what is not part of transaction value. Costs that are excluded when they are identified separately from the price paid or payable include:

• The cost of transporting the goods to the United States port of entry
• Insurance costs associated with that transportation
• Customs duties and other U.S. taxes
• The cost of any activity related to the construction, erection, assembly, or maintenance of the imported merchandise after importation
• Buying commissions paid by the importer

The transportation and insurance exclusion is the one most frequently misapplied in everyday entry preparation, which is why it deserves detailed treatment here. For a close look at another category that frequently causes valuation errors, see our guide on Royalties Customs Value: When License Fees Are Dutiable.

The freight and insurance deduction in detail

The deduction covers the cost of transporting imported merchandise from the port or place of export to the first U.S. port of arrival, plus any insurance costs on that leg of the journey. CBP's implementing regulations at 19 C.F.R. Part 152 spell out how transaction value is computed and how these deductions are applied in practice.

What "identified separately" actually means

The phrase "identified separately" is the operative requirement. A freight charge buried inside a lump-sum invoice price does not qualify for deduction simply because the importer knows freight was incurred. The charge must be broken out on the commercial invoice, a freight invoice, a bill of lading, or another document that is part of the entry package, so that CBP can verify the amount being excluded. A reasonable estimate based on standard carrier rates is generally not acceptable in place of an actual identified charge.

Charges that do not qualify

Not every post-export cost is deductible. Inland freight within the country of export, costs of loading merchandise onto the exporting vessel, and costs that cannot be segregated from the price paid or payable do not automatically qualify. Only transportation costs incurred on the international leg, from the point of exportation to the first U.S. port of entry, fall within the statutory exclusion.

How Incoterms interact with dutiable value

Incoterms are contractual trade terms published by the International Chamber of Commerce that define where risk and cost transfer between buyer and seller. They have no legal force in U.S. customs law, but they are highly relevant in practice because they determine what costs are embedded in the invoice price the importer actually pays.

CIF terms: the most common source of overdeclaration

Under CIF (Cost, Insurance, and Freight) terms, the seller arranges and pays for freight and insurance to the named destination port, then incorporates those costs into the invoice price. The buyer therefore pays a single invoice amount that includes the goods, the freight, and the insurance. If the entry is filed using that CIF invoice price without deducting the freight and insurance components, the importer is paying duties on transportation costs, which are explicitly excluded from transaction value under U.S. law.

The fix is straightforward when the seller breaks out the freight and insurance on the face of the invoice. When the seller does not, the importer must obtain a separate freight invoice or insurance certificate and use those figures to reduce the declared value.

FOB terms: fewer complications, but not problem-free

Under FOB (Free on Board) terms, the seller's obligation ends when the goods are placed on the vessel at the port of shipment. The buyer pays freight and insurance separately and directly to the carrier and insurer. Because those costs never appear on the commercial invoice, there is generally no risk of inadvertently inflating transaction value. However, if the buyer's freight forwarder invoices the buyer for freight plus additional charges such as origin handling, terminal fees, or currency adjustment factors, the importer must confirm which charges relate to the international leg and which do not.

DAP, DDP, and other destination-based terms

Under Delivered at Place (DAP) and Delivered Duty Paid (DDP) terms, the seller controls and pays for substantially all transportation to or near the final destination. The declared customs value must still reflect only the transaction value of the goods exclusive of the non-dutiable charges. Under DDP specifically, the seller also pays import duties, which introduces a separate complication: CBP expects the customs value to be the price exclusive of U.S. duties, and the importer must ensure the declared value is adjusted accordingly.

Common overdeclaration errors that inflate duty

Overstating customs value results in overpaid duties. The most common causes in the freight and insurance context include:

• Filing CIF invoice prices without deduction. This is the single most frequent error. The importer accepts the invoice as presented and the entry filer does not question whether freight and insurance are embedded.
• Including inland destination freight. Costs for trucking goods from the U.S. port to the importer's warehouse are clearly post-importation and non-dutiable, yet they occasionally appear on combined freight invoices and are inadvertently included in declared value.
• Freight forwarder fees incorrectly classified. Origin charges billed by freight forwarders, such as documentation fees and export customs clearance, may or may not be includable, depending on whether they constitute assists or selling expenses. When in doubt, each charge should be analyzed individually against the statutory definitions.
• Currency conversion errors on freight amounts. When freight is invoiced in a foreign currency and converted at the wrong exchange rate, or when the conversion produces a higher dollar amount than the actual charge, the deduction is understated and the dutiable value is overstated.
• Failing to claim the deduction consistently across entries. Some importers correctly deduct freight on one shipment and omit the deduction on identical subsequent shipments because entry preparation is inconsistent across brokers or filing locations.

These errors are recoverable. Duties paid on improperly included freight and insurance can be refunded through a CBP protest filed under 19 U.S.C. 1514. The standard protest window runs from the date of liquidation of the entry. Missing that window forecloses the refund avenue, which is why auditing past entries for freight overdeclaration should be treated as a time-sensitive exercise. For a related discussion of how to reduce dutiable value through proper valuation methods, see First Sale Customs Valuation: How to Lower Dutiable Value Legally.

Documentation requirements for claiming deductions

CBP may request documentation to support any deduction from the declared value. Importers and brokers should maintain, and be prepared to produce, the following:

• The commercial invoice, with freight and insurance charges either shown separately on its face or clearly excluded from the stated price
• The freight invoice or ocean bill of lading showing the actual freight charge for the international leg
• The insurance certificate or policy showing the premium attributable to the international shipment
• Any freight forwarder breakdown or disbursement statement identifying each charge by type

When a seller provides a combined invoice that does not itemize freight, the importer should proactively request an amended invoice or a supplemental freight breakdown before the entry is filed. Retroactive corrections are more burdensome and require a post-entry amendment or a protest.

CBP's entry documentation standards and recordkeeping requirements are set out in regulations at 19 C.F.R. Part 163. Records supporting the declared value must be kept for five years from the date of entry.

What importers should do

1. Audit your Incoterms exposure now. Pull a sample of recent entries and check whether the declared value matches CIF or other inclusive-price invoices without deduction. If so, calculate the potential overdeclaration and assess whether a protest or prior disclosure is appropriate before the applicable window closes.
2. Establish an invoice review checklist. Require brokers and entry filers to confirm, for every shipment, whether the commercial invoice price includes freight and insurance, and to document the deduction and its supporting evidence in the entry record.
3. Align purchase contracts and seller invoice formats. Negotiate with suppliers to itemize freight and insurance on every commercial invoice, or switch to FOB terms where the buyer pays freight separately, which simplifies the valuation calculation and reduces the risk of overdeclaration.
4. Track liquidations and protest deadlines. Set up a systematic process to identify liquidated entries where value was potentially overstated, so protests can be filed within the statutory window.

Key references

• 19 U.S.C. 1401a: The U.S. customs valuation statute, defining transaction value and its statutory additions and exclusions.
• 19 C.F.R. Part 152: CBP's regulations implementing customs valuation methodology, including how transaction value is computed.
• 19 C.F.R. Part 163: CBP's recordkeeping regulations, setting the five-year retention requirement for entry-related documents.
• 19 U.S.C. 1514: The protest statute, establishing the mechanism and deadline for challenging CBP decisions including liquidated value.
• CBP Trade Compliance outreach and guidance: CBP's central resource for importer self-assessment guidance and valuation reference materials.
• Harmonized Tariff Schedule of the United States (USITC): The official HTS, relevant for confirming duty rates applied to declared values.
• Federal Register: Source for CBP proposed and final rules affecting valuation regulations and procedures.