By: Paige Cotcamp
Over the past 29 years, we’ve acquired a great deal of experience importing and exporting all manner of products for companies large and small. We’ve shipped oil to the Middle East, copiers to Prudhoe Bay on Alaska’s north slope in the dead of winter and scientific equipment to volcanologists on Iceland. We’ve brought in everything imaginable from Asia. In a word, we’ve seen it all.
In today’s post, I wanted to take a few moments to share some of the knowledge that we have acquired over the years when importing goods from Asia in general and China in particular. It need not be a complicated process, but to the uninitiated it is a minefield fraught with danger.
So whether you are a first time importer looking for a place to start, or a seasoned shipper frustrated with your recent import debacle, let us smooth the water for you in our list of top 10 tips when importing from China
- Communication is critical. Get to know your supplier well: This may seem obvious. However, you’ve just taken on a new business partner who is some 9,000 miles and a dozen time zones away. You need to talk to them. A lot. This is not someone that you want to just source on Alibaba.com and have a casual, email-only relationship with. Do they respond quickly? How are their written and verbal skills? Do they have a professional demeanor? Are they rude, pushy, annoying, unprofessional? The bottom line:? Do they seem like somebody that you can work with closely on a regular basis? You need to know.
- Is your supplier truly the manufacturer or a just a broker? Many companies in China will hold themselves out as a manufacturer, when they are in-fact merely a trading company or broker who is sub-contracting your order out to a third party manufacturer. Don’t get fooled! If you do, you will have no direct control over the production schedule and no means of communicating directly with the people actually manufacturing your product when things go awry, as they often do. Remembering that saving face is a key aspect of Chinese culture, you need to politely inquire of your new business partner as to whether they are truly the factory, or a third-party facilitator. It is critical.
- Where is the factory really located? We constantly see first time shippers ask us for a quote, telling us that the factory for their new-found supplier is in Hong Kong. This is almost never the case and it makes the quote worthless. In reality, the address and phone number in Hong Kong is almost always just a sales office or phone number that is forwarded to a factory on the mainland. Real estate and labor in Hong Kong are usually far too expensive to allow for operation of factories in most cases. Hong Kong is primarily a financial center, not a manufacturing center. If your supplier gives you a Hong Kong address, it is time to start asking pointed questions, as this is often a red flag that they are just brokering your order, which you should avoid (see Tip #2 above).
- Pay attention to the calendar: Again, obvious, right? China loves holidays. Citizens of the Worker’s Paradise are afforded numerous vacations each year, at least two of which (Golden Week and Spring Festival) last a full week. All told, China has 54 days of holidays in 2013! Woe be it to the importer who needs to move a critical order the week before, during or after one of these week-long holidays. There is always a mad scramble for space in the week leading up to the holiday and a huge backlog of freight in the week following. Consequently, you need to plan ahead for these holidays and book your orders accordingly. For a complete list of Chinese holidays, click here.
- Be aware of the Peak Season Surcharge (PSS): Many an importer has called us for an ocean shipping quote in the spring and priced their product based on those costs, only to fall victim several months later to what carriers euphemistically refer to as the Peak Season Surcharge (PSS). In short, ocean carriers long ago figured out that importers in general, and retailers in particular, are desperate to get their freight into stores in time for the holiday shopping season. The ocean carrier boost their rates accordingly. It is no different than the airlines charging more for seats between Thanksgiving and Christmas. That means that nearly every year, ocean carriers impose a PSS around July that runs through December. The amount and timing varies each year, based on the economy and market conditions, but in some years it can add twenty percent (20%) or more to your freight bill. That’s a very unpleasant surprise if you have already quoted your customer and signed a contract! The same is true, to a lesser extent for air cargo.
- Don’t forget about duties & taxes: As the importer into the United States, it will nearly always be your responsibility to pay for the duties and taxes (D&T), if any, assessed by U.S. Customs. D&T is charged over and above the cost of your freight. It is critical to take the cost it into account and be prepared for it. In some cases, products can be duty free. However, in others cases, D&T can run as high as 20% of the value of your supplier’s invoice. In order for your forwarder to accurately calculate the amount of D&T on your import, you will need to provide a detailed description of the product(s) that you are importing, as well as an accurate valuation. Keep in mind that the amount assessed is always at the discretion of the Customs Inspector and the assessment cannot be guaranteed in advance. Also, not that many forwarders will not offer terms on D&T.Depending on the amount of the D&T and your relationship with your forwarder, you may be required to pay for the D&T on your import before the freight can delivered.
- Calculate the Total Landed Cost (TLC) of the shipment: As alluded to above, in today’s economy, it is not enough to simply source the cheapest widget manufacturer you can find on Alibaba.com, roll the dice and hope they are good. Your need to look very, very closely at the Total Landed Cost (TLC). That is, the cost of the product, the freight, duties & taxes, delivery and loss of working capital while in transit all the way to your door. I have had hundreds of conversations over the years trying to explain to importers why our shipping quote appears higher than that of the factory’s forwarder. The reason is usually very, very simple: They aren’t looking at the TLC of the freight.?? Specifically, most Chinese forwarders do not have an extensive domestic network here in the United States. As such, they can only quote the freight to the port/airport, leaving the importer to fend for themselves when it comes to customs clearance, terminal handling and delivery. What the factory doesn’t tell you is that the local terminal handling, clearance and delivery charges can often exceed the cost of the freight itself. Especially in the case of small ocean freight shipments. Importers become furious when they discover that the $1,800 (prepaid) rate that they were quoted from Shanghai to Long Beach by the Chinese forwarder does not include another $1,500 in local charges here that they didn’t budget for. It is crucial that you get the forwarder to specify a freight rate that is to your door, including all destination charges. If you don’t you are comparing apples and oranges.
- Get references & do a factory visit: You wouldn’t hire a new Operations Manager or Shipping Supervisor without checking their references would you? Don’t take on a new overseas business partner without doing the same.?? Ask for client references and check them out.?? If your budget will allow for it, you should travel to China and do a site visit whenever possible.?? Go see your contact and his factory for yourself, especially if you are importing a product subject to regulation by the FDA, EPA or other governmental agency. If the product does not meet federal standards, you will be on the hook for any fines, not the Chinese supplier. If a factory visit is not within your means, it is possible to pay for a professional inspection by a third-party service. In either case, it is money well spent. Don’t cut corners here.
- Have access to adequate working capital: Importing can be expensive and a good forwarder can be your new best friend when it comes to controlling costs. However, they are not your banker. Make sure that you have the necessary financial resources lined up in advance. You can expect to be required to prepay the overseas supplier before they will ship your order. Likewise, you may be required to pre-pay the freight forwarder for the freight prior to delivery, depending on your relationship with them and the length of time you have been in business. Lastly, be prepared to write a check to U.S. Customs for duties and taxes prior to receiving your freight, if necessary. Don’t assume that you can get 30-45 day terms from the date the freight is delivered to you, then collect from your customer before the freight bill comes is due.?? It won???t work.
- Find a reliable and trustworthy freight forwarder: Just as your supplier in China is your newest business partner, finding a reliable, trustworthy and competitive freight forwarder can be equally crucial and a competitive advantage. Your forwarding partner effectively becomes your out-sourced shipping department so you can focus on your core business and bottom line. We’d obviously like that forwarder to be Air & Surface Logistics, but regardless, it is important to choose wisely. Controlling costs and getting the best possible price is something that every successful business must do. However, choosing wisely means that the cheapest freight rate from the factory???s forwarder is not always the best choice. You need to take into account the forwarder’s communication skills. Can you decipher their emails? Are you prepared to conduct business at 1:30am because that’s when they are available? Do they have a U.S. network, or are you on your own when the ship docks here? Can you reach someone in management if problems arise? If the answer to one or more of these questions is “No”, you may want to think twice about using your supplier’s recommended forwarder. They do not always have your best interests at heart. In fact, the extra $100 you may spend by using a forwarding partner based here may be the best $100 investment you ever made in your business.
About the Author: Paige Cotcamp is the President of Air & Surface Logistics and a 25+ year veteran of the freight forwarding industry.