What makes the topic of shipping and
logistics complicated is not really the process itself, which is the case with
most other procedures importers need to deal with when importing from China. It’s the
shipping costs. Moving cargo from Country A, to Country B, involves a myriad of
companies and government authorities, on both sides. For small to medium sized
enterprises, especially those without previous experience, there are plenty of
pitfalls.
In this article, we explain what you must
know about the main shipping costs that arise from the factory floor in China, to final
delivery in your warehouse. This article refers repeatedly to Incoterms. If you
wish to fresh up your memory, first read our guide on Incoterms when shipping
from China.
Local Transportation (Factory to Port of Loading)
When production is completed, and the batch
is approved by the buyer, the supplier shall arrange for transportation from
its warehouse to the nearest Port
of Loading. The shipping
cost for transporting an FCL 20’’ container range between a few hundred, up to
around RMB 3,000 (Around $480), depending on the distance. As most export
oriented manufacturers are still based on the east coast, and thanks to China’s
infrastructure, a port is rarely more than a three to four-hour drive away.
That said, local transportation is included
in the FOB price. If you, like most importers, purchase according to FOB terms,
the cost is already included in the price paid to the supplier.
China
Export Clearance
Before your cargo can be loaded and shipped,
the goods must be cleared for exports. I can’t say that I know the exact
details of this process, as such paperwork is always handled by the supplier,
or its export agent. I am, however, aware of the issues that may arise if such
documents are not produced.
The Chinese Customs Authorities, the ‘Hai
Guan’, tend to make routine checks on roughly 10% of the outbound shipments
(probably more for inbound). If a supplier is found, trying to export products
without the proper documentation, the customs authorities may issue a fine
counted in the thousands of RMB.
All export clearance documents and
procedures are included in the FOB price. Importers are wise to avoid hassle
and simply stick to FOB transactions. Yet, many buyers still believe they can
save a few dollars by ordering according to Ex Works (EXW) terms, which neither
includes inland transportation, nor export clearance documentation. Buyers that
for some reason still insist on buying according to EXW terms may purchase the
export clearance documents from a licensed freight forwarder, or export agent –
at a cost ranging between US$100 to US$200. I am quite confident that it’s both
more time and cost efficient to let the supplier handle this part.
Freight Cost
With ‘Freight Cost’, I’m referring to the
cost of shipment from the Port of Loading to the Port of Destination,
in the buyer’s country. This is the most complex part, as it’s always balanced
towards the local charges, paid in the Port of Destination.
Basically, there are two ways to pay a freight forwarder:
High freight cost, low local charges
Low freight cost, high local charges
When shipping Full Container Loads (FCL),
the price is, at least based on my experience, almost exclusively set according
to the first option. The price for an FCL shipment, obviously depends on the
destination, both in terms of distance and cargo volumes. Below follows a few
FCL 20’’ price samples for various destinations in the US, EU, Australia
and Asia:
Shenzhen – Los Angeles: $2,230 – $2,460
Shenzhen – New York: $2,275 – $2,515
Shenzhen – Felixstowe (UK): $1,435 –
$1,585
Shenzhen – Hamburg: $1,440 – $1,590
Shenzhen – Sydney: $685 – $760
Shenzhen – Singapore: $270 – $295
Shenzhen – Dubai: $1,445 – $1,595
Less than Container Load (LCL) shipping is
a completely different story. LCL rates are often set at rock bottom prices –
sometimes as low as US$30 to US$40 per cubic meter. What the forwarder is not
telling you about is the local charges, which combined can cost three to five
times as much as the ‘freight cost’. In the industry, this is called a
‘kickback rate’, and is very common. Low freight cost, but very high local
charges. Yet, importers fall for this trick time and time again. Essentially,
forwarders are driven to apply these practices, as many small businesses importing
from China are quick to reject a proper freight quotation, as it’s far more a pricey than a quote based on a kickback rate.
