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Sea freight shipping from China is perceived as a major hassle when importing products. As a professional in procurement, I can state with confidence that sea freight and shipping is not what should keep you up at night.
There are far more complex issues when importing from China. However, Importers still have reason to be concerned about freight related issues.
While the process is straightforward, and part of an established and functional international system, the learning curve can be pretty steep.
Incoterms, FCL, LCL, Bill of Lading. For starters, the terminology can be discouraging just by itself. On top of that, most people in the industry can barely explain, in plain English, how the sea freight process works from A to Z.
Keep reading, and learn how sea freight works when shipping from China. In this article, we cover everything from shipping costs and insurances, to incoterms, FCL and LCL shipping.
Incoterms
Shipping Incoterms are international standard codes that decides when and where cargo shall be transferred between the supplier and the importer.
For example, FOB (Free on Board) only includes transportation from the factory, to the port of destination (i.e., Hong Kong). In addition, FOB also includes all export procedures, which are required to ensure that the cargo can be legally exported.
However, from the port of destination, you must arrange forwarding to the final destination.
You can, on the other hand, book DAP (Delivered at Place), which includes shipping from the factory in China, to a specified address overseas. Such as your office or warehouse.
When you get a quote from a supplier, you must always specify the incoterm you want. The unit price for FOB Hong Kong is, for example, lower than a unit price based on DAP Los Angeles.
Shipping to an Amazon FBA Center from China
Today, many Importers ship their products directly from the factory in China, to an Amazon FBA warehouse. From there, Amazon manage the storage and distribution of the products.
Amazon is operates according to strict principles, and as a seller, you have now choice but to comply with their rules. This is what you must know about shipping to an Amazon FBA center:
1. The cargo must be labeled according to Amazon’s cargo labeling rules.
2. The cargo shall be palletized, for quick unloading upon arrival. Each side of the pallet must be labeled.
3. The cargo shall be forwarded to the Amazon address, according to DAP or DDP terms.
Notice that Amazon does not manage any shipping or customs clearance procedures. This is entirely up to you as a seller to take care of.
However, you can book DAP or DDP shipping from your freight forwarder
FCL and LCL Shipping
Sea freight is not excluding buyers from importing small volumes from China. If you buy by the container load, then FCL (Full Container Load) shipping is the right choice.
FCL is also the most cost effective freight method available, if counted by cost per volumetric unit and weight unit.
However, many smaller buyers don’t buy full container loads. Air freight is often a viable solution for importing small volumes. However, some shipments are stuck in the twilight zone between air freight and FCL cost viability.
The solution spells LCL, or Less (than) Container Load. Basically, LCL is shared container freight. Cargo from multiple buyers is stored in the same container.
The freight cost per volumetric unit is higher though, as the shipping companies must factor in administrative fees that are fixed on a per consignee basis.
Freight Insurance
Insurance is included, by default, when you select the incoterm CIF, standing for Cost Freight (and) Insurance.
If you order shipping according to DAT (Delivered at Terminal) or DAP (Delivered at Place), you must inform your shipping company that the cargo must be insured.
Shipping insurance is cheap, and rarely costs more than US$50 to US$100.
Normally, shipping insurance only covers the value of the cargo, in case of transportation damage. It will not cover lost sales, or product development costs.
Should we get a Freight forwarder or let the Supplier manage the freight process?
You basically got two options, either the supplier administers the shipping process, or you do it via a freight forwarder.
Letting the supplier administer (i.e., book the shipment) the shipping process gives you less transparency. You don’t select the shipping company, and you don’t know if the supplier quotes the actual market price.
In fact, they often do add a few hundred dollars on the shipping fee. Personally, I don’t think that is wrong, as the supplier is then forced to put in the extra hours of booking and overseeing the freight process.
In fact, when shipping sensitive cargo, such as Li-Ion Batteries, it might even be to your benefit.
However, in most cases, the buyer is far better off working directly with a reputable freight forwarder.
Freight forwarders are normally part of international network, but many have their own offices in major Chinese port cities, such as Shanghai and Hong Kong.
A freight forwarder can normally offer a wide range of shipping services, including FCL, LCL and air freight.
In addition, they provide you with a designated contact person that keeps you informed and answers your questions. That said, most people who work in logistics expect the Importer to under the procedures.
As such, don’t expect to get free lessons. Read up on the procedures before you engage the forwarder.
On another note, a new breed of digital freight forwarders have sprung up in the last few years.
One such company is Flexport.com, a San Francisco based company, that enables importers in the United States and Europe, to book and manage all parts of the shipping process from their computer.
This is a very big deal for those of us who have spent years dealing with arrogant and unscrupulous freight forwarders. As many of you know, this is an industry that has desperately needed to be disrupted.
Do we need to pay any taxes in China?
No, you don’t need to pay any “export tax” when importing from China.
However, you will need to pay for transportation to the port of loading in China and the cost for export clearance papers.
Both of these costs are included if you order shipping according to the following terms: FOB, CIF, DAT and DAP.
However, export clearance is not included when buying according to EXW (Ex Works) terms.
What happens after the cargo arrives in the port of destination?
You will be notified a few days before the arrival. After the container vessel arrives, the containers are first unloaded. Some may be inspected by the local customs authorities, but most are not.
Regardless of whether you or the supplier managed the freight, your forwarder or customs broker starts customs clearance procedures.
This process normally takes 1 to 3 days, depending on the cargo and the applied process,
What if the cargo is damaged on arrival?
This actually happens a lot more often than most importers assume. This is also the time when that insurance turns out to be a pretty good investment. If your cargo is damaged, I advise you to follow this process:
1. Take photos and videos of the damages
2. Estimate the total number of damaged cartons and products
3. Make a calculation of the total value loss. Keep in mind that this should be supported by
the value stated on the commercial invoice.
4. Send the material to your insurance company
The last point is not always that easy if you let your supplier manage the sea freight and have no clue of which insurance company they selected.
Therefore I suggest that you ask your supplier for a copy of the sea freight insurance policy before the cargo is shipped. Then you’ll know who to contact in case your cargo would be damaged during the transportation.
In addition, it does happen that suppliers fails to get the appropriate insurance. If you really want to be sure that your cargo is insured, you need to book it yourself, via your freight forwarder.
If you have a valid claim it’s usually a rather quick and painless process to go through in order to get your money back.
However, keep in mind that most sea freight insurance only covers the value of your products, not the shipping costs.
