Suggestion: Watch the 10 minutes video tutorial before reading this article
Shipping by sea is the most cost-effective transportation method when importing from China, and elsewhere in Asia. That said, understanding how the shipping process works is as error-prone as it is tedious and mind-numbing – especially for small businesses without prior experience.
In this comprehensive guide, you will learn everything Amazon sellers and small businesses must about sea freight when importing from China.
This is covered
- FCL and LCL Shipping
- Shipping Insurance
- Shipping Lead Times
- Container Types
- Export Packaging
- Shipping Documents
- Freight Cost Overview
- Shipping Scams
An Incoterm is a three-letter code (i.e., FOB or CIF), defines when the cargo is transferred from the buyer to the seller. Incoterms is a pillar of the international logistics system, and without a basic understanding of them, you may end paying a lot more for your shipments, than you should.
In this comprehensive guide, you will learn what Incoterms are, and which code you should select, when importing products from China (and elsewhere in Asia).
In addition, you will also learn which Incoterms to avoid, and how the ‘wrong incoterm’ can cost you a fortune.
What are incoterms?
Basically, an incoterm consists of two components: a three-letter code and a city name. Let’s begin with the first part.
The three letters incoterm code specifies “how far” the supplier shall ship the cargo. Basically, how much of the shipping you pay the supplier to handle. Based on the incoterm you select, you can let the supplier handle the shipping of products to a nearby port in China or all the way to your front door.
A price quoted by a Chinese supplier is always based on an incoterm. Without an incoterm, you have no idea how far the supplier will ship your cargo. Neither can you compare the pricing between two or more Chinese suppliers if you don’t know which Incoterms the quotes are based on.
For natural reasons a quote based on the incoterm EXW is going to be a lot cheaper than a quote based on CIF.
Why? Because the former (EXW) includes no shipping whatsoever, not even from the supplier’s factory location, while the latter (CIF) includes shipping all the way to the port of destination in your country.
That shipping costs money, and this certainly makes a difference in the price tag. However, in the end, you’ll need to have your products shipped from China to somewhere. If you feel insecure about how shipping works, then you might as well ask your supplier to quote you a price based on a more “far-reaching” incoterm.
Just avoid making the old mistake of assuming that EXW is automatically cheaper than FOB or CIF. It’s time to look into the second component of an incoterm, the location. This specifies where, as in which city, the transfer between the supplier and the importer takes place.
It could be in Shanghai or in New Jersey, depending on where you want the cargo transfer to be made. Keep in mind that it’s up you to order shipping from the location where the transfer has been made, to the final destination.
I recommend inexperienced importers to select an incoterm that takes the cargo as far as possible. This excludes EXW and FOB since the cargo doesn’t leave China. It’s always easier to manage with the shipping if it’s done with people in your own country.
It’s time to dig a bit deeper and actually explain what these strange Incoterms actually means. Below I explain the basics behind five commonly used Incoterms.
EXW (Ex Works)
EXW price is the factory price for the products with no shipping is included. The buyer must arrange transportation all the way from the factory floor in China to the final destination.
- Export clearance: No
- Transport to Port of Loading in China: No
- Sea Freight charges: No
- Port of discharge charges: No
- Inland transport: No
FOB (Free on Board)
The supplier in China delivers the cargo to the Port of Loading (Port of Loading) and takes care of the export clearance. The latter is of high importance since the Chinese Customs Authorities have the right to hold cargo that has not been properly cleared for export.
- Export clearance: Yes
- Transport to Port of Loading in China: Yes
- Sea Freight charges: No
- Port of discharge charges: No
- Inland transport: No
CIF (Cost Insurance Freight)
The supplier arranges delivery to the Port of Destination in the importer’s country. However, Cost Insurance Freight does not include unloading, LCL charges, CSIF or other fees added by the Destination Agent in the Port of Destination.
- Export clearance: Yes
- Transport to Port of Loading in China: Yes
- Sea Freight charges: Yes
- Port of discharge charges: No
- Inland transport: No
DAT (Delivered at Terminal)
The supplier is responsible for delivery from the factory floor in China to a specified, inland or port terminal in the buyer’s country. DAT includes all charges added in the Port of Destination and inland transportation to your nearest terminal. Unlike Delivered at Place (DAP), DAT does not include inland transport to a specified address such as your home or warehouse.
- Export clearance: Yes
- Transport to Port of Loading in China: Yes
- Sea Freight charges: Yes
- Port of discharge charges: Yes
- Inland transport: Yes (To port/terminal only)
DAP (Delivered at Place)
The supplier is responsible for delivery from the factory floor to a specified address and unlike DAT, where the cargo is delivered to the freight warehouse within the freight forwarder supply chain network, Delivered at Place (DAP) includes inland transport to a specified address such as your home or warehouse
- Export clearance: Yes
- Transport to Port of Loading in China: Yes
- Sea Freight charges: Yes
- Port of discharge charges: Yes
- Inland transport: Yes (To your location)
From time to time new Incoterms are added while others are phased out. If you want to stay informed on this subject I recommend you to visit the official website of the International Chamber of Commerce.
Let’s continue with two basic incoterm examples::
Case Study A: FOB Shanghai
- The supplier delivers the cargo to Shanghai
- The cargo is ready for exporting (but not yet exported)
- The importer must book shipping from Shanghai
- The importer pays for ALL expenses that occur after the cargo leaves Shanghai. This includes, but is not limited to sea freight charges, customs, VAT, inland transportation and port duties
Case Study B: CIF Amsterdam
- The supplier delivers the cargo to Amsterdam
- The cargo is ready for importing (but not legally imported)
- The importer pays for ALL expenses that occur upon arrival in Amsterdam. This includes, but is not limited to customs, VAT, inland transportation and port duties
Case Study C: FOB Shenzhen + DAP Los Angeles
- The buyer order the goods from the supplier, according to FOB terms
- The supplier books transportation from the factory, to the buyer’s freight forwarder in Shenzhen. They also take care of the export clearance process and fill out the documents.
- The cargo arrives in the forwarder’s warehouse in Shenzhen. The buyer book a DAP shipment, and freight insurance.
- The forwarder invoice the buyer for the freight cost, port charges in Los Angeles, insurance and inland transportation – all the way to the buyer’s address. Hence, the buyer is aware of the full cost before the goods depart China.
- The forwarder ships the cargo to Los Angeles, where the goods are cleared for customs. The import duties and other taxes are paid via the forwarder.
- The cargo is finally delivered to the buyer’s address in the US.
What is the best Incoterm when importing from China?
To simplify the process, while at the same time getting maximum transparency and cost control, order according to FOB terms from your supplier – and then a DAP shipment from your forwarder.
Hence, the supplier will manage transportation from the factory to the port of loading. Further, they are also taking care of export clearance procedures.
Your forwarder handles the shipping from the port of loading and customs clearance and transportation in the target market.
Should I avoid certain Incoterms?
Avoid CIF terms as often as possible, as you don’t get the know the final shipping cost. CIF only includes shipping to the port of destination, but not the local charges.
When shipping FCL, the local charges (or port charges), are normally set around $300 to $600. However, when shipping according to LCL terms, the port charges may be as high as $1000 to $1500.
This may look like a contradiction, as LCL shipping should, in theory, cost less than FCL. LCL does cost less than FCL shipping, however, the administrative workload for the forwarder is the same, regardless of the volume of the cargo.
Hence, the fixed costs are more or less the same, resulting in a much higher average freight cost when shipping according to LCL terms.
Let’s get back to CIF again. Many forwarders deliberately ‘hide’ the port charges from the customer, by not informing them about it.
Technically, they do nothing wrong, as long as the customer requested a CIF quote – which by definition only includes the shipping cost, while it excludes the port charges.
Then there are also kickback rates, which set the freight cost very low, say $200, while the port charges are closer to $1000.
This is what I refer to when I say that you get more cost control when buying according to DAP terms.
Can I save money by ordering according to Ex Works (EXW) terms?
The EXW price is lower than any other incoterm, simply because it includes no transportation whatsoever. It’s up to the buyer to arrange transportation, all the way from the factory warehouse.
In addition, the supplier will not help out with the export clearance process, which is required before the goods can even leave the country.
While many forwarders can arrange transportation from the factory, and fill out the export clearance documents, they will not do so free of charge.
In fact, you may even pay more than you would if you just ordered according to FOB terms from the very beginning.
There are no loopholes or shortcuts in international freight.
Which Incoterms include insurance?
CIF includes insurance by default. That said, you can book insurance when ordering according to any incoterm.
That said, it’s your responsibility to instruct your forwarder to book insurance. Unless instructed to do so, they will not insure your cargo.
What Incoterm is suitable if I ship directly to a fulfillment center?
Amazon.com is not acting as the Importer of record, or in any other way taking part in the shipping and customs procedures. That said, you can book a DAP shipment directly to a fulfillment center, regardless of whether it’s located in the United States, Hong Kong or elsewhere.
Shipping directly 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 manages the storage and distribution of the products.
Amazon operates according to strict principles, and as a seller, you have no 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 the most cost-effective way to transport your goods from the factory floor in China, to your warehouse – especially when shipping larger volumes according to FCL (Full Container Load) terms.
That said, many buyers don’t purchase large enough volumes to fill an entire container with goods. For this category of buyers, the LCL (Less than Container Load) options remain.
In this part, you will learn what LCL and FCL are, and how they differ in terms of cost and process. In addition, you will also learn how you can save thousands of dollars, by consolidating your LCL shipments into one FCL shipment.
What is FCL (Full Container Load) shipping?
FCL is an international ISO standard referring to one (full) container load (20” or 40”) containing cargo for one consignee (one importer). FCL shipping is the cheapest mode of transportation when importing from China.
However, in order to be a viable freight option, it requires the importer to purchase a relatively large quantity of products.
1. Lower price per cubic meter compared to an equivalent volume or weight of cargo shipped by Air Freight or LCL Sea Freight.
2. More convenient to optimize your quantity and export packaging to maximize the space usage inside a 20” or 40” container.
3. Higher level of security and lower risk for damages due to less handling (Loading, Temporary Storage, Unloading) of your cargo.
1. Not cost-effective unless your cargo volume is 15 – 20 cubic meters (Equals 50 – 70% of a 20” container).
What is LCL (Less than Container Load) shipping?
LCL is an international ISO standard referring to cargo owned by different consignees that are grouped together in one and the same container. LCL shipping enables importers to ship smaller amounts of cargo that’s not of a large enough volume to make FCL a viable option. At the same time, it’s generally more cost-effective than Airfreight.
1. Offers an affordable middle way for cargo too heavy for Air Freight, but insufficient in volume or weight to make an FCL shipment a non-viable option.
2. More convenient for Cargo Inspections & lower packaging material costs in case a repacking is necessary.
1. Higher price per cubic meter compared to FCL shipments
2. Often a non-viable shipping option for cargo volumes above 15 cbm (cubic meters) due to higher loading, unloading, handling & freight costs per cubic meter compared to FCL shipping from China.
Why LCL shipping is riskier than FCL and requires better export packing
It should be obvious to the suppliers that cargo worth thousands, or even hundreds of thousands, of dollars, need protection during the long journey from the factory floor to the importer’s warehouse.
However, many suppliers in China and other low-cost countries tend to neglect this and provide the buyer with low quality export packing that can result in damaging the cargo.
When shipping LCL from China, your cargo shares container space with cargo from other buyers. Sometimes as many as five or six different importers.
You have no control over the nature of the cargo which is loaded into the same container. LCL cargo must be prepared to withstand liquids, heavy weight, chemical fumes, and sharp objects.
What is considered as “insufficient export packing”?
1. Damaged or Low-quality cardboard boxes.
Only use boxes with a minimum of 5 layer cardboard or plywood boxes.
2. No freight pallets
Freight pallets are not always essential, but in events where an LCL shipment is requested, it is strongly recommended as a means to minimize the risk of separation of cargo during the different stages of transportation. It could also be that the cargo is simply too heavy to be loaded and unloaded by hand.
3. Damaged or Low-quality freight pallets
Freight pallets come in different dimensions, qualities, and materials. Loading 5 tons of cargo on a pallet made with transporting bananas in mind is rarely a good idea. A damaged freight pallet is also dangerous for the cargo itself since shards of wood or plastic easily cut through the cardboard boxes loaded on top of it.
4. Protective plastic missing
Many products are sensitive to damp and the month-long journey from China to Europe or the United States is more than enough for mold to grow and spread.
Can I consolidate multiple LCL shipments into one FCL shipment?
Yes, and this is one of the few really good ways to save on the shipping costs. LCL is a lot more expensive, per shipped unit, hence, ‘converting’ to FCL shipping can save you thousands of dollars.
Buyers that order goods from multiple suppliers, and are currently importing individual LCL shipments, can buy to FOB terms and instruct the supplier to forward the goods to one and the same port of loading (i.e., Shanghai or Shenzhen).
From there, the forwarder can load the cargo in an FCL 20’’ or 40’’ container.
That said, this strategy requires a lot of coordination between the buyer and the suppliers, as one supplier running late results in all shipments being delayed.
Why is LCL shipping so much more expensive than FCL shipping?
The administrative workload is roughly the same, regardless of the cargo volume. Hence, the fixed cost is the same for both LCL and FCL shipping.
This is primarily reflected in the port charges price difference. A few examples follow below:
- FCL 20 Feet: $500 (Equals $13 per cbm)
- LCL 10 cbm: $1400 (Equals $140 per cbm)
- LCL 2 cbm: $600 (Equals $300 per cbm)
Hence, LCL shipping is still more cost-effective for small shipments, as compared to FCL – but the cost per unit is far higher.
How can I better control the costs when shipping LCL from China?
As LCL shipping results in high port charges (as explained above), you need to confirm the port charges before shipping the goods.
If you ship according to CIF terms, the port charges are not included. To avoid an unpleasant surprise in the port of loading, order LCL cargo according to DAT or DAP terms, both of which include the port charges.
Is FCL faster or slower than LCL?
In my experience, FCL can be a bit faster. I am not sure if that is established, but I would assume it is due to the following factors:
a. It may take longer to book LCL cargo, as several consignees are needed
b. LCL may receive a lower priority
When is LCL shipping the best option?
LCL is the best option for cargo that is too bulky and heavy for air freight, yet not large enough to make FCL shipping a viable option.
LCL is the best option for shipping cargo with a volume between 1 to 10 cubic meters.
When is FCL shipping the best option?
If the LCL cargo exceeds about 12 cubic meters (cbm), the total price (the sum of the freight cost port charges) are on par with an FCL 20 feet container.
This is despite the fact that the FCL container would be 70% empty.
Can all suppliers and freight forwarders offer LCL shipping?
That depends on the forwarder they’re working with, but most forwarders in China and elsewhere can offer LCL shipping.
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 affordable and rarely costs more than US$50 to US$100 per shipment. 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.
Why sea freight insurance is critical when buying from China
Transportation damages are more common, when shipping from China than many business owners might actually think. Cargo is not handled gently, be it on the factory floor, the port of loading in China – and the port of destination.
Whenever they do occur, transportation insurance, covering damages, is the only thing that will keep your business above the water. If you don’t sign up for a shipping insurance policy, you cannot claim compensation.
How to get shipping insurance
There are various ways you can get your cargo insured. The table below explains two ways you can obtain insurance:
a. Order a CIF shipment
The CIF incoterm is shortening for Cost, Freight and Insurance. By definition, when you buy cargo according to CIF terms (which includes transportation from the factory to the Port of Destination), your cargo is insured.
However, you should ask your supplier for a copy of the insurance policy.
b. Book insurance through your freight forwarder (Recommended)
Buying insurance through forwarder offers more transparency and control. First, you can request the insurance that specifically covers everything from inland transportation in China to loading, sea freight, and unloading.
Insurance is, as mentioned, ‘by default’ included in the CIF. If you choose any other incoterm, you must communicate, either with your supplier or freight forwarder (or both, depending on your shipping arrangement), that your cargo must be insured.
Freight insurance cost calculation
There’s no valid reason why you should ever consider opting out of freight insurance. All you need to do is to basically tell your forwarder that you want your cargo insured, and pay a small fee, based on your order value.
Normally, the cost of the insurance is set at around 0.5% to 0.6%, of the cargo value. Below follows an example:
Insurance Cost = ((Cargo Value + Transportation Value) x 10%) x 0.5%
Insurance Cost = (CIF Value + CIF Value x 10%) x 0.5%
How to file a freight insurance claim
Assuming you are buying regularly from China, the risk is quite high that you will, at some point, need to file a compensation claim.
The good thing is that it’s relatively simple and straightforward to file a compensation claim. In addition, insurance companies normally offer quick payments.
Now, the first thing you must do when receiving your cargo is to check for potential transportation damages. If any damages are found, you must quickly, preferably within 24 to 48 hours of receiving the cargo, provide the following information to your freight forwarder:
- Images and video, documenting the damaged units and packaging
- A list of damaged products, quantity and the value of each damaged unit
- Proof of value (i.e., Proforma Invoice and Commercial Invoice)
- Proof of receiving the cargo (i.e., a receipt)
As such, you may receive compensation for a certain amount of damaged cargo, or the entire shipment – depending on the damaged quantity.
Normally, the freight forwarder can help you handle the claim, which means that you don’t need to deal with the insurance company. Once they’ve filed the compensation claim, you can expect a payment directly to your business bank account, within 1 to 3 weeks.
However, this can prove to be more complicated, if you allowed the supplier to book your shipment, as they may not be accustomed to managing insurance claims. I’ve seen plenty of situations where Chinese suppliers simply tell their customers to sort it out themselves.
Insurance does not cover quality issues caused by the supplier
Transportation insurance only covers damages occurring during transportation. While it may be obvious to many of you, I still want to highlight that insurance don’t cover quality issues and damages, caused by the supplier.
As such, insurance is not a replacement for a proper quality assurance strategy, including pre-shipment quality inspections.
Worth mentioning is also that transportation insurance may not cover the freight cost. Hence, you will only be compensated for the damaged cargo value (i.e., FOB price). Hence, you’ll lose the money paid for shipping.
However, that’s not the worst thing. A damaged shipment, in full or part, can ruin any business. As you’ll lose out on months of sales, until you can get a replacement shipment, it may spell the end for your business – even with an insurance payout.
Why you should invest in high-quality export packaging
The best way to avoid the situation described is to prevent transportation damages, to begin with. While I still insist that you should get shipping insurance, what truly matters is that your cargo is protected by high-quality packaging from the very beginning.
Many Chinese manufacturers lack internal guidelines for export packaging. As always, this means that you are responsible for providing explicitly clear export packaging requirements, and verifying that these are followed.
So, what is high-quality export packaging? As always, it depends. That said, it often looks something like this:
- Inner Cartons: 5 layers
- Outer Cartons: 5 layers
- Protective Plastic: Yes (Outer Cartons)
- Pallets: Yes (ISPM 15)
Protecting your shipment is even more important if you, like many other importers, ship the products directly to an Amazon warehouse – without checking the cargo before distribution.
Shipping Lead Times
The port to port lead time depends on the distance. Below follows a brief overview:
- Hong Kong – Los Angeles, USA: 20 days
- Hong Kong – New York, USA: 32 days
- Hong Kong – Felixstowe, UK: 29 days
- Hong Kong – Hamburg, Germany: 30 days
- Hong Kong – Singapore: 5 days
- Hong Kong – Sydney: 12 days
However, keep in mind that it can take a few days, sometimes up to a week,
before your cargo is loaded in the port of loading in China.
The same administrative delay applies in the port of destination, which in many cases can be even longer. In extreme cases, you may face delays as long as two to three weeks, in the port of destination.
Shipping by sea is, in terms of lead times, both slower and more unpredictable than air freight. As such, companies importing from China by sea must do a lot of planning, and have serious margins for delays.
If you need your goods in time for the Christmas season – place your order in July, not in September.
At a minimum, you should place your order 4 months before your ‘hard deadline’
The shipping container revolutionized international trade when it was introduced back in the 1950s. The world wouldn’t be the same without them. In this part, we introduce you to shipping containers types, how they can help you to save money and how to track containers online.
a. Container Volumes
In case you decide to import full container loads you have three options:
- Internal volume: 33.1 cbm
- Internal dimensions: 5.71 m (L) x 2.352 m (W) x 2.385 m (H)
- Maximum load: 28,200 kg
- Internal volume: 67.5 cbm
- Internal dimensions: 12.192 m (L) x 2.352 m (W) x 2.385 m (H)
- Maximum load: 26,600 kg
40’ HQ (High-Cube) Container
- Internal volume: 75.3 cbm
- Internal dimensions: 12.0 m (L) x 2.311 m (W) x 2.650 m (H)
- Maximum load: 26,580 kg
The container volume may differ slightly between different shipping companies. The volumes above are valid for Maersk containers. However, the difference is very small (+/- 0.1 cbm).
There is still one way to save quite a lot of money based on the sea freight cost that’s related to the container volume. That is to place orders based on the units that fit in a specific container size rather than a predetermined quantity.
This way you can avoid situations where you pay for empty space or have to order one FCL container and one LCL container. The latter situation can become rather costly since LCL comes with higher port charges and ‘per shipment administrative fees than FCL shipping.
b. Ordering by ‘container volume’
When importing from China, the shipping cost is often a lot easier to reduce than the product price. While a reduction in the product price is often accompanied by a quality reduction, the shipping costs can be lowered without such a compromise. The easiest way of doing this is by ordering full container loads. While it’s possible to ship smaller volumes, using LCL shipping, the shipping companies often charge 2 – 3 times as much per cubic meter, compared to FCL shipping.
It makes sense. The workload is actually higher, for the shipping companies, when managing LCL shipping. While FCL shipments can be unloaded and delivered directly to the buyer’s location, LCL shipments must be unloaded at the Port of Destination – before being loaded once again prior to the final delivery.
Alright, I think you get the point. In practice, this means that you should ask your supplier to quote you a price based on a full container load of products, instead of a predetermined quantity (which is often the case when importing from China). However, the supplier should still calculate how many product units fit inside the container.
Even if you can’t reach a full container volume, FCL shipping might still make sense. As a matter of fact, LCL shipments larger than 15 cubic meters cost more than an FCL 20’ shipment (even if half the container is empty).
There are also situations when you need to go even bigger than a 20’ container. A 40’ container is more than twice as long as a 20’ container, which makes a big difference on the bottom line when ordering large volume items (i.e. vehicles, machines, and furniture). Let’s assume that you’re importing banner printers. Those things often have a length of around 4 meters. While only one unit fits inside a 20’ container, three units can be loaded inside a 40’ container.
c. Container Tracking
Most international shipping lines, such as China Shipping, Maersk and MSC, offer online container tracking. This means that you can track the location and estimated arrival date of your container shipment from China. While most companies have their own container tracking system in place, tracking websites, such as Searates.com, helps you track containers shipped by several companies.
However, small businesses importing from China are not dealing directly with the shipping lines.
Instead, the shipping is outsourced to a freight forwarder, which in turn orders the shipment from the shipping line. In my experience, most Chinese freight forwarding companies don’t offer online container tracking. This means that you need to go through the back door.
In order to track a container, you need to know which shipping line is transporting your cargo, and the container number, booking number or document number (any of them is usually good enough). You should find both on your Bill of Lading, which might look something like this:
See that big logo in the top left corner? That’s the shipping line (Yang Ming). If there’s no such logo your Bill of Lading (or one which is not the shipping line) you’ll find it elsewhere in the document. Possibly under “shipper” or “freighter”.
Apart from the name of the shipping line, we also need the container number. However, in this example, there’s no such number. Instead, you can use the Bill of Lading number, which you can find in the top right corner (B/L no) of the sample document.
Your cargo must be sufficiently protected, from the dusty factory floor to a damp warehouse in Shanghai, and finally stacked in a container for up to a month.
A lot can happen in this time, and you need to be sure that your export packaging is up for the task.
One might think that the supplier could be trusted to manage this on their own. That is not the case.
Chinese suppliers have a tendency to use cheap and substandard export packaging materials.
To ensure that your cargo is protected during transportation, you can use the following checklist:
- Inner cartons: 5 layers
- Outer cartons: 5 layers
- Plastic wrapping: Yes (on Outer carton)
- Pallets: Yes (ISPM 15 EU Standard)
- Freight remark: Yes (Printed on outer carton)
For example, Amazon requires palletized cargo, as unloading one carton at a time is very time-consuming. This is rarely understood by Chinese factory managers and sales reps, as labor is far cheaper than in the west.
Be sure to provide your supplier with explicit and clear export packaging specifications. Do not leave anything to their interpretation, and provide graphical examples whenever possible.
Before shipping from China, you need to confirm which shipping regulations apply in your market, and to your product.
How can we find the cheapest freight rate from China?
This is a question we get all the time. However, freight rates are set based on market prices, that change on a weekly basis. There are no ‘cheap forwarders’ that offer discounted shipping services.
That said, it’s easy to be tricked by forwarders to claim to offer low-cost shipping, which they can only do by quoting based on CIF terms.
In the end, you will still need to pay the same port charges and transportation fees as if you’d request a DAP or DDP shipment from the start.
How can we make sure that our shipment is delivered on time?
The delivery time is always fixed. At most, the delivery may differ with a day or two. Just as with freight rates, no forwarder can offer faster shipping than others.
Still, there are a few things you can do to avoid getting your shipment delayed:
a. Make sure that the declared customs value is correct, and matching your commercial invoice and bill of lading
b. Order according to FOB terms, and ensure that the supplier prepares all export clearance documents on time
c. Ask your forwarder to contact your supplier a few days before the goods are ready for shipment, rather than waiting until the last day
d. Buy a customs bond at least one month before the goods arrive in the port (US)
e. Apply for an EORI number at least 2 weeks before the goods arrive in the port (EU)
f. Instruct your supplier to use high-quality export packaging (and be specific) to prevent repacking, before shipment
g. Pay the balance and freight cost on time, so the shipping documents don’t get delayed
If you’re really running late, you might also want to consider splitting up the shipment in two. One part (say, 20%) is delivered by air, while the rest is shipped by sea. Thus, you can stock up just one week after the production run is completed.
Should we find 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 an 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 has 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,
How can I access the cargo after arrival in the port of destination?
You got two options; either you pick it up yourself or you ask your shipping agent to load it on a truck and deliver it to a specific location. It’s not harder than that.
When the cargo arrives at the Port of Destination you will likely be notified by the port agent. In most cases, you can book the transportation directly through the port agent.
If you are ordering a full container load this is certain to recommend. Upon delivery, you can expect to have somewhere between 30 minutes up to an hour to unload the cargo. Beyond that, the freight forwarder normally charges the importer on a per hour basis.
What happens 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 fail 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.
One could think that we live in a digital era. However, the 19th century is still well and alive in the world of international freight. Keep reading, and learn what every Importer must know about shipping documents.
Bill of Lading
The Bill of Lading (B/L or BoL) is issued by the freight forwarder and sent to the Importer. The Bill of Lading serves as a receipt for the shipment, and includes the following information:
- Shipper (i.e., the supplier)
- Delivery address
- Special instructions
- Bill of Lading number
- Carrier Name
- Freight charge terms (i.e., FOB or CIF)
- Commodity description
- Number of packages
Why do I need a Bill of Lading?
Depending on the payment terms agreed upon by the supplier and the buyer, the Bill of lading may serve as a document that either:
a. Confirms the release of a Letter of credit (L/C)
b. Or, serves as proof of shipment, which requires the buyer to wire the balance payment
The second option is common when paying by Telegraphic Transfer (T/T). However, most suppliers only provide scanned copies of the Bill of lading – not the original, which is required to get the shipment released in the port of destination.
The original is normally delivered by post, around 1 week after the supplier has received the balance payment.
Bill of Lading Checklist
Before you wire that payment, there are a few things to look for on the bill of lading:
a. Is the correct shipping terms (i.e., Incoterms) specified?
b. Is the insurance specified?
c. Are the details of the Importer, shipper, and carrier correct?
The commercial invoice (C/I or CI) states the value of the cargo and is used to declare the customs value.
The customs value is used to calculate import duties and other taxes (i.e., VAT in the European Union or GST in Australia).
When you receive your scan copy of the Commercial Invoice, there are two things to look for:
a. Is the product value declared properly?
Some suppliers deliberately undervalue the products – sometimes even without instructions from their buyers to do so.
Reduced customs value results in lower import duties and other taxes. This practice is, of course, illegal, and the Importer – not the supplier – is always held accountable.
b. Is the customs value correctly declared?
There is a difference between the actual product value and the customs value. As mentioned, the customs value is the amount from which the import duty and other taxes are calculated.
For example, in the United States, the customs value is based on the FOB (Free on board) cost, which essentially reflects the product cost.
In the European Union, on the other hand, the customs value is based on the CIF (Cost, Insurance and Freight) value – which includes both the product cost and shipping to the first post within the EU.
Don’t assume that your supplier knows how the customs value is defined in your country or market. Do the calculation by yourself, and simply tell the supplier what they should declare. In addition, the customs value (in both the EU and the US) may include costs such as tooling, samples and other fees paid to the supplier.
The Packing list (also referred to as shipping list, way-bill or delivery list) includes information of the parcels, quantity, and type of products.
It helps the shipping company to keep track of the shipment, and the customs authorities assess if the cargo is correctly declared – in terms of commodity type and quantity.
Country of Origin Certificate (or Form A)
The Certificate of Origin (Sometimes called Form A, C / O, COO or CoO) refers to the origin of the manufacturing or assembly country.
The country of origin certificate may be required by the customs authorities, upon arrival in the port of loading, for the following reasons:
a. Confirm the country of origin, which may affect the applicable import duty rates.
b. Confirm if the product is correctly labeled. In the United States, and many other countries, a country of origin is required (i.e., Made in China).
The Certificate of Origin is normally issued by the supplier.
Shipping Documents FAQ
Do we need to submit test reports or product certificates to the customs authorities?
While test reports and other compliance documents are not always required, certain categories are more strictly controlled than others.
This includes, for example, toys and other children’s products, medical devices, food and beverage, electronics, plants, chemicals, and agricultural products.
In some cases, product compliance documents are part of the customs document submission procedure. However, in most cases when such documents are requested, it’s a matter of random checks on ‘high risk’ shipments.
For example, several European countries check shipments of Hoverboards and refuse clearance for any importer that fail to provide the necessary compliance documents.
The short answer is therefore that compliance document submission is not necessarily mandatory – but you face severe risks if you don’t have time by the time your products arrive in the port.
When shall we expect to receive the documents?
Normally, the shipping documents are sent by airmail, one week after the shipment. However, this assumes that the supplier has received the money, as they rarely agree to send the shipping document originals until the cargo is paid for in full.
They have valid reasons for this, as the buyer can unload and clear the cargo, once the original documents are obtained.
Who issues the freight documents?
It can be either the freight forwarder or the supplier.
Do we need to pay for these documents?
Yes. These shipping documents are part of the export clearance process, which is included in the FOB price, but not EX Works (EXW).
In addition, you need to pay the airmail fee for delivery of the originals, which tends to be around $30.
Normally, an Import license is not required in the United States, the European Union, and other developed markets.
There are, however, a few exceptions:
- Certain types of chemicals
- Live animals and plants
- Food and agricultural products
Product Certificates and Other Compliance Documents
Most products are regulated in the United States and the European Union. Other markets, such as Singapore and Australia, base their product regulations on those developed and implemented by the US and the EU.
At the time of writing, there is no standardized “product certificate submission system”. Hence, you may not be required to provide any product certificates or other compliance documents to the customs authorities.
Such checks are normally carried out by other market surveillance authorities. However, it’s not black and white. Many countries do carry out spot checks on everything from product samples to container.
We even received a report from a German importer, whose Wristwatch sample was confiscated by the German customs authorities, due to the lack of product certification.
In addition, the US customs can even return cargo, that doesn’t comply with mandatory labeling requirements. The trend is pointing in one direction. Enforcement is being stepped up, and it’s only a matter of time before the authorities will streamline and standardize document submission procedures.
There are even talks in the United States to make CPSIA document submission mandatory in the near future. This will mean that Importers will not even be able to get the products into the country, without proof that the products comply with all mandatory safety standards and other regulations.
Sea Freight Costs
Shipping from China involves a multitude of different fees. The cost is closely related to the selected incoterm. Below I list a number of costs that you should keep in mind when shipping from China:
- Transportation to Port of Loading (included in FOB)
- Export clearance (Included in FOB)
- Sea freight charge (included in CIF)
- Insurance (Included in CIF)
- Port fees (Included in DAT)
- Customs clearance fees
- Custom duties
- Other import taxes (i.e., VAT in the European Union)
- Transportation from the Port of Destination
There are two types of shipping related scams. First, you need to look out for scam companies loading containers with junk materials, or any other type of goods than what is ordered by the buyer.
The only way to prevent such scams is to perform the proper due diligence when selecting a supplier and verify the cargo before shipment – for example by sending in a quality inspection agent.
These scams are relatively easy to prevent.
There’s a more viscous type of shipping scam. The Bill of Lading scam
The Bill of Lading is mandatory. Without one, you cannot access the cargo. Now, what if somebody decides to hold your cargo ransom, by withholding the Bill of lading?
That is exactly what is happening, with increased frequency. The shipping company actually ships the cargo to the Port of loading. However, upon arrival, they demand a large sum of money to release the Bill of Lading.
Meanwhile, the authorities in the Port of destination pressure the Importer to quickly claim the cargo – by charging a daily port fee – which is often set at around $50 per day.
So, as the port fee bill keeps growing, and the Importer is losing sales every day – the scammer is waiting for their victim to give in.
The price is normally high. We have received reports with ransoms between US$12,000 to $40,000.
And, the port authorities? They can normally do nothing, as this is an old and slowly evolving system.
That said, we have received far more reports from Importers in developing countries, as compared to those in developed markets, like the US and Europe. There is a really simple way to avoid this situation though: Never try to buy international freight for less than the current market rate.
What we have found is that all buyers that got scammed this way, got contacted with incredible offers – or found the “freight forwarders” on their own.
You’ll get what you pay for. Always.
Do you need help with shipping and customs?
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