For a business that imports products from overseas, shipping costs can add up quickly. In fact, it is not uncommon for a company’s shipping costs to be higher than the cost of the product!
In this article, our friends at Sino Shipping will share some top tips on how to minimise your costs when importing from China.
1. Use A Local Freight Forwarder
Like with any other business, some freight forwarders will be very good, while others will be mediocre at best.
Selecting a Chinese forwarder can be daunting.You will have to get quotes from multiple companies, have numerous conversations, and arrange for small test shipments from different freight forwarders before you will be able to decide which company will be best to use for the majority of your shipments.
Once you have selected a suitable forwarder that you feel you can work with, the benefits you’ll get will often mean that they become an extremely valuable resource in Asia.
You Get Great Flexibility When Your Forwarder Knows the Local Terrain
- In Asia, operating costs are often lower. This allows Chinese forwarders to remain streamlined and small. This makes it possible for them to select the best price, carrier and route, whereas big global companies are often forced to use their own international partners or office, irrespective of whether or not it is the best option.
- When exporting goods from a country, most of the paperwork is done in the country of origin. This allows the actual forwarder to make any amendments, or follow up with the supplier in real-time, rather than this being done by an agent.
- Labor costs and real estate is still cheaper in China than in Europe and North America. This enables Chinese forwarders to offer customised services such as consolidation, relabeling and repackaging for a fraction of the cost compared to what it would cost at the destination.
- Small local forwarders are hungry for business and tend to do everything in their power to resolve issues, whereas large global companies often focus on quantity rather than quality, and are rarely prepared to go the extra mile for new or smaller customers.
Your Business Is Valued and Service Is Often Personalised To Your Unique Requirements
- When you work with a forwarder for longer, they learn how you work and what your requirements are. This results in repeat customers getting a more personalised service as the relationship is built. It is fairly common to be able to negotiate extended payment terms after the first few shipments.
- Many Chinese freight forwarders work mostly with factories, and ship for their customers. This results in them genuinely valuing western businesses using their services, rather than a foreign forwarder. They often find it easy to empathise with their direct clients, making it much easier to quickly find solutions when issues arise.
Using a Forwarder Based In China Almost Always Reduces Shipping Costs
- As local forwarders are on the ground, they can easily find the best pricing based on their client’s specific logistics needs. With them having a detailed understanding of the local network, they can optimise your supply chain, saving you money and time.
- Chinese forwarders normally have lower rates due to lower handling fees and labor costs. Although the manufacturing industry is finding that production costs in China are increasing, the same does not apply to the logistics industry as they tend to have bigger margins. This gives Chinese forwarders more options and flexibility when quoting on freight and they will almost always be able to give a better price than what forwarders outside of China can.
2. Package And Pack To Reduce The Volume
Freight charges are generally based on the shipment’s weight or volume. If you don’t pack your products in the smallest volume possible, you will pay more than what you need to.
If you use more packaging material than what you have to, not only will it cost you in terms of the packaging material used, but also in terms of the extra volume that you are having shipped.
If your shipments tend to be bigger quantities, it’s worthwhile to look into LCL (Less than Container Load) and FCL (Full Container Load) shipping, as this is one area where you may be able to save substantially on shipping products sourced from a Chinese supplier.
If you want to ship enough products in one shipment for a full container, it is called FCL and you can use the whole container for yourself. Shipping FCL is normally a lot cheaper than if you ship by weight or volume.
Another advantage of shipping FCL is that you will be encouraged to buy larger quantities of products at the same time. This will reduce the cost per unit dramatically. On average, FCL shipping costs are between 30% and 40% lower than LCL shipping. This option is however only feasible if you do move larger quantities of goods at the same time.
Even if you don’t normally order a big enough quantity for FCL, it may be worthwhile investigating this option, and then store the excess stock at a warehouse at the destination. The exact requirements for each business will be different, and there are many factors to consider when looking at this option, including cash flow, storage costs and stock turnaround.
One other potential option to look at is to consolidate the items that you ship. If you buy smaller quantities of different products from several suppliers in China, you can combine these smaller quantities to make it a larger quantity before shipping, rather than shipping each order separately. This will ultimately result in a cheaper shipping price.
This can be done through your Suppliers’ warehouses in China.
3. Planning Shipping In Advance
In business, planning is one of the most important activities you can do to make sure you do everything right the first time. This also applies to shipping products that you want to import from China. For a shipping plan to be effective, it will include a clear description of the business’ scope, quantities, weights and volumes involved and the frequency of shipments. Having a detailed plan will help you negotiate the best possible solution with freight forwarders.
When planning shipping for your products, you need to consider the product’s destination, shipping lead times, potential routes, type of shipping, i.e. air or sea, order size, and the Incoterms.
Incoterms are instructions that are internationally recognised and used in the transportation of goods globally. These define how responsibilities are divided between the shipper or supplier (consignor) and the buyer (consignee).
If you plan properly, shipping can be scheduled even before products are completely manufactured. Effective logistics planning will ultimately benefit your business.
Make your shipping plan part of the entire business cycle and create a sustainable shipping plan.
4. Reduce Quality Control Costs
Not only can problems with quality be very frustrating and get very expensive fast, but one of the worst case scenarios is if quality problems are only discovered after your products have already been delivered.
In this case, any problems are very difficult and expensive to fix, and it is often way too expensive to ship the products back to China. You may well be faced with a situation where you have no choice but to have the whole shipment destroyed or scrapped. This is any company’s worst nightmare!
Even if you have a very good relationship with your supplier and are fortunate enough to have them agree to replace the shipment free of charge, it takes a lot of work and time for the new stock to be manufactured and shipped. While this is happening, chances are also high that you could run out of stock to sell in your store, and this will translate into lost sales.
Suffice to say it is worthwhile to apply proper quality control and product inspection early on in the production stages to prevent the scenario described above from ever happening to you. Any company selling products that are manufactured and shipped to their store should at a minimum implement the following:
a) Quality Monitoring During Production
It is very easy to monitor quality during production without even having to be on site. One way in which this can be done easily is by requesting that photos be taken during the production process and then check these to catch any problems early.
b) Pre-shipment inspections
It only makes sense to always inspect a shipment before it leaves the factory rather than after it has landed at the destination. It is much faster and easier for a supplier to fix any problems on-site than having to try and get it fixed overseas. As we’ve mentioned before, it’s a huge problem if you get stuck with faulty products in the destination country.
If you are worried about the supplier not being willing to fix a problem after inspection, there are ways around that. Simply negotiate payment terms that specify you will only pay the balance of your order after inspection. This gives you leverage and the supplier an incentive to fix the problem.
It is fairly common to use a third party inspection agency to do the pre-shipment inspection and the cost is not that high at about $310 per man-day. One day of work is normally enough to inspect most small to medium sized shipments. See this an insurance policy or even a normal cost of doing business. The cost will certainly be worthwhile if it prevents a bigger problem down the line.
If you feel you can’t afford using a third party inspection agency, another option would be to negotiate with the supplier that they do self-inspection before shipping and send you a report. The report should include things like photos of the product, an instruction manual if applicable, measurements, packaging, and anything else you think is important.
5. Improve Cash Flow By Negotiating Payment Terms
In business there is an expression that says: “Revenue is vanity, profit is sanity, but cash flow is reality.” Even if your business does massive sales and makes a good profit, it could run into trouble if your cash flow has problems.
Every business has to keep track of the money they spend and when they will receive and pay money. When your business starts growing, you’ll get to a stage where you want to scale your business by placing bigger orders to keep up with growing demand. A common challenge with this is the amount of cash you have available, and inventory can be a big drain on available cash resources.
One of the ways you can use to improve your cash flow as you build a long-term relationship with your supplier is to negotiate more favourable payment terms. This will go a long way in maximising the use of the cash you have available in the business.
Are you looking for a freight forwarder in China? Request a quote on Sino Shipping website.