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.
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.
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 pricey than a quote based on a kickback rate.
I cannot find a single good reason to not buy an insurance. Many suppliers use cheap and substandard export packaging, and few buyers bother to set any specific quality requirements – or even check the packing prior to shipment. Without an insurance, no compensation is paid by the forwarder, in case the cargo is damaged during transportation.
Most forwarders use PingAn to insure cargo, which charge 0.02%, based on 110% of the FOB price. Assuming you buy goods worth US$50,000, the insurance will only set you back a mere US$110. That’s a fair deal if you ask me. Based on my experience, compensation claims are fairly simple to make, and the insurance company is usually satisfied with photos and a protocol listing the quantity and value of the damaged goods.
As always, the buyer is expected to pay for any ‘additional shipping costs’ arising, including delivery of the Bill of Lading, Commercial Invoice, Packing List and other documents required, such as a Form A or Country of Origin Certificate. A FedEx or DHL delivery of the mentioned documents will set you back another US$40 to US$50.
Local Charges (Port of Destination)
The local charges often come as an extremely unpleasant surprise to first time importers. As previously mentioned, the practice of kickback rates among freight forwarders enables suppliers to offer shipping at extremely low prices, while the real profits are made upon arrival in the Port of Destination. When shipping FCL, the local charges are set per container, rather than per cubic meters. I don’t have price data for each and every port, but the charges tend to range between US$500 to US$1000 per container.
However, that’s only for FCL. When shipping LCL, the local charges are calculated based on the volume, set in cubic meters. The price increase logarithmically, to the point where an LCL shipment of 15 to 17 cubic meters is just as costly as an FCL 20’’ shipment, the latter offering a total volume of 29 cubic meters.
Customs Bond / Clearance (US Only)
US companies importing from China, or anywhere else for that matter, must obtain a customs bond before arrival in the Port of Destination. Kathy Rinetti, Customs Manager of Flexport.com, explained the basics in an interview we published in October 2014:
“Also, prior to importing, importers will need to have a Customs bond on file prior to their shipment’s departure if their goods are valued over $2,500. If the value is less than that, then they can import under an informal entry and without a Customs bond, but this process would require them to manually submit paperwork. They can also import under a formal entry (with a Customs bond) even if their shipment value is less than $2,500.
You can obtain a Customs bond through most Customs brokerages, which typically have the ability to purchase bonds on your behalf through surety companies. There are two types – single entry and continuous entry Customs bonds. Single entry bonds are for a one-time use and continuous entry bonds cover all your shipments over the course of a year.”
A single entry Customs bond can be purchased for around US$100 – US$200, while a continuous entry customs bond costs US$250 – US$450. The latter makes sense for importers importing multiple shipments on a yearly basis.
Domestic Transportation (Port of Destination to Final Address)
Last, is the transportation from the Port of Destination, to your warehouse. The final delivery can be made by truck, rail or a combination of the two. The price depends entirely on your proximity to the warehouse, and on the country, so I cannot offer any price estimation.
Shipping Cost Overview
|Local Transportation||$50 – $480||Included in FOB|
|China Export Clearance||$100 – $300||Included in FOB|
1. Depends on location, volume (LCL / FCL) and local charges
2. Beware of kickback rates when shipping LCL
|Insurance||n/a||Insurance cost = 0.2% x 110% of the cargo value|
|Document Delivery||$40 – $50|
|Customs Bond / Clearance (US Only)||n/a||
1. Single entry: $100 – $200
2. Continuous: $250 – $450
|Local Charges||$100 – $450||
1. Depends on location, volume (LCL / FCL) and the freight cost
2. Beware of kickback rates when shipping LCL
|Domestic Transportation||n/a||Depends on proximity to port|