China Product Costs: The Whole Enchilada
Just came across a new and very good China sourcing blog which for me (I am sorry to say) is the equivalent of a kid coming across a new candy store. The blog is called Source Juice and it is written by the following:
Guys and Gals from the US and China in the technology, manufacturing, and supply chain industries. Some with extensive experience in the supply chain space, some with deep roots in technology, others with experience in working for manufacturing firms in a variety of capacities, and some just great at asking the right questions…a diverse group just putting time into something we find enjoyable and constantly fascinating.
My favorite post so far is entitled "9 Costs That Can Affect Your Landed Cost." on the various costs to consider when calculating your total cost for Chinese product. Now for China product veterans, I am sure these costs seem pretty obvious, but I can tell you I have heard from a number of clients who did not allow for many of these in determining their total cost. So without any further ado, here are the nine costs of which one must be aware:
1. Invoice price. If factory is quoting an FOB cost, the invoice price includes only the product cost itself and none of the costs below.
2. Shipping Costs. Sea is usually cheaper and slower than air.
3. Delivery. "Particularly with sea freight, delivery from the port of entry to your final destination is sometimes an overlooked cost for new importers."
4. Import Taxes (Duties) "Depending on the type of product, duties can add significantly to your landed cost." I'll say.
5. Insurance.
6. Handling. "Ports and other parties that “touch” your cargo en route may charge a handling or processing fee."
7. Banking Fees. Wire fees, letter of credit fees, etc.
8. Commissions. Trading companies or other intermediaries may charge a flat fee or a percentage.
9. Consulting Fees.
In the comments section, Dylan Blankenship added demurrage and unexpected exam fees, both of which are certainly worth noting:
These are some of the highest potentials for increasing landed costs. Demurrage is calculated at somewhere around $100 a day after the shipment has sat a port or holding facility past a particular time (10+ days). I encountered this when the original documentation for the shipment did not arrive on time to clear customs.If you are a new importer, you are likely to be hit with US Homeland Security x-raying your container every time you import. This ranges around $400. The issue with this is if the port is busy and there is a cue then it is possible to encounter demurrage waiting for the exam. Selecting smaller ports is usually not a good idea since they have less staff to accommodate these exams (such as Savannah GA) which entail a longer wait. Also the type of crates or pallets that your product is packaged in can also spawn an FDA exam to check for bugs. They want to check even though the container has been fumigated. If you get hit with FDA and customs exams you are looking at around $1000 in costs.
Anything else?
Comments
There are also several small fees that may or may not need to be listed but nonetheless exist. For example some ports charge a harbor maintenance cost, there is also the AMS fee, Pier fees (I think this is always $6). In and of themselves they aren't much, but expect to be nickled and dimed. Also of course don't forget document fees incurred by fedexing important documents such as the bill of lading, marine insurance, certificates of origin, etc. Otherwise I believe everything is covered.
The delays caused by x-rays and inspections can be significant and may add upwards and over $1000 to a shipment. It's not as bad if you shipped an entire 20-ft or 40-ft container but it can be if your cargo was a LCL load and it maybe more than the normal shipping cost. Fortunately these inspections are rather rare and sometimes seemingly arbitrary. I've been hit with back to back inspections on 3 shipments and then went an entire year without being inspected.
A little bit more regarding transportation, most likely you will be relying on an NVOCC for your logistics needs. It is a good idea to search around for carriers both for competetive pricing but most importantly for their communications ability. I cannot stress this enough, but despite ocean shipment taking anywhere between 11-24 days between China and the U.S. depending on the port, there is often times a time-sensitive period. In the crunch time it is important to have clear lines of communication with the logistics company both in the U.S. and in China to resolve any unexpected problems that may arise. In this vein it is preferrable to choose a China based NVOCC with directly operated U.S. offices. Many if not the majority of U.S. based NVOCC's are independent agents piggybacking on Chinese logistics companies, making conflicts harder to resolve in a timely manner should they arise. It is best to deal with one company only instead of hassling with middlemen.
This also helps when dealing with more complicated transportation issues such as over-sized or overweight cargo, which leads to hassels of its own such as road transportation permits from the state(s) between the port and final destination.
Posted by: Jing | December 21, 2007 11:03 AM
I can see the cost of quality control and assurance will become a big ticket item in the near future, if it is not now.
Posted by: Dimming | December 23, 2007 4:25 PM
Here's another China Sourcing site you might like: www.smartchinasourcing.com. (Published by GlobalSources.com It features practical articles, videos, links to other blogs about doing business in China (travel tips, legal issues, negotiating strategies...etc). LOTS of articles, so you will probably find something of interest to you.
It also adds new information fairly regularly, which I personally like. (As opposed to sites that never change week after week.)
Posted by: James Jakoplic | December 23, 2007 5:39 PM