Importing From China
Like many other companies, you’ve decided to source product from China. How do you handle the logistics? How do you become an importer into the United States and what is unique about doing business with China? Are you up to the task, do you have the right team in place to help you manage the supply chain? You need to address many different factors when considering how to become an importer of Chinese Goods.
Logistics from China
China has great Ocean Ports as well as Airports and great infrastructure near to those ports. They have done a very good job at keeping industry near to these ports for ease of export. When negotiating price with the Chinese, I would suggest negotiating the cost of the product EXW their Factory Door. This does two things, first it allows you to confirm the pick-up address and it also gets you a clear price for the product, not being convoluted with the freight costs. Tell them you need to calculate freight and your forwarder needs to know the pick-up address in order to quote the inland charges. If they resist, or tell you they will handle on FOB Ocean Port/CFS or FCA Airport Terms, it might raise a flag that they are only sourcing and not producing the product. Outsourcing production in China is a common practice on many goods. Sometimes this is not a problem, but it’s important to know what you are buying and who is producing it. After negotiating on EXW terms, I would encourage changing the terms to FOB Ocean Port/CFS or FCA Airport paying the vendor for the inland transportation charges as a separate line item not built in to the product costs. Often times the Chinese vendors can get the product up to the port in a very cost effective manner as they have other deliveries to make to the same ports for different customers. Your Freight Forwarder may only have one pick up from that same factory which is not as efficient.
China is obviously much closer to the U.S. West Coast. Given this factor, it might make sense to warehouse and distribute products from the West Coast. This will allow you to get access to your product sooner and allow you to ship to your customers sooner. It will also allow you to cut down on your Ocean and Airfreight costs. Be aware, costs on the West Coast are higher, but you can oftentimes offset this cost when considering the amount of money that can be saved on ocean or airfreight. It’s important to look at various distribution models. Just because you live in a city does not make it the best location to handle your warehousing and distribution unless you only sell at a local level. Most major retailers will also have major DC’s on the west coast. Discuss this with your larger customers, ask them where they prefer goods to be delivered and make decisions based on your customer’s needs too.
There are many qualified Freight Forwarders that can handle shipments to/from China. Make sure to use a Freight Forwarders with offices in China. You do not want to use a Forwarder that only has agents in China. Agent relationships can be good, but if they are bad it just adds another layer of communication and if something goes wrong, everyone will be looking out for your interests and not your interests. Freight rates from China have become very volatile over the years. You need to expect constant rate fluctuations. There is a Peak Season on both Air and Ocean Freight and the steamships have become very comfortable in issuing GRI’s (General Rate Increases) when they feel the market will allow it. Keep pressure on the Freight Forwarder to help extend pricing and keep costs down. Be informed about the market and relay this information on to other supply chain managers, sales, purchasing, or other departments at your company that will be influenced by raising prices. Contracting a 4PL, like C.L.O. Company, will assist you in getting the most competitive rates and services.
Vendor Communication
Establishing vendor relationships in China can be challenging. How’s your Mandarin or Cantonese? English is obviously the language of business, but how well do your suppliers understand what you are trying to communicate. When communicating with Chinese Vendors, keep it simple and clear. Make sure to avoid expressions, if you don’t think you are using expressions, double check your correspondence. You might realize you are using many expressions. I’ve often seen e-mails using phrases like “touching base”, or “knock it out of the park”, “take one for the team”, or “kill two birds with one stone”. When dealing with all foreign countries, they are not likely to understand this use of the English Language, especially when literally translated, they might think you are crazy or worse, looking how to kill birds. I prefer short, concise, very easy language and bullet points or numbered questions can help. Remember; keep it simple to avoid confusion. Pretend like you are speaking to little children, you can be effective without complex words and strange expressions. You likely don’t speak their language, so be patient, their English is better than your Mandarin.
Like many cultures, it’s important to understand some of the cultural and geographical differences in dealing with China. First and foremost, they are literally operating anywhere from 11-15 Hours ahead of U.S. time zones. When we’re getting ready to end our day, they are just starting up. Be ready for late night e-mails. It’s best to set up systems and processes in order to limit the late night communications, but don’t underestimate the need to communicate in real time. If the communication is not clear, you can lose 24 hours waiting on overnight replies if you are only checking e-mails during normal business hours. It’s a good idea to establish late night (U.S. Time) communications with your vendor and let them know that you expect communication during this time to have nearly live correspondence. Europe will also be competing for this same communication window before there day ends, so it’s important to make it clear when you expect communications with the vendor. It’s also best to correspond with e-mail. Phone conversation can be confusing and then there is no record of the conversations.
Unique to China
China has become an enormous trade partner with the United States. According to U.S. Census, they are currently the number 1 country for imports to the U.S., with over $425 Billion in imports from China. http://www.census.gov/foreign-trade/Press-Release/current_press_release/ The Chinese Government has had a large influence on the development and growth of Exports from China. The Chinese Government has helped manufacturers in the form of subsidies and tax discounts. Tax discounts have historically been very substantial. From research, due to these policies, it has been found that over 1/3 of Chinese Manufacturers export at least 90% of their products overseas. (http://cep.lse.ac.uk/pubs/download/cp396.pdf ) It’s important to discuss the Export Tax Incentives with your vendor. Sometimes these incentives get changed and it can ultimately affect your pricing.
Know the Chinese Holidays! When dealing with China, you need to be aware of the various holidays that can affect your business. The Chinese New Year is perhaps the most important, most businesses completely shut down during this time period and workers are typically gone for about a week. Chinese New Year is typically around late January to Early February depending on the Chinese Calendar. Furthermore, it has been my experience that this is also the time where many manufacturers lose workers. Many workers travel to inland locations to visit family and either never come back or simply make changes. This can create production delays/problems. It’s important to manage your supply chain around these dates and expect delays. Also be aware, steamship lines now have a special peak season surcharge related around Chinese New Year.
It has also been my experience with the Chinese that they are eager to tell you what you want to hear and they will not tell you “no” or advise you of any problems. You may see this from everything from Ship Ready Dates to Quality Issues. Working with International Forwarders, the Chinese Manufactures are constantly blaming the Consignee’s Chosen Freight Forwarder for being late, typically never admitting they did not have the product ready in time but choosing to blame the forwarder for not picking up. Also be aware that quality standards may be a little bit different from what U.S. consumers may accept. It’s important to set up Quality Standards and hold the vendor accountable.
Where to go for help
Contact C.L.O. Company today to help you navigate and establish your supply chain in China. With highly qualified logistics and supply chain professionals we can make sure that you create a competitive advantage over your competition and help you to focus on your core business while we take care of your international logistics and supply chain needs. Flexible and Lean, call today for a custom solution.
www.clocompany.com Phone: +1-512-299-1296 vance.ecklund@clocompany.com