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Sea freight shipping from China can be perceived as a major hassle when importing products, though as a professional in international trade, I can state with confidence that sea freight and shipping is not what should keep you awake at night.
While the process is straightforward, and part of an established and functional international system, the learning curve can be pretty steep. Incoterms, FCL, LCL, Bill of Lading…….. the terminology can be discouraging just by itself. As well as that, most people in the industry can barely explain in plain English how the ocean freight process works from A to Z.
Keep reading, and learn how ocean freight works when shipping from China. In this article, we cover everything from shipping costs and insurances, to incoterms, FCL and LCL shipping.
Incoterms are international standard commercial terms ( codes ) that dictates when, where and how cargo shall be transferred between the supplier and the importer.
For example, FOB ( Free on Board ) includes transportation from the factory to the port of departure ( Hong Kong for example ). In addition, FOB also includes all export procedures, which are required to ensure that the cargo can be legally exported. From the port of departure, the buyer / importer must arrange forwarding to the final destination.
Alternatively DAP ( Delivered at Place ) includes shipping from the factory in China to a specified address overseas. Such as your office or warehouse.
When obtaining a quote from a supplier, you must always specify the preferred incoterm, taking particular care to analyse freight costs per incoterm against unit costs . The unit price for FOB Hong Kong is, for example, lower than a unit price based on DAP Los Angeles.
FCL and LCL Shipping
FCL is also most cost effective freight method available if counted by cost per volumetric unit and weight unit,
however many smaller buyers don’t buy full container loads.
Air freight is often a viable solution for importing smaller volumes, however some shipments are stuck in the twilight zone between air freight and FCL cost viability.
The solution spells LCL, or Less (than) Container Load. Basically, LCL is shared container freight. Cargo from multiple buyers is shipped in the same container.
The freight cost per volumetric unit is a little higher than FCL shipping as the shipping companies must factor in administrative fees that are fixed on a per consignee basis.
Insurance is never included in any sales or shipping quote unless specified by the shipping term. For example, 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 relatively inexpensive and only covers the value of the cargo, in case of damage during transportation. It will not cover lost sales, product development costs or consequential loss.
Shipping and other Lead Times
The port to port lead time depends on the distance. Below follows a brief overview:
Hong Kong – Dublin / Cork / Belfast: 35 days
However, keep in mind that it can take 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.
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’
In case you decide to import full container loads you have four different container volume options:
1. FCL 20’’ (Volume: 33.2 cbm)
2. FCL 40’’ (Volume: 67.7 cbm)
3. FCL 40’’ HQ (Volume: 76.3 cbm)
4. FCL 45’’ HQ (Volume: 85.9 cbm)
The container volume may differ slightly between different shipping companies and the volumes above are valid for Maersk containers. However, the difference is very small (+/-
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.
Your cargo must be sufficiently protected from the dusty factory floor to a damp warehouse in Shanghai and finally stacked in a container at sea 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.
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.
Also remember, there’s more to export packaging than protection. There are various export packaging regulations to take into consideration, such as ISPM 15 and Lithium battery restrictions.
‘Should we get a Freight Forwarder or let the supplier manage the process?’
You basically have two options, either the supplier administers the shipping process, or you do it via a freight forwarder.
Letting the supplier administer the shipping process gives you less transparency. You don’t select the shipping line, and you don’t know if the supplier quotes the actual market price for the ocean freight and other charges at origin.
In fact, Chinese suppliers / sellers often do add a few hundred dollars on top of the shipping fee.
In most cases, the buyer is far better off working directly with a reputable freight forwarder in their own country.
Forwarders are normally part of international network, but many have their own offices in major Chinese port cities, such as Shanghai and Hong Kong and will normally offer a wide range of shipping services, including FCL, LCL, Air Freight and Customs services. In addition, they provide you with a designated contact person that keeps you informed of the shipments progress and answers your questions. That said, most people who work in logistics expect the Importer to under the procedures.
‘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 may need to cover the cost of export clearance from China, depending on the incoterms under which the contact of sale is based.
‘What happens after the cargo arrives in the port of destination?’
You will be notified a few days before the arrival of the shipment at the destination port by either the shipping line or your freight forwarder. 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 haulier / road freight operator to load it on a truck and deliver it to a specific location. It’s no more difficult 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 the its important to remember that upon delivery of your container you can expect to have somewhere between 30 minutes to an hour to unload the cargo. Beyond that, the freight forwarder / haulier 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, follow the following process:
1. Take photos 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 and also your forwarder / carrier / shipping line.
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 its suggested that you ask your supplier for a copy of the sea freight insurance policy before the cargo is shipped, in which case you’ll know who to contact in case your cargo would be damaged during the transportation.
In addition, it does happen that suppliers fails 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 and 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.
a. Bill of Lading
The main freight document issued by the shipping line or NVOCC that specifies the shipping company, exporting company (seller), consignee (buyer), products, volume and incoterm.
The Bill of Lading is mandatory when shipping from China and shall be delivered (along with Commercial invoice and the Packing list) to the buyer within 2 weeks from the shipment date.
b. Commercial Invoice
A document specifying the order value, types of products and the details of the consignee. This document is used by the forwarder or customs broker for customs clearance and calculation of import duties and other taxes ( eg Value added tax ).
The Commercial Invoice is mandatory and shall be delivered together with the Bill of lading. Also double check that the declared value is correct.
c. Packing list
A document specifying the volume, different types of products and quantity per type of product. The Packing List is mandatory and should be delivered together with the Bill of Lading.
d. Certificate of Origin / Form A / EUR1 / A.TR
A document specifying the origin of the raw material and/or the products. This document may be used to determine the import duty rate ( some countries enjoy preferential import duties with preferential trading partner countries ), but also for statistics and enforcement of embargoes.
Normally, an Import license is not required in the European Union and other developed markets.
There are, however, a few exceptions:
Most products are regulated in 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.
Sea Freight Related Costs
Shipping from China involves a multitude of different fees. The cost is closely related to the selected incoterm. Below there is listed 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 & Terminal Handling Charges (Included in DAT)
Customs Clearance Fees
Custom Duties & Other Import Taxes (i.e. VAT in the European Union)
Transportation From the Port of Destination