Chapter 6: How to Order Your First Container

This chapter outlines getting a good deal on shipping your container, processing international payment, finding a customs broker, and determining import duties.

Assume that you went to the Shanghai tradeshow and got some confidential, wholesale pricelists. Now what?

First, remember that quoted prices are likely Freight On Board (FOB). FOB is a price structure which includes loading of product into a container and making the container ready to ship. Depending on the manufacturer, their FOB price may or may not include container transportation between the factory and the local port. The term used by manufacturers in this situation is “ex works.” Ex means “from,” and works means “factory.” Even though the company may load the container for free at their factory, if things go bad between you and the company and the quote is ex works, the company could charge you a loading fee. Of course, your effort is reduced if the price quoted gets the container to the port.

To make things even easier, ask for a Cost Insurance Freight (CIF) quote. As the title suggests, this quotation includes not only the cost (the “FOB price”), but also insurance and container freight charges across the ocean to your home port.

Also, in most situations getting a quote (and paying for the merchandise) in U.S.dollars is to your advantage. Despite the buy-sell currency rates you see in the newspapers, your rates will be less advantageous. For instance, if the Yen to Dollar ratio is 115, your effective rate will be closer to 105. This hurts your bottom line. If the seller will quote in dollars and accepts dollar transfers, then the currency risk is really on their shoulders.

If the manufacturer offers and you accept a CIF quotation, your involvement is pretty much limited to when the container arrives in the destination port. In a CIF scenario, here are a few additional recommendations:

Insure your cargo for 110% of its FOB value.
Have the documentation expedited to you once the container has disembarked.
Ask for two copies of the original Bill of Lading.

The documentation sent to you will include: a) Invoice; b) Bill of Lading; and c) proof of insurance. You will need to send the invoice and original Bill of Lading to your customs broker. I discuss the customs broker later in this chapter, but for now, realize that your broker is U.S.-based and helps get your container through customs. File your proof of insurance certificate in a safe place. I once had a container of merchandise arrive inexplicably scratched—and the insurance claim was easy. I hired a repairman, then faxes his bill to the insurance company, and was quickly reimbursed.

Finding a Company To Transport Your Container – How to Get a Good Deal

As I described above, selecting a CIF quote is easier than accepting the FOB price and then arranging for your own container shipping. However, a lower total cost is typically found by arranging for your own container shipping[1]. For many of you, this means getting third-party quotes from Shanghai, China to Long Beach, California. By the way, Long Beach and Los Angeles are separate ports, but treated virtually the same both by the companies quoting you a price, and by your customs broker charging for the short “drayage” or container transport distance from port to warehouse.

Here is my recommended starting place for getting container quotes:

Start at Fedex.com and go to Freight Services. Click on the Ocean Freight tab. From their, you can request a quote.
Do a Google search of “freight forwarder.” Based on the search results, get container shipping quotes from a number of vendors. Remember that vendors are much more willing to quote businesses than individuals.
Visit Hanjin Shipping at www.hanjin.com. Hanjin is a market leader in this space.
For an instant quote from a portal, see www.freight-calculator.com

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Here are some representative quotes I was able to procure in Summer and Fall 2004. Unless noted, these quotes include loading charges, the freight from Shanghai to Long Beach itself, and a few other fees. The quotes are listed in no particular order and do not come with any recommendation. Most companies have difficulty responding to your e-mail and online queries, and therefore end up requiring a phone call to get a quote.

Source	Details
www.freightforwarding.com	Quoted $2,210 for a full 20-foot container and $2865 for a full 40-foot container
FedEx Trade Networks	Quoted $2,121 for a full 20-foot container
www.allisonshipping.com	Quoted $1,700 for a full 20-foot container
www.maersksealand.com	Quoted $1,850 for a full 2-foot container
3L-Leemark Logistics	Quoted $1,850 for a full 20-foot container
www.airseaint.com	Quoted $1,800 for a full 20-foot container
www.rapidfreightinc.com	Quoted $635 for freight (not including loading charge)

Twenty foot containers are the smaller size and the most logical place to start. Shipping overhead per unit is obviously lower with a forty-foot container, which tends to hold about 90% more than a 20 foot container; however, a 40-foot container holds so much inventory for a newly minted small business, unless your business is well capitalized, I would consider selecting the 20 foot container size first. As a side note, container transport to Southern California generally takes about 10 days from Osaka Japan; about 19 days from Shanghai China; and about 28 days from Manila Philippines.

Also, an additional option is to ship less than a full-container load, alternatively known as Less-than Container Loads (LCL). In other words, you would share container space with others. The advantages and disadvantages of LCL are obvious. One quote I received, for reference only, was $1215 for 10,000 pounds of toys (about 12.5 cubic meters of space in the container).[2] Based on several sources, a standard 20-foot container holds about 49,000 lbs. Also, be aware that containers usually cost the same to ship, whether loaded with 1,000 lbs of feathers or 49,000 pounds of bricks. In other words, weight is immaterial to the cost of shipping.

If you are interested in shipping a container from the U.S. to a foreign destination, you can see rates online at www.discount-shipping.net.

Paying For The Container

You can pay in any number of ways. The most common methods of payment are international bank wire and international Letter of Credit. Although fees may differ from bank to bank, an international bank wire generally costs about $42. Note that your supplier may refer to a bank wire as a T/T (telegraphic transfer) or electronic transfer. The big advantage is speed. You authorize the transfer at your bank, and the money arrives in a few days. Your bank will want the suppliers’ SWIFT information, which is a simple international bank identification code. The biggest downfall is that your money could be gone, if the seller goes out of business before shipping the goods.

One way to have some level of protection is to use an international letter of credit (often called an L/C). This is my recommended method for your first container order, until you build up some confidence in and a relationship with your supplier. Despite what the ivory-tower textbooks say, international letters of credit are a pain. Here’s the easiest and safest way to process letters of credit:

First, give yourself plenty of time. Opening an L/C takes at least 10 business days. Second, transfer the exact amount needed into a separate bank account. Use that account number on the L/C application with your bank. When the bank issues the L/C, it is unusually common for your entire account balance to be “frozen” until the L/C is executed, even though only the amount of the L/C is supposed to be frozen. Don’t forget to consider the amount of the L/C, which is commonly around $425[3]. This amount becomes egregious over time, and will eventually encourage you to either use T/T or seek some kind of trade credit with your supplier.

L/Cs are not entirely immune to fraud. I’ve heard of a situation where a Japanese supplier sent a container full of rocks to a Toronto buyer. Once a container clears customs, the L/C is paid by the bank—but in this case, the container was shipped by rail all the way from Vancouver to Toronto—providing more than enough time for the supplier to disappear.

One other option you might be presented with is to pay cash for a portion of your product. Here’s how it works: a) fly to Asia on an inexpensive e-fare; b) carry around $20,000 in cash; c) meet a company representative, give them the cash, have a beer, and return home. Then, your invoice is reduced by $20,000, and you pay less import duties (which are assessed on your original invoice). The problem here is three-fold: first, this is illegal. Second, the math doesn’t work in your favor. For instance, this little “mileage run” only saves you around $1,000 in duties[4]. Third, you now have to lie about cost of goods sold, or your taxes will be much higher. Avoid this transaction—the benefits do not match the costs.

To summarize, try to get CIF quotes and pay in U.S. dollars. I’d recommend using an international letter of credit until you are comfortable with your supplier(s), and then pay with T/T.

Contact a Customs brokers

The role of a customs broker is to get your container through customs, and to assist getting your container picked up from the port and delivered to your warehouse. Customs brokers are paid a small percentage of the invoice for their services.

For a few contacts and pricing on services, get a member of the National Customs Brokers & Forwarders Association of America, Inc. See http://www.ncbfaa.org/. I can also recommend, from personal experience, BJ Customs Brokerage Company[5].

The process of picking up your container from the port and transporting the container to your warehouse is called “drayage.” A competitive price for this service, assuming your container only has to go from Long Beach to a local warehouse, is $125.

Import duties

You may have to pay the U.S. government a “duty” on the product you’re importing. For illustration, if you import acoustic pianos, whether new or used, the import duty rate is 4.7%. This percentage is tacked on to your invoice total. For this reason, your customs broker gets a detailed copy of your invoice; pays the duties to the government; then invoices you for the duties, along with their service fees.

For the latest information on both duties specifically and customs generally, see the official U.S. governmental website at www.customs.ustreas.gov. To find out you’re your product’s import duty or import tariff is, do a Google search for the latest “United States Harmonized Tariff Schedule.” Since import tariffs are one of the largest sources of revenue for the government, there is little incentive to classify your product correctly (in the lowest bracket). Also, customs brokers can be remarkably unknowledgeable about the duties applicable to your product. This one is up to you.

Additionally, depending on the number of containers you import, you could save significantly by paying about $500 for a 12-month customs bond. Otherwise, each container you import will have a certain “bond” charge assessed through the customs broker. FedEx was able to assist me in getting my own customs bond, although your customs broker could probably also assist with this bond purchase….or see a specialist at http://traderiskguaranty.com.

By now your head is swimming. You’re probably thinking “I’ll just skip this part and by from Global Sources or big lots on eBay and then resell them.” The choice is obviously yours, but remember that you are going to be competing against businesses with more money than you. There is a magical combination of selling large items, imported without layers of distributors, importers and middlemen. Of necessity you become something of a logistics expert, while simultaneously raising barriers to competitors. This is rare and wonderful and key to profitability.

The process of finding sellers in China can take time; therefore, let’s now work simultaneously on your pricing strategy and getting your website up—subjects we now turn to in Chapter 7.

[1]Depending on volume of containers you import, you could save significantly by paying about $500 for a 12-month customs bond. Otherwise, each container you import will have a certain “bond” charge assessed through the customs broker. FedEx was able to assist me with getting my own customs bond.

[2]Quote from Simon Wu, simon@gafgof.com.

[3]This amount becomes egregious over time, and will eventually encourage you to either use T/T or seek some kind of trade credit with your supplier.

[4]$20,000 invoice discount * 4.7% duty = $940.

[5]BJ Customs Brokerage is located at 5730 West Manchester Avenue, Los Angeles, CA 90045. Alternatively, you can call (310) 337-1628 and ask for Johnny Lee.