I recently met with Sandra Nguyen Thanh, who works for Karl Gross Logistics, a freight forwarding and logistics company with offices in Europe and in China.
Sandra was kind enough to respond to my questions. Here are some of the basics every importer should understand about freight forwarding.
Q: What is the most common incoterm for sea freight? And for air freight?
There is no one answer to this. The choice of an incoterm is a crucial question in international trade and depends on what the parties involved negotiate.
Key questions are: Which party wants to have the decision on ways and means of transportation in its hands, up to how far along the way of transport (including bearing the costs)? And which party is taking the risk for the cargo, up to how far along the transport way (including the costs involved)?
Terms we often come across for exports ex China are FOB – Free on Board, CFR – Cost and Freight and DAP – Delivered at Place.
Q: Let’s say I buy some products (under EXW terms) in China for the first time, and I need to get them physically in my company’s warehouse in Germany. What can a freight forwarder do to help me?
The freight forwarder can and should be your “consulting, connecting and organizing party”. He should step into a dialog with you. One basic question is of course: When do you need your goods to arrive in your warehouse in Germany?
Yet, there are numerous other dimensions involved. What we do is find out what is important to you. What are your individual needs and requirements, what are the cargo specific requirements? Then we work out an individual transport solution. For us, this includes more than just organizing that your goods get from A to B safely. That is, we may give assistance on what documents are needed and how they need to made up e.g. for smooth customs clearance. Depending on what you plan on doing with your products in Germany, we may show you options for fiscal clearance such as fiscal representation which might be attractive for you in terms of enhanced cash flow.
Another important point is: we take care of a good part of communication for you! We step into contact with your supplier to find out when your cargo is ready for shipment and keep you updated all the while.
In short: a freight forwarder can and should save you time and money.
[Renaud’s note: see more details about this in the comments section].
Q: Let’s say I want the products to be shipped by sea. They only represent 8 cubic meters, and they are not dense (the limit will be their weight). What is the appropriate manner to bring them from the Chinese port to my country’s port?
From what you have sketched here, we would recommend to ship your cargo in a consolidated container (LCL). It is the best option if there an LCL connection which suits your demands and your cargo, and if it is more cost-effective than loading your cargo into a container reserved just for you (FCL).
Q: How are import duties calculated? Can my freight forwarder look up the percentage to pay, for me? And is this percentage calculated on the FOB price?
1. Yes: If you provide us with the HS Code(s) of your commodity/ies, we can look up the percentage of import duties you have to pay in your country of destination.
2. No: The percentage is not calculated on the FOB price. It is calculated as follows: (Cargo Value + Transport Charges) x duty percentage.
Q: Let’s say the supplier ships the goods out by sea, under FOB terms. But he doesn’t send the original documents (commercial invoice, packing list, certificate of origin, bill of lading, and any other required form) in time. What are the consequences for the buyer?
Accurate and complete documentation is crucial. If this is not given, you may have to cope with delays, fines or even loss of cargo.
That is why close communication with all parties involved is so important. Both parties, buyer and supplier need to contribute in order to allow for smooth international transportation. The freight forwarder should be the connecting party in this.
You can contact Sandra by sending her an email: sandra.nguyen [at] karlgross.com.cn
There’s a hidden conundrum behind Renaud’s question about the ex-works shipment that Sandra did not address. I would be interested in hearing her elaborate on this problem, so here it is:
A lot of Chinese suppliers do not have export permits. Instead they pay a fee to a third-party company with an export permit and in exchange they are allowed to put that company’s name on the commercial docs. I don’t know much about Chinese law, but I have a feeling this practice could be considered fraud. Nevertheless it is commonplace.
So let’s say an importer negotiates ex-works terms with a supplier that does not have an export permit. Would a company like Karl Gross be able to able to get the shipment past Chinese customs legally? If so, who would appear on record as the exporter. Given that the supplier is not permitted to export under Chinese law.
I would love to hear Sandra’s answer to this question.
The forwarder can also buy export papers for their customer. The forwarder would charge a fee for that. Note the differences of shipments from Southern China and the rest.
Yes, things actually goes like that, but I know one forwarder, China Freight.
The import and export issues go quite smoothly upon their experts.
I am based in Nepal and have been cheated by a forwarding company in China. I traded in FOB terms & the freight was paid by my supplier on my behalf to my nominated forwarder. However, the forwarder turned out to be a cheat and after receiving the agreed freight of $ 1300, they have now demanded $ 3200 more to release the B/L. Infact, later on I found on the internet that they are regularly defrauding clients.
The B/L is still with the forwarder and it is the linear’s B/L. What should I do? What are my & my shippers’ rights?
Renaud Anjoran says
Why did you ask your supplier to pay the forwarder in full, if you paid in FOB terms??
If the supplier paid “on the buyer’s behalf”, then it was paid by the buyer, and the supplier just acted as agent. It is like if I send my son with rent money to give to the landlord .. would you say that my son paid my rent? Of course not.
Thank you for your input and raising this question.
In fact, in order to export products from China a supplier must either have a dedicated export permit (license) of their own or must “outsource” this process to an Import-Export company licensed to export any (non-restricted) product. The Import-Export company would accordingly appear on the export documents for the customs clearance. This is a normal procedure and totally legitimate in China.
Reasons why some suppliers prefer to use an Import-Export companies may be as follows:
1) They pay agent fee but it saves them labor cost and other costs.
2) Import-Export companies may have beneficial know-how about the market and government regulations. They are professional to settle documents and refund matters.
3) Import-Export companies have regular business so they get the tax refund
faster from the government.
Thanks for the reply, Sandra. I had always thought this system of buying third-party export documents was a black market thing. Good to know it is legitimate.
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Anuj Chordia says
Sandra I have imported zinc and since my payment was through LC I have received Bill of Lading
Instead of zinc I have got stones.When I am contacting the carrier there
response is that the terms of shipment were CY/CY.Not only my BL has all
the details of my cargo but also the weight.There was significant
disparity in the weight as well.Carrier has told me since the weight is
factory stuffed they do not verify the goods nor the weight.As per my
knowledge as per CCAM and GATT guidelines in China the carrier or its
authorised agent is supposed to verify the goods before loading.
Please let me know if this is true
Leave a message…
Sorry to know this, I feel ashamed of this if the shipment was from China. Unfortunately there has an exoneration clause on Bill of Lading, you can take a look: DESCRIPTION OF PACKAGES AND GOODS AS STATED BY SHIPPER SHIPPER’S LOAD STOW AND COUNT SAID TO CONTAIN. Carriers will take no responsiabilty of the goods loaded into the containers. I suggested you to find someone to supervise the loading in future.
Is there a free commodity database website for verification of FOB and Freight values of commodities shipped from China?
Renaud Anjoran says
I don’t think so.
i was cheated by a freight forwarder in china, he provided me a rate and when he received the transfer aftre loading containers approx 8500 USD he ask me to pay 17500 as a delay charges because the money takes time to reach his account, so if we will not pay he will never relkease cargo, and all client push us to release, i’m asking if there is any organisation can help to stop this cheater
Renaud Anjoran says
I don’t know any such organization, unfortunately… Maybe you can contact the consulate of your country in China.
We wanted to sell FOB Shanghai and ask the client in Europe to pay 100 % cash in advance. Now the client proposes to pay 20 % cash deposit and 80 % within 5 days of B/L. Is that safe ?
I thought that with FOB we would need to hand over the original documents with the goods. Or can we keep the originals until the client has paid as they propose ?
Thanks in advance
Renaud Anjoran says
It is safe if you are sure the client will need the products and will not try to play games (such as “give us a discount because of such and such problems”). I would say, 20% is a low deposit.
Yes, you can keep the original documents until the client has paid.
Ryan Turbill says
Forwarders should have well-entrenched connections locally and globally. The network should extend to shipping firms, air freight providers, customs brokers, land transport companies, and other industry players. Choose one who has knowledge of secure warehouse facilities worldwide.