IMPORTERS - Avoid Hidden Costs When Importing From China

[Mia @ Shippo]

At our company (we're freight forwarders), we receive distress calls daily. A lot of these calls are from people that thought they were getting a great bargain having their supplier ship their goods to a UK port (aka CIF/CFR shipping terms) and have ended up being completely ripped off with hidden fees tacked onto their UK invoice. These fees include C.I.S.F. (China Import Service Fees) and they have to be paid in order for customers to get their goods. Unfortunately, at this point, it's too late. So we decided to explain this situation so that importers can avoid it. We're going to keep this brief and to the point, but if you want to read the more detailed post feel free.

The Situation

Essentially, a supplier will offer to get your goods to a UK port of your choice for you - and all you have to pay are the UK charges. The way the arrangement is presented makes it seem as though your first cost will be Port Handling in the UK and then Customs.
A lot of first time importers won't be aware, but this method is actually shipping under CIF / CFR terms.
The process is advertised as being very cheap and easy - but the final result is often stressful and expensive. This is not only annoying, but can be crippling for small businesses who haven't budgeted for hidden costs over 3 times more than they were planning to pay.

Why Are There Hidden Costs?

The hidden costs do not come from the supplier; the supplier probably won't even know about them. There are hidden costs because Chinese freight forwarding companies need to ship cargo to stay in business and will offer their services for an incredibly cheap rate to suppliers to ensure their business. The supplier will charge you for this, pay it and think that's the job done. However, you have to pick up all the costs that the freight forwarding company shaved off. These are forwarded to you on your first UK invoice; due to this, C.I.S.F - China Import Service Fees - are often thought of as remuneration fees.

The issue with CIF/CFR shipping terms is in the money management.

How Can I Avoid Hidden Fees?

With this method, you can't. It's not about having a trustworthy supplier - your supplier isn't the one in control.
To avoid hidden fees, you need to be aware upfront of what all your costs are going to be. Honestly, a number as attractive as the initial $50 your supplier offers you is never going to be true. There are a lot of steps in the shipping process and each one of them is a third party service that will expect to be paid.

This is the process: (In our infographic, we demonstrated this with dollar bills, but let's use asterisks. So far the buyer has paid * - but this is how much the process costs.

1. The supplier packages the goods in the factory. *
   
2. A courier/haulier picks the goods up and takes them to the port. ***
   
3. For shared containers, in a warehouse at the port, the goods are loaded into a container (by hand or forklift) and then the container loaded onto a ship (by crane). *
   
4. A Chinese Export License must be bought to allow the goods to leave China. *
   
5. The goods then need to be declared to Chinese Customs; someone is paid to do this. *
   
6. To ship the goods, official documents need to be raised. This is done for a fee. **
   
7. Once on board the ship, the cost of sea freight is to cover the sea transportation from port to port. *

This are the costs in China, which accrue to ********** while the buyer has only paid *. The process then continues.

1. Now in the UK, the goods are unloaded from the ship (by crane) to be transferred into a warehouse (by truck) where the container is unpacked (by hand or fork-lift). The port and warehouse take care of this, for a fee. **
   
2. The goods then need to be declared to UK Customs by a specialist. *
   
3. Finally, a haulier picks up your goods and delivers them to your chosen location. *

So far the cost for the process is: **************, but John has only paid ***** - so his hidden cost invoice will account for the *'s that haven't been paid yet. This is the most simple way to explain it - the hidden costs are more outstanding costs that have been moved over.

Now that you hopefully understand the process, let us reiterate: there is no way to avoid paying someone to do their job!

You can see all the steps and services needed just to get your goods out of the factory and onto a ship – not to mention across the sea to you. So how could you possibly get all of that for $50? It’s just not possible.

What importers should focus on isn't getting the most unrealistically cheap deal, but the most transparent. That way you can see upfront what your costs are going to be (and from there how to minimise them), decide if you can actually afford to import and be left with no nasty surprises. How to do this?

Use FOB Shipping Terms

To accomplish knowing your costs upfront, we would recommend using FOB shipping terms. FOB is the easiest for first time importers and you'll know all your costs upfront.

This is a very brief overview of the situation, but should be enough to get you informed; we hope that you find this helpful and that you don't make the same mistake. If you want a more detailed explanation, the post is live on the Shippo blog or you can ask us!

(We appreciate that this is a difficult situation to grasp, so our post includes infographics showing the distribution of money, the process and where all the hidden fees accrue, so if you're not quite clear we would recommend looking at the visual representation.)

 

[GraemeL]

Thanks Mia. However, this is already covered here http://www.ukbusinessforums.co.uk/t...if-and-fob-mean-and-the-pros-and-cons.288040/ in the section we recommend all those new to import read.

G