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Whether you are a first-time importer or a seasoned pro, understanding these common mistakes and how to avoid them could save you a lot of time and money.
Many importers fail to ask for the proper Incoterms while negotiating a contract for sale. If you do not ask for a specific Incoterm, your supplier will most likely quote you an Ex Works (EXW) term. That means you will be responsible for all costs of transportation, cargo insurance, and customs clearances in both the county of export as well as the U.S. Buyers should, at a minimum, ask for an FOB term. Better yet, become familiar with all the Incoterms in order to protect your purchase and lower your landed price.
Many importers naively believe that when their supplier arranges their shipments, the supplier is pre-paying all the charges into the U.S. The unsuspecting importer is then hit with a host of local charges. By working with an experienced freight forwarder, the importer will know in advance the true landed price.
For shipments weighing less than 330 pounds, it is generally less expensive to ship via air. Importers should be asking their logistics partner or supplier to provide quotes for both air and ocean options when arranging small shipments. A true comparison might just show that the costs of exam, forklifts, and local devanning with ocean shipments will often make the air option less expensive.
A Customs Bond (sometimes called a Surety Bond) is an insurance policy that assures U.S. Customs & Border Protection (CBP) that the importer will fulfill any financial responsibilities for Customs duties, penalties, and other obligations. Customs Bonds which sufficiently covers potential duties, taxes, and fees are required for all import entries valued at $2,500 or more.
Importers who expect to have multiple shipments within a twelve month period may save money by purchasing a Continuous Bond instead of a Single Entry Bond.
Many shippers try to save a little money by not insuring their cargo, but statistics show that one ship sinks every day and $30 billion in cargo theft occurs every year. There is also the potential for loss or damage to your cargo due to the perils of extreme weather, rough handling, and many other unforeseen occurrences. Should you decline insurance coverage for your shipment, you are not only taking the risk that you will not be able to seek repayment for your lost or damaged shipment, but you would also have to pay more for replacement goods.
For others, there is a common misconception that their goods are automatically covered against damage, loss, or theft by the carrier (steamship line, airline, or trucking company). Carriers offer limited liability coverage in order to deliver competitive rates, which are limited to $500 per container for steamship lines, $0.50 per pound for domestic airlines and truckers, and $9.07 per pound for international air carriers.
Commercial invoices are used by CBP to determine admissibility, classification, and valuation for all goods entering the U.S. It is the importer’s responsibility to ensure invoices prepared by their vendors are complete, accurate, and compliant. Review your commercial invoices to ensure they adhere to the following requirements:
Do you know where your imports are coming from? Did you know that the country of origin may not be the same as the country of purchase? Determining the proper country of origin is a significant and growing challenge for international trade. In today’s global economy, manufacturers are souring materials and components from all around the world, and it may be more difficult than you think to determine the COO for Customs purposes.
So how can you know that the country of origin is correct? Depending on the complexity of your products, you may choose to visit your supplier to observe their manufacturing process. If a site visit is not feasible, investigate the country of origin of the components and raw materials which make up your product, or compare the purchasing, invoicing, and shipping records with the product itself. When in doubt, defer to CBP, who is authorized to issue country of origin determinations to trade and interested parties. The process for requesting a determination are detailed under 19 CFR §177.
Be aware that CBP is ever alert to country of origin marking violations and frequently imposes large criminal and civil penalties, whether the for violations where unintentional or not.
The Harmonized Tariff Schedule determines the duty rate for your imported products. Make sure you are using the correct code so that your import process runs smoothly and you are not overpaying or underpaying Customs duties and taxes.
There are many ways to determine the correct tariff codes, some more reliable than others:
If you are unsure which tariff code to use, a member of OCEANAIR’s Customs Brokerage Department would be happy to assist you in determining the proper classification.
Importers are required to declare the legally correct value of their imported goods to Customs, since the bulk of import tariffs are assessed based upon the value of the goods. Be sure to calculate any deductions or additions and support any adjustments with the proper documentation at the time of entry.
There are a number of import scenarios where value may easily be under-reported, including:
China is a “first to file” country, which means that the first company or individual to file a patent, trademark, or copyright in China gets it – even if you have been manufacturing your product in China for years. If another company registers the trademark first, they have the right to stop your shipment because it violates their trademark. Remember to also register the copyright in catalogs, packaging, and promotional materials.
Importing products from China has gotten a bit easier, thanks to the internet! You are going to find a handful of Chinese suppliers online through their websites and in marketplaces, such as Alibaba and AliExpress.
But, if it is your first time to import products from China, it is easy to commit several mistakes. While this can be a learning process for you, it’s still better to recognize these mistakes ahead to avoid serious problems in the future.
Let’s take a look at the most common mistakes that new importers make:
I. Not Appreciating Cultural Differences
For first-time importers, a common mistake they make is not considering cultural differences. Are you from the US, Germany, or Australia? Have you been to China and meet some of the people there? If you haven’t, then it’s important that you take note of this. For a lot of people, even living in China for more than five years, they still discover some surprising cultural customs.
Not Appreciating Cultural Differences
If you have made business with before, it’s important to know that cultural differences are not only essential to social settings. There are cultural differences as well when conducting businesses.
When you talk to a Chinese sales representative, keep in mind that they likely don’t have the same experiences as you and you don’t share a similar understanding of business relationships. So, make sure to be more encouraging, understanding, and positive when talking to Chinese suppliers. If they cannot fully understand what you are trying to say, be patient and explain it to them in a different and simpler manner.
There is a high chance that the sales rep doesn’t work in the factory area and has not seen your product at all. Take note of this when you have issues with your product. While it most likely takes a lot of time and explaining for them to understand your point, you must be patient and explain your product requirements very clearly. Never forget that they are also humans like you and can get things wrong sometimes.
II. Rushing the Supplier
If it is your first time to import products from China, it can be easy to rush the purchasing process so you can start selling right away. It’s very important to remember that impatience can result in failure, from comprehensive research to making the wrong choice of supplier.
It’s easy to get tempted when a supplier offers a fast delivery time or agreed to a lower MOQ. If the supplier agrees to these things, you have to consider what they had to do in order to meet these. There’s even a chance that they are not busy with orders, which there might be a very good reason for this.
Informing the supplier that your order is very urgent might also take away their incentive for them to provide you the most ideal price to win your partnership. Determining a great supplier and product, making sure that you have done enough research on the import process, and dealing appropriately with logistics requirements can take a lot of time so make sure to do everything right!
III. Overestimating the Profit
Overestimating the profit is a common mistake many first-time importers make. Working out the actual profit margin is a more complex job to do than most people anticipate. There are a lot of things you need to consider apart from the costs of the products and the expenses of importing these products.
Even if you have already factored all the expected expenses properly, such as import taxes, storage, shipping, seller’s fees, packaging, professional photography and copywriting, domestic courier costs, packing labor, marketing, quality control, business running costs, customer service, there will still be some unexpected expenses that could come up. A great example is random inspections from customs.
It is essential that you also create a contingency plan into your profit margin for the goods that arrive that meet your expectations and custom returns.
IV. Setting Expectations That Are Not Realistic
There may be a difference between what you were expecting and the quality of the product being provided. When importing from China, some factories find a certain quality acceptable and may not meet what you are offering to your customers.
You can minimize this issue by setting realistic expectations and by being very clear from the start about what your requirements and expectations are. Another important move is to create a contingency for quality control into your profit calculations so that you can plan and account for those products that are not quite perfect for your standards.
It’s also important to take note that although you cannot visit the factory firsthand, you can arrange a third-party company to do so. You can find a variety of companies online that do different quality control inspections and audits for all the stages in the production and dispatch processes.
V. Ordering Too Small
When it’s your first time to import from China, it’s vital that you understand the concept of “economies of scale.” To put it simply, the bigger your order will be, the better the deal you will have. For instance, the number of products you are planning to order can have an effect on the service and quote level your supplier will offer you. You will discover as well that the shipping quantity will have an impact on your logistics costs.
But, take note that ordering more than you can sell or use realistically can put your funds to waste. So, it can be quite a challenge to find that balance. Working on your ideal quantity is a must before ordering so you can maximize your profit margin.
These are the mistakes that you have to do when importing products from China. Learning and avoiding these mistakes can greatly help you in finding the best supplier that offers the best products.
How to circumvent the pitfalls that can derail your international trade goals Global trade grew by 13.5 percent in 2010, marking the fastest-ever expansion in global commerce, according to the World Trade Organization. That represents a lot of transactions, and a lot of opportunities for things to go wrong.
With import and export trade volumes rising every year, companies are bound to make importing mistakes – it’s just the nature of the game. The good news is that with the right information and support, you can play that game successfully.
Here are five mistakes that importers make frequently, and how to avoid falling into the same traps:
Often, Importers skim over their buying terms too quickly, and neglect to ask questions about the fine print. Take this approach and you’ll not only leave money on the table when cutting deals, but you’ll also miss out on opportunities to increase your bottom line profits. Consider the company that buys Free On Board (FOB) port of export, which specifies that the Seller is responsible for all costs incurred from the point the merchandise leaves the factory door, until the time it’s loaded on the vessel or aircraft.
Typically, costs like trucking between the factory and the ocean port, terminal handling charges, export customs clearance and documentation are all bundled up in the FOB port unit cost, and therefore all contribute to the “dutiable value” for which your U.S.
Customs clearance costs are based. One legal cost-cutting technique requires the Import/Buyer to change those terms from FOB to Ex Works (which means that title passes once the buyer arranges pick up of the goods from vendor’s factory or warehouse).
Make that switch and the truckload filled with $10 widgets purchased FOB Hong Kong, versus one filled with $9.00 widgets purchased Ex Works, would save you about 15 cents per widget in U.S. duties. The savings can add up fast if you’re buying several million widgets per year, and all because you reviewed and revised the buying terms.
You’re accountable to your customers, and you do everything you can to meet their deadlines, right? Well, your vendors should be held to the same standards, and should receive downstream consequences for not meeting their shipping windows. I’ve seen too many companies remain liberal with their cargo ready dates, when what they really should be asking is: “Exactly when will my shipment arrive?” To track performance, you can use vendor score-carding combined with bonuses and consequences. Other effective vendor measurements include order fulfillment accuracy (which can be accomplished by comparing purchase orders placed versus purchase orders shipped); compliance with carton requirements, packaging quality and labeling; and documentation timeliness, the latter of which has important ramifications as it relates to ISF and AMS regulations.
Evaluate your vendors, hold them accountable and consider the opportunities that you could create (smaller orders, inventory reduction, and so forth) if you knew – with a higher level of certainty – when the goods would arrive.
Guesswork leads to unpredictable situations, and unpredictability leads to cost overruns, especially when it comes to insurance coverage. Assuming that an International Logistics provider carries insurance that will give you full replacement value for your cargo if it’s damaged, stolen or lost overboard, is a “major league” false assumption most importers make. What you may not realize is that all shipping companies (from the smallest to the largest) have a limited liability of coverage, so the value of goods they transport is capped at a certain amount (be it air or ocean, the limits of liability are dictated by international conventions, and not the individual carriers). Guessing that your $500,000 in consumer electronics cargo is safe because your logistics provider’s policy will cover its replacement in case of theft is a bad idea. Without careful review, these situations can turn into nasty litigation, and often leave importers holding the bag. Avoid this mistake by periodically reviewing both your and your logistics provider’s insurance coverage, and find out what is and isn’t covered (is it replacement cost or selling cost?). Know your actual liability before signing on the dotted line.
Here’s another maritime law that tends to get overlooked, but that can hit your bottom line hard in case of an emergency at sea. The General Average Clause states that if when an intentional sacrifice of property is made onboard ship to avoid a common peril, or when an intentional expenditure is made (also to avoid a common peril), all parties must contribute money on a pro rata basis. Maybe the ship was run aground on purpose to avoid sinking, or perhaps the cargo was jettisoned in a storm that would have otherwise destroyed the vessel. Whatever the scenario, responsible parties include the vessel’s owner, the charterer, and any other interested parties (in this case, that’s you). You won’t be able to skirt this ancient law, so don’t ignore it.
The 9/11 terrorist attacks changed the way we do global business, with the Customs Trade Partnership Against Terrorism (C-TPAT) being just one of many regulatory challenges that companies are grappling with. Intent on building cooperative relationships that “strengthen and improve overall international supply chain and U.S. border security,” C-TPAT asks businesses to ensure the integrity of their security practices and communicate and verify the security guidelines of their business partners within the supply chain. The program applies to companies of all sizes, but is often looked upon as a nuisance and a financial burden. As a result, companies postpone or simply ignore participation. While the tangible benefits that C-TPAT delivers businesses has been debated, both the cost and administration of membership is a worthwhile investment in your company’s future. It just makes good sense for importers to get onboard with C-TPAT, and to take it seriously.