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How to Understand and Save International Freight Costs?

2023-12-27
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How to Understand and Save International Freight Costs?

When engaging in global sourcing from China, accurately calculating freight costs is crucial. A precise calculation of freight expenses ensures that businesses can effectively plan their budgets, and optimize their supply chain operations. However, calculating international freight costs is a complex process influenced by various factors. This may be a challenging endeavor for a beginner or even a professional.

Understanding freight cost components

To calculate international freight charges correctly, it is essential to grasp the fundamental components that contribute to the overall expenses. They typically include:

1. Transportation charges: These charges involve the actual movement of goods, they are influenced by factors such as distance, mode of transport (air, sea, road, or rail), weight, volume, and container type (LCL or FCL).

2. Fuel surcharges: As fuel prices fluctuate, carriers may impose fuel surcharges to account for these changes. These surcharges are often calculated as a percentage of the transportation charges.

3. Duties and customs fees: International shipments are subject to import duties, taxes and customs fees levied by the importing country. Import duties vary based on the nature of the goods, the value, and any applicable trade agreements or preferences.

4. Documentation and administration: Freight costs also include charges associated with document preparation, customs clearance, insurance, handling fees, and other administrative fees.

Determining freight Incoterms

The International Commercial Terms (Incoterms) define the responsibilities of buyers and sellers in international trade transactions. Selecting the appropriate Incoterm is crucial, as it impacts the division of freight costs.

Commonly used Incoterms include EXW (Ex Works), FOB (Free on Board), CIF (Cost, Insurance, and Freight), and DAP (Delivered at Place). By understanding the specific Incoterm agreed upon, it becomes easier to allocate the applicable freight costs accurately.

Gathering relevant information

To calculate freight costs accurately, gathering all relevant information about the shipment is necessary. This includes details such as the origin and destination countries, volume, weight, packaging type, insurance, and any additional services like customs brokerage. Accurate information ensures precise calculations and minimizes unexpected charges.

Selecting the appropriate carrier

Different carriers offer varying rates, transit times, and service levels. Research multiple carriers, and consider their expertise in specific trade lanes, reputation, reliability, and overall cost comparison.

Engaging with freight forwarders can help identify the most suitable carrier based on the specific requirements of the shipment.

Requesting and analyzing quotes

Contact freight forwarders to obtain detailed quotes for the shipment with potential carriers. Provide accurate and comprehensive information to receive precise quotes that reflect the specific requirements.

Analyze the quotes thoroughly, ensure that all relevant charges are included, and any potential exclusions or hidden fees are clarified. This process enables effective cost comparison.

Ways to reduce international freight costs

1. Choose a Chinese freight forwarder

To acquire the best price, you will need to speak with many freight forwarders and arrange for modest test shipments. All of this should be done before choosing which provider to utilize for most of your deliveries.

Operating expenses are cheaper in China. As a result, Chinese freight forwarders can maintain their lean and agile operations. This allows clients to choose the best carrier and route for their shipments at competitive prices.

Chinese forwarders can provide customized services, including consolidation, re-labelling, and repackaging at a lower cost than what would cost at the destination.

When you have products to import from China, it is always cheaper to use a forwarder situated in China. To obtain the best price for a client's unique logistical requirements, local forwarders have the advantage of being on the ground. They can optimize your China supply chain and save you money and time by thoroughly understanding the local network.

2. Reduce the volume by repackaging

In most cases, freight prices are dependent on the volume of the packages. You need to choose a suitable carton to pack your merchandise. If you don't, you'll pay more than you need to.

There is a price to pay for overusing packing materials. It will also add to your shipping costs because of the additional volume.

3. Consolidate the products

Consolidating the products that you transport might be another option to consider. You may mix lesser amounts of various items purchased from several Chinese vendors to generate a larger quantity. Instead of sending each purchase individually, you may consolidate all orders. This will lead to a lower delivery cost in the long run. This is possible if you can utilize the warehouses of your supplier or forwarder.

4. Plan for shipment ahead of time

In business, planning is essential if you want to achieve success the first time. Shipping from China is also affected by this. With a thorough strategy plan, freight forwarders will be able to provide you with the best potential deal.

When sending your items, keep in mind the destination, shipment lead time, routes, shipping type, order size, and the contract terms before making final decisions.

Shipping may be booked even before products are created if sufficient planning is done. Your company's bottom line will gain from a well-thought-out logistics strategy in the long run. Create a long-term shipping strategy by integrating it into all aspects of your organization.

5. Reduce the risk of quality issue

Constant issues with poor quality may be infuriating and costly. Finding quality issues after your products have been delivered is the worst-case scenario.

The costs to ship your products back to China are typically prohibitive, considering the very high tariffs and taxes. You may be forced to have the entire cargo destroyed or trashed in such cases. This is the biggest nightmare for any business. It's very tough and costly to correct any issues in this situation.

If you have to replace the cargo, besides of cost, there is a lot of time and effort required to produce and transport fresh products. As a result, you may run out of goods at your shop, resulting in decreased sales.

To avoid the situation mentioned above, it is important to use adequate quality control and inspection early in the manufacturing process. At the very least, companies selling manufactured-and-shipped goods should take the following methods:

   - It's necessary to keep an eye on the quality of the products throughout the process of manufacturing, even if you're not physically there. You can request that images be taken at various stages of the manufacturing process, so you can double check to avoid any mistakes.

   - Quality checks at various stages are important. If you are unable to receive the photos of each production process, you should try a different way of keeping up with quality control during manufacturing.

   - You can also hire a project manager who can work closely with your manufacturing company at various levels and keep a check on production quality.

6. Check before shipping

When a cargo leaves the manufacturer, it makes sense to examine it before reaching its destination. Suppliers prefer to address faults on-site rather than sending them offshore for repair.

There are methods around the supplier's unwillingness to remedy a defect following an inspection. Pay only after the order is inspected by a trusted third-party inspection agency. In this way, you have more power, and the supplier has an incentive to solve the problems.

Alternatively, you might ask the supplier to do the pre-shipment inspection and send a report to you if you can't afford a third-party inspection firm.

7. Insure your cargo

Cargo insurance is essential for the protection of your merchandise. If you have a comprehensive policy covering the whole shipment, you can rest easy knowing that your items will arrive in one piece. This will provide you peace of mind in any mishaps, such as the merchandise being stolen or damaged.

The freight owner must ensure that the items are insured. Make sure to stay in contact with your freight forwarder and provide them with detailed instructions so that they can adequately cover the value of your cargo. Your freight forwarders may not know how much your shipment is worth, so never assume this.

Keep in mind that the freight is your responsibility and that it might result in substantial losses if you fail to insure it properly. You need to get your cargo insured for its full value so that you can receive your whole package back in the case of an emergency. Ensure that the insurance provider fully explains the types of liabilities it covers.

Conclusion

Shipping from China is not complex once you grasped all the key points. It's important to note that freight costs can vary significantly based on the specific details of your shipment, prevailing market conditions, and any unforeseen circumstances. Therefore, it is advisable to obtain quotes from multiple freight forwarders and carefully evaluate their services before making a final decision.

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