When you get into shipping you’re going to have to deal with a couple of things. When you have your product ready to go you’re going to have to determine who is going to be your freight forwarder. They are the companies that handle your documents for you. They clear customs for you, they shuffle all of the product and paperwork around and all of that. You do not want to do any of that yourself: it is a paperwork nightmare. The companies that do it are really good at it, and they’re very inexpensive.
One trick that we learned on buying a bond. It was about $500 a year where you avoided paying a $200 per import fee. As an importer you have to have a bond. The government makes you buy a bond which is basically insurance in case they have to destroy the container or charge you more duty because you didn’t tell the truth. If you fly the coop and they can’t find you, then the insurance company that sold you the bond is on the hook. Like Richard said, we were paying several hundred dollars for bond every time we brought in a container. Once they realized we were bringing in multiple containers a year they said, “Hey, why don’t you just buy your bond one time for the year?” Five hundred dollars a year to buy our bond and if we brought in 500 containers it would cover us on all of them. You’re going to need a bond, and freight forwarders are going to help you with that. The best thing you can do is talk to a freight forwarder.
The one we like the most is HYC Logistics. They have offices in L. A., in Memphis, Tennessee, where all the rails meet because most freight travels by rail once it’s in the States. They also have offices in China. They have a quality control arm and also a consolidating warehouse in Shanghai and Guangzhou, which means if you’re using HYC they can pick up a pallet of something for you, put it on one of their containers, and bring it to the States. There is going to be an additional fee for that, and it’s going to be more expensive, but at least they have the capability of doing that.
What To Ask Your Freight Company
What port do you ship from?
You want to order from their FOB-VAT port. If you order from their factory, a lot of times the inland freight in China can be more than the sea freight to get something to you. China is a very mountainous country and you can have a remote factory that is 500 miles away from a port and it has to go by train through a mountain, around a branch, and up and down here all just to get to the port. You may pay $500-600 just to get the product moved from the factory to the port. You want to make sure you have your prices quoted FOB their nearest port. The fees to ship products in China are going to be different based on the port, so you’re going to want to look at a Chinese map and see where ports are available. Usually this is something your freight forwarder can help you with. It costs more to ship from the Guangzhou port than it does from the Shanghai port; at least it used to. You want to make sure you get the most advantageous port.
What are the duties on this?
Almost every product coming into the United States has some sort of a duty on it. A duty or tariff is the same thing. It’s a tax. It’s saying, if you’re bringing this product from China we charge a percentage of the total invoice amount as a duty. You’re freight forwarder is going to pay it and you’ll pay them back. That is another thing that they will handle for you. Once you go to China and you get ready to buy, you’re not going to finalize anything until you talk to your freight forwarder. If you want to get the duty charges call the freight forwarder and say, “What are the duties going to be on this?” There are some things that you can bring from China at different times that have extremely high duties. Those are things that have a high duty on them as a penalty. Meaning that there is strong lobby or labor union here in the States, and maybe in your country, that has lobbied Congress to get a huge duty put on something. The candle business is good example of that. For a while because of safety and other things, there was a 70% duty on candles. If I bought a candle from China for one dollar I had to pay seventy cents to the government for the privilege of bringing it into the country. Believe it or not, it was still cheaper than making the candle in this country, but a lot of the time it’s not.
Harmonize Codes
All products that come from China (or anywhere else) have something called a harmonize code. There is an online service from customs where you can find a harmonize number for your particular goods.
When I started bringing wax from China to make my candles with, I brought in a couple of containers of wax and the duty was zero. So I’m bringing in one container of candles and I’m paying 70% duty, and I’m bringing in another container of wax and I’m paying zero duty. I ain’t the smartest guy in the world, but believe it or not I did that for a year. One day I’m waking up in the morning and this ding went off in my head and I said, “What is a candle?” I called up customs and I said, “Can you tell me, when you’re looking at the classification of the harmonize code for a candle, what constitutes a candle?” “The definition of a candle is wax with a wick in it.” I said, “So you’re telling me that if I brought in candles that had no wick then those would be wax, right?” “Absolutely.”
This is a big deal. You have to ask them for a binding letter when they give you a ruling like that. They may tell you anything on the phone and if you go do it you can get really screwed. You want a binding letter from customs that that is indeed the case, so you write a confirming letter saying, “This is a confirming letter that the conversation I had this morning with Agent ____ that I understand it this way. Will you please confirm this and send me a binding ruling.” They sent me back a binding ruling so from then on I would have them drill a hole in every candle I got and on the end of the container, guess what I had? Boxes of wicks. I would bring the candles into my factory here in the States, we would unload the container, open the boxes, and my staff would drop a wick in every one of the holes and seal the box back up. My duty was zero dollars. That saved me $14,000 per container of candles. I had an absolutely unbeatable advantage in the candle business. In the import candle business I killed them. I killed them for two or three years. It was forever before people figured out what I was doing.
What you have to understand is that harmonization codes are somewhat open to interpretation. That doesn’t mean your interpretation. It means that items can be classified most of the time under different codes.
We were importing DVD media storage cases, which were classed as “blank DVD cases”. It was an inexpensive item and on a $.20 item it was four cents duty, almost a quarter of the value. This is another commodity type item so already you’re dealing with a lower profit margin, so every penny counts. We used a third party auditing service that was recommended to us by our freight forwarder, HYC Logistics, to come in and go over everything we were importing, look at the harmonization codes we were using, and suggest any changes. They told us we could classify them as empty storage containers, which took us from a 23-24% duty all the way down to three or four percent. It was a huge difference. We didn’t have to get any binding ruling. We brought in so many of these: there were 160,000 DVD cases on a container and we brought in multiple, multiple, multiple containers of them. We saved a nickel apiece. That’s a whole bunch of nickels.
Freight Forwarding
So, the freight comes in and you get a call from your freight forwarding company. They will say, “Hey, you’re container is in port. Have you made your last payment yet?” You’ll make your payment and the documents will release to the freight forwarder. The freight forwarder is going to move your container over to customs and ask them, “Do you want to take a look at this?” Customs only looks at about 1:200 containers. It’s pretty random. If they say no, usually the container will clear customs in two to three days.
Then the freight forwarder is going to arrange your inland transportation. How do you want to get the container from where it is to where you need it to be? We’re in Texas and they would arrange freight for that container to go from Los Angeles to Texas. Nine times out of ten they aren’t going to truck that container and if they do, you’re going to pay through the nose for it. Instead, they’re going to put it on the rail and send it to you via railroad.
In the port of L.A. they have these giant cranes. If you get into the importing business going to the port of L.A. is a lot of fun. They literally are pulling off thousands and thousands of these containers off ships each day like they’re tinker toys. They’re moving them from the ship to the train. They’re able to move that container all that way from California to Texas for $500-600 by rail. If I had that done by truck it would cost me at least $2000. They’ll put it on the rail, bring it to me here, and then they’ll back it up to the dock.
There is going to be a “diberge time.” Usually it’s two hours per 40 foot. You have a bus to move. You have to have people ready. They’re going to drop that container off, and when they drop it off you have a couple of hours to get that container unloaded. You can pay for a couple of extra hours but it’s pretty expensive. If you have a truck stop near you, go to the truck stop and ask if there are any “lumpers” that want to do any work. They usually have some guys hanging around truck stops that do nothing but load and unload trucks. You can get some lumpers to help you come and unload your container into your warehouse.
If you choose coastal distribution, you may have warehouses all over the country. It really sucks to move all your freight from California to North Carolina and then have somebody place an order in L.A. They aren’t going to ship the freight back to L.A., right? What a lot of people will do is have stocking warehouses, which are public warehouses that will rent you space and they will do fulfillment for you. It’s call Pick, Pack, and Ship. One of the biggest in the industry is Federal Express. You can contact Federal Express. They have warehouses in Los Angeles where they will break a container up by individual boxes and ship one to everyone in North America if you want them to. And if you’re willing to pay for it! I believe HYC Logistics also has fulfillment services in L.A. If they don’t they can put you in contact with people in L.A. that can do fulfillment services and public warehousing for you.
Trade-Free Zones
The port of L.A. has a lot of warehouses that have something called a “trade-free” zone. When you bring a container of merchandise into the US that is an asset at that point. You own that and you could owe taxes on that depending on where you are. In a trade-free zone, the government allows you to leave that merchandise in the trade-free zone without any taxes until you ship it out of the trade-free zone. In other words, you don’t have to pay tax on inventory that is just sitting there. A lot of times it’s the duties as well. So instead of paying on an entire container, you only pay on the part that moves out.
Partial Containers
If you go with someone like HYC, they will have a consolidation service for you on the China side where you can have freight brought in by the pallet load. When it gets into the States you can have it shipped back out by the pallet load. You can stack pallets very high on a shipping container although you want to make sure that you don’t stack the pallets so high that they won’t fit on a truck when they come to the States. Ask me how I know!
There are several kinds of containers. When you’re shipping something into the US from China, 99.9% of the time you’re going to have three different kinds of containers to ship on. You’re going to have a 20-foot standard container, which holds small lots of stuff like the guy that brings in key fobs. He may not want to bring in a whole 40-foot container. Usually what you use short containers for are things that are very, very heavy. The reason you do that is because no matter how big the container is it can’t weigh over 56,000 pounds. If you have a 40-foot container and you’re bringing in car batteries, a huge percentage of the container is going to be wasted because you’re going to have more car batteries in weight than you fill in space. There is a way around that where you can make that work for you if you’re pretty savvy, but for the most part what people will do if they’re bringing in something really heavy is they’ll bring them in on 20-foot containers. The 20-foot container is about 2/3 of the cost of a 40-foot container. It’s not an even half. You’re going to pay more for the 20-footer, but it’s still cheaper.
Top Loading
Alternatively, you can put your goods on a long 40-foot container and do something called “top loading.” Let’s say that you have 40, 000 pounds of stuff that you could put on a 20 foot container, but instead you put it on a 40-foot container because you have 8,000 pounds more you can put on. You might fill that with feather pillows, or something that is lightweight. We used to bring in stanchions that always weighted out. We could have brought them in on a 20-foot container, but we also brought in these key control boxes that are big hollow metal boxes for holding keys. They don’t weigh anything. We would top load the container with the empty, hollow boxes, and the bottom would be loaded with the heavy metal bases and the container would come in chock full.
The bottom line is you have a certain amount of cubic feet and you’re going to have a certain amount of that on a container and you’re going to try to fill every inch of that cubic feet that you can, for two reasons. One is efficiency. You want to get the most for your money. You’re paying for it you might as well use it. Two (and this one is almost as important if not more so) you want that container packed, jammed up, and jelly tight. You don’t want any room for movement inside the container as that is where damage happens. Look at the way movers pack houses. When you get professional movers to move you from one city to another they won’t use the whole truck. They’ll push everything to the front of the truck and they’ll have everything so squished in there you think it’s going to turn into one big blob of something. The reason they do that is because they know that if they have stuff packed in tight that it can’t move around and can’t shift a lot.
Partial containers can go in, in China, and we can consolidate them anywhere and come out in the US the same way. There are a couple of good freight lines that carry less than truckloads that can ship these pallets. They typically don’t go by rail. They typically go by truck. We’re in Texas and we paid about $350 per pallet from California using ABF Truck Lines, or Yellow Freight.
If you’re dealing with trucking companies, don’t ever call them up and ask for a quote. Call and ask what your freight discount is because freight is typically automatically discounted 60% from trucking companies. If they give you a book rate just say, “What’s my discount rate?” and by saying that they will typically take 60% off the original quote. Don’t ever pay normal quote fees. Your freight forwarder can act like a broker on that as well. That’s what they are there for.
Air Freight
There is a lot of freight now that is being done by air. Sometimes it’s better to airfreight stuff than it is for ground transportation to bring it. It depends on what you’re bringing in. The guy that does the key fobs is an example. If he’s buying key fobs for three dollars and selling them for $20, rather than be out and not be able to sell any I would start air freighting boxes in rather than waiting on a container. You just have to do the math in your head. You’re going to pay somewhere around four dollars per kilogram to airfreight products in.
There are two ways to get airfreight done: first, through your freight forwarder. Sometimes they can get you a discount on airfreight. Federal Express is probably going to be your most expensive solution, but it’s going to get there. If you have to use FedEx you’re going to pay four to five dollars per kilo depending on where you are coming from to most of the destinations in the States You have to have something that is pretty valuable and pretty light. If you’re importing feather quills this will probably work out.
If you go to a normal airline, and the Chinese airlines are particularly good about this – China Southern, Air China, China Eastern – they all have cargo freight departments and you can call them up and get a quote on a per kilo basis. They’ll give you a decent quote, but they’ll give you better and better quotes depending on how much of a contract you want to give them, how long you plan to use their services, and how long you guarantee you’ll use their services. You can get airfreight down to around two dollars and change per kilo if you’re willing to sign a contract with one of the major airlines saying “I’ll guarantee to bring in so many pounds of air cargo per month.”
I’ve seen a lot of businesses that have made that work. The company I mentioned before that does the dental work, they get all the molds taken for dentures or crowns, and literally box those up in a FedEx box and FedEx them to China. China makes the dental work in a matter of 10 days or so, and then ships it back in a FedEx box. Can you imagine how many thousands of dollars worth of dentures and crown molds you can get in a 10-kilo box? A lot. It costs them a couple hundred dollars to send a box and they have $10,000 worth of dental work in the box. Air freight is worth it then.
There are some things you just don’t want to bring in and ship if you can help it. Big pieces of framed art are a pain in the neck. Dry erase and chalkboards are a pain in the neck. I’ve sold all of these things and imported them from China. The damage is almost more than the actual worth of the goods. It seems like the bigger the product, the more broad and narrow that the product is, the more difficult it is to bring in
If you’re bringing in a piece of equipment that is more than $400-500 I would definitely demand that it be put in a crate. When you get it here have someone else un-crate it. We found bugs and all kinds of crap in those crates, and throw that wood away because sometimes it just plain stinks. The wood crates have to go through fumigation which kills the bugs that are in there but it doesn’t vacuum them out, it just kills them. Just be sure to be careful. If you’re going to have something brought in that’s worth at least $400-500 then have it crated.
I’m not going to go into the duties on this and the duties on that and get into real detail. To be honest, the freight forwarder handles all of that. I never had to learn it. I’ve brought more products into the States than most people have and if I’ve never had to learn about duties and all that, you shouldn’t have to either. It’s not really a big deal.