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Considering Imports – Part 2
by Shody Chow
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June 14, 2024
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Two business partners with protective yellow helmets walking and talking about business in warehouse.

Remark: Readers must use their best judgment in using the information provided, and not take unnecessary risks in importing.

The foreign manufacturer usually quotes a price on a free-on-board basis. For example, if you purchase a shirt from a manufacturer located in Eastern China, their price per piece or dozen will be based on FOB Shanghai port. The manufacturer provides you with the packing information – pieces per export carton, weight per carton, and the measurement of the carton. This information is needed to figure out the freight cost to the port of entry. If the product is heavy, the freight cost is based on weight, while it is based on volume for lightweight products. If you are in Los Angeles, the port of entry is Los Angeles Airport if the shipment is by air and Long Beach/San Pedro if the shipment is by sea.

For small shipments, it may be more cost-effective to ship by a courier service such as UPS, FedEx, or DHL.  For large, urgent shipments, the choice may be airfreight. For medium-size shipments, the shipment may be less-than-container-load by sea on a pallet in a container that may be 20’, 40’, or 45’ long.  Most importers appoint a freight forwarder to handle their airfreight and sea-freight shipments. Large freight forwarders have their in-house customs broker, while the smaller ones work closely with an independent customs broker. The freight cost per piece is substantially lower if you purchase large quantities and can make use of the 40’ or 45’ containers.

The importer needs to come up with an estimated landed cost for each product, as this is their actual cost in the pricing calculation to figure out their markup. The landed cost includes the vendor’s FOB price, the freight, insurance, import duty if any, freight forwarder handling charges, and delivery costs to your warehouse. The freight forwarder can figure out the import duty rate, which is available online at the US Harmonized Tariff Schedules website: https://hts.usitc.gov/current

Understandably, there is a lack of trust between the importer and the overseas manufacturer when they work together for the first time. The vendor may request an initial deposit, say 20 to 40% upfront, and the balance to be paid after the goods have been produced, before shipment. The payment is usually done by telegraphic or wire transfer from your bank. For large shipments, a letter of credit may be preferred, but this may result in substantial bank charges. Payment terms are usually negotiable and can evolve when the importer and manufacturer have built up a good relationship based on actual experience of purchase orders, deliveries, and payment history.

To reduce risk, the importer should try out small shipments at the beginning to gain experience in the communications with the vendor, import process, product quality, on-time delivery, working with the freight forwarder, actual landed cost, etc.

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About the author
Shody Chow
Shody Chow
Shody Chow has 35 years of experience in supply chain management.
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