What Importers Should Know for Chinese New Year 2016

2016’s Chinese New Year will last from February 7th to February 13th. It’s also known as the Lunar New Year or Spring Festival, and it’s the biggest Chinese celebration of the year.

This is an important event for importing companies to know. Your supply chain may be disrupted for a significant period of that time.

Factories will be closed for the entire week. Keep in mind that the majority of Chinese laborers have jobs that are far from their hometowns; their return to family is one of the largest migration events every year. Businesses typically allow workers to start packing up as much as two weeks before the celebration. They’ll also take a week or more to return. All in all, factories may not resume production by the third week of February. That may take you to almost four week’s disruption, compounded with delays in transportation.

Here’s another issue: Even after factories re-open, it will take a while for them to return to production at full capacity. That’s because up to a third of employees never return to work. The inexperience from new workers can cause longer delays and lower product quality.

A top-tier supply is likely to have all these issues worked out or at least mitigated. So not the entire manufacturing sector is going to be affected in the same way, but you should be aware of these general effects.

What can you do to plan ahead?

Because of record low ocean rates, ocean carriers are planning capacity reductions for Chinese New Year. Some report that they’ll reduce capacity by up to 40%

That could be an issue if you don’t have protected space. Carriers and Freight Forwarders have an allocation based system which rewards shippers who consistently move freight throughout the year. If you’re not moving freight regularly, it may be a challenge to find space.

How can you avoid this challenge?

Plan ahead and work closely with your freight forwarder. Your forwarder can work with carrier partners to protect allocations or might be able to get space from another carrier. Forwarders may also have the chance to get allocation space from another shipper.

You should also plan to order at least three weeks prior to Chinese New Year. If you do, containers should be at the port by the second week of January.

Finally, consider shipping by air if you have a strict deadline from a retailer or are running out of stock. Paying for stock expensively might be better than having no stock at all. Don’t leave that decision for the last minute: flights just before Chinese New Year are often overbooked and carry a higher premium . Consider non-direct flight options and makes sure that your connection is outside of China.

Price increases during Chinese New Year

Seafreight and airfreight costs will increase before Chinese New Year. Carriers get overbooked earlier than usual. Be warned that even if you get a booking confirmation, your containers may still get rolled to the next available sailing. Carriers are especially eager to increase rates at this time.

Ocean carriers have already announced a Far East Asia to United States and Canada General Rate Increase (GRI) effective as of January 1st, 2016. Rates are meant to be as high as these levels:

Imports to the East Coast of the United States and Canada: US$1600 per 40’ container.

Imports to the West Coast of the United States and Canada: US$1200 per 40’ container.

Carriers have also announced a Peak Season Surcharge for all dry cargo in this tradelane. A US$400 surcharge per 40’ container will be effective as of January 15th, 2016. Furthermore, carriers have announced a $600 surcharge effective as of February 1st, 2016.

These are pretty high announced rate increases! But just because carriers have announced them doesn’t mean that they’ll be exactly this high. In the current market, it’s possible that the GRIs will be mitigated. The Peak Season Surcharge, though, is more likely to stick.

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Don’t wait until the last minute. If you can manage it, place your orders now and avoid unnecessary delays next month.

Update, 1.21:

Ocean carriers successfully implemented a General Rate Increase (GRI from Far East Asia to United States and) effective as of January 1st, 2016.

Here’s data from the Shanghai Containerized Freight Index:

Dec 2015-Jan 2016, rates per 40’

12/25/15 1/1/16 1/8/16 1/15/16
USWC $766.00 $1,519.00 $1,498.00 $1,417.00
USEC $1,448.00 $2,555.00 $2,542.00 $2,457.00

USWC = United States West Coast Ports

USEC = United States East Coast Ports

The Jan. 15th Peak Season Surcharge (PSS) was postponed to February 1st. Rates are expected to drop between now and February 1st.

It remains to been seen if February 1st increases will stick or not, we will update you as soon updates are available in the market.

By Nerijus Poskus, logistics manager at Flexport.

Should I ship by LCL or FCL?

Should I ship my freight with FCL (full container load) or LCL (less than container load)? We lay out the different variables to consider in this post to help you make your decision.

LCL lets you keep inventory low

If you don’t have the money or space to accommodate a full container at your warehouse, it makes sense to use LCL. LCL lets you ship in smaller volumes so that you can keep your inventory lean. Instead of purchasing large quantities from suppliers, you can use LCL to keep a steady flow of inventory in smaller quantities. That frees up cash flow for other purchases.

FCL is cheaper than LCL

LCL costs more than FCL per unit of freight. That’s because freight agents prefer a full container load rather than to figure out how to bundle many LCL shipments in a full container. In addition, many importing fees are fixed, which means that you have to pay them regardless of how large your container is.

FCL gets delivered more quickly than LCL

When an FCL shipment arrives at port, it’s unloaded from the vessel and delivered to the buyer. It’s more complicated for LCL: someone has to consolidate different shipments, process multiple documents per container, and then sort goods for each customer. Every point could be delayed. At origin, the cargo has to be grouped together to fill a container. At destination, there’s a greater risk of examination by customs: When one shipment in a container gets flagged, every shipment has to be checked. That can cause delays of days.

LCL increases risk of damaged goods

If you ship LCL, you have no control over the cargo that will be loaded in the same container as your goods. There could be more dangerous objects traveling in the same container, like liquids, heavy weights, smelly objects, etc. Instead of knowing exactly what’s going into a container, you have to prepare for the risk that your shipment will be damaged. In addition, given the additional complexity of going to multiple places, there’s a greater risk that your cargo gets misplaced or lost.

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If you’re able to structure shipments together into an FCL without having too high of inventory costs, it probably makes more sense to ship FCL.

By Brandon Kronitz, operations associate at Flexport.

Want to Revolutionize Global Trade? Flexport is Hiring!

Our SoMa-based team of 40 is ramping up sales, operations, finance and HR to take on the $1.1 T (T for trillion!) global freight forwarding industry.

Flexport’s mission is to fix the user experience in global trade and unite the world in a seamless web of commerce. Our team is committed to using technology to create a world where any two businesses can trade without regard for geographic distance, logistical complexity, or regulatory barriers.

We are a new kind of freight forwarder, one focused on long-term value creation for our customers through a combination of technology, expertise, high-integrity service, and an unparalleled worldwide network. Our customers include companies in consumer electronics, robotics, and hardware along with larger e-commerce businesses that each import hundreds of millions in goods.

Positions Open Today:

Engineering – we are looking for Front-End Engineers and Software Engineers to create tools that that make it easier and more efficient for companies of all sizes to participate in global trade

Operationsthe Logistics Consultant, Logistics Manager and Operations Associate positions are the heart of Flexport, managing global logistics with outstanding service. We’re also seeking talented specialists for Project Manager and U.S. Customs Entry Writer roles.

Salesthe Senior Account Executive and Sales Development Representative positions are key for shepherding our high-growth clients through the complexities of international trade, and helping us continue to see incredible growth!

People Operations Round up the brightest minds in logistics and tech to join our rocket ship as our first Recruiting Manager.

FinanceJoin our team as a Finance Analyst and take responsibility for designing and managing key controls around revenue recognition, forecasting and cost-saving opportunities that support our growth.

Paul Graham, founder of Y Combinator says, “Flexport is one of those rare startups that will not merely satisfy its market, but grow it. There will be more international trade because of Flexport, and international trade is a very big thing for there to be more of.”

We are lightyears ahead of traditional freight forwarders in terms of tech, expertise, and network. Working at the intersection of two of the greatest forces for good the world has ever seen–international trade and information technology–we are creating a platform that empowers the next generation of great entrepreneurs to do business on a truly global scale.

Come Join Us Today!

Foreign Trade Zone (FTZ) Basics

In today’s global economy, US manufacturers and importers face heavy competition from international companies in manufacturing and selling goods. To even the playing field, the United States enacted the Foreign Trade Zone (FTZ) Act of 1934. These FTZs are geographical areas “in or adjacent to” U.S. Ports of Entry, designed to allow local manufacturers to compete with foreign enterprises by creating special economic zones that are “outside” of U.S. commerce. Merchandise can be held in these zones without being subject to duties and other taxes. In essence, a Foreign Trade Zone (aka Free Trade Zone) is a highly regulated bonded facility that supports US import and export activities.

 

Who benefits from using FTZs?

  1. United States
    1. Job growth
    2. Increased competitiveness in the global economy
  2. Manufacturers
    1. Inverted tariff rule allows for importing raw materials, components, and/or partially finished goods and then manufacturing/assembling into a final, single tariffed good
    2. When selling this final good domestically, manufacturers declare only one product, thereby potentially reducing duty rate
    3. Ability to export goods in-bond without ever having to pay duty to the United States, bypassing duty drawback
  3. Importers with their own distribution centers
    1. Direct delivery in-bond prevents delays at port
    2. Weekly Customs Entry minimizes MPF (Merchandise Processing Fee) payment
    3. Importing goods in-bond into own warehouse delays duty payment until time of order placement (unlimited storage time)
      1. Re-export or destroy goods without ever paying duty
    4. Importers using a forwarder’s FTZ
      1. Import goods into the U.S through an FTZ warehouse in order to gain Weekly Custom’s Entry benefits. Note: this method slows the movement of freight by adding an extra stop before delivery to the final destination.

Weekly Entry:

One of the more financially interesting benefits of having an FTZ is the ability to declare customs on a weekly basis vs. a per shipment basis. This allows shippers to maximize their MPF payment at $485 on all shipments imported during the zone week, instead of on a per shipment basis.

Thinking about converting your facility to an FTZ?

Companies looking to convert their facilities will need to apply with the FTZ Board. After the board has reviewed your application, you can expect a 9-12 month process before your FTZ is up and running. Having an FTZ comes with the responsibility of running a bonded facility, so Customs will require tight security and robust inventory software to provide real-time accountability of any goods moving in and out of the zone. The “Operator” of the FTZ is liable for any goods that leave the zone and are unaccounted for, and customs needs to ensure that duty is paid on any item leaving the zone for consumption into the United States. Heavy fines are issued by CBP for any unaccounted inventory.

Customs Brokers Near Me

In 2007 U.S. Customs and Border Protection changed the law to allow licensed customs brokerages to file customs entries remotely at any port or airport. Until that time, customs brokerages needed to maintain an office near the port of entry where they wanted to clear shipments.  This meant that until the law change, you had two types of customs brokers: national players who had offices everywhere, and local players who served only one region.

The change to remote location filing means that now customs brokers can serve a national market, filing entries electronically for customers all over the United States regardless of which port or airport they are going through.  For importers, that means you can now pick from best of breed service providers rather than working only with a “customs broker near me.”

That rule change helped clear the way for the next generation of internet-enabled customs brokers and freight forwarders like Flexport. We can provide all the complex coordination functions that importers and exporters require throughout the United States from right here at our headquarters in downtown San Francisco.

If you’ve been looking for a customs broker near you, you’ve been asking the wrong question. Better to ask, who is the best customs broker in the United States, without worrying about if it’s a “customs broker near me” or not.

Incoterms Explained: Protecting Yourself in International Trade

At last, you’ve found the perfect manufacturer. Samples looks great, pre-orders are rolling in… and then your supplier brings up incoterms. Who has the patience to memorize a dozen confusing acronyms with such subtle nuances? To better wrap your head around incoterms, we’ve come up with a scenario equally as complicated but a bit more relatable: buying a bed off Craigslist.

1280px-San_Francisco_Oakland_Bay_Bridge-4

Here’s the situation

You’re in the market for a new bed. After identifying a trustworthy owner on Craigslist, you successfully negotiate a fair price. Then comes the tricky part: how are you supposed to get the bed from point A to B? The bed is in Oakland and you’re across the bay in San Francisco. And did they mention the 5th floor walkup? Who is going to pay to move this? There’s no standard agreement for who does what in these situations, is there?

In your perfect world, the Seller would just take care of everything and bring the bed right to your bedroom. Guess what? Craigslist owner would prefer you come to them and do all the work. Actually, in practice both parties would prefer to pay a third party to make the arrangements, hence why moving companies–or freight forwarders for international cargo–exist (perhaps hiring your younger brother in this case). When you break it down, there’s actually a lot of work, fees, and risk involved here, which closely mirror the processes involved with international trade:

Image 2015-06-30 at 10.18.08 AM

Like most exchanges in life and business, moving stuff involves a little negotiating. After all, there are a variety of different methods of transporting the bed (via car, U-Haul, drone) which have unique cost structures and ultimately will require one party or the other to pony up more of their time, money and liability for the movement of the furniture.

On an international scale, this is exactly why we have incoterms–to clearly communicate the tasks, costs and risks associated with the transportation and delivery of goods. We can visualizing this example’s breakdown of responsibilities in the following table:

Image 2015-06-25 at 4.54.42 PM

You can interpret the divisions in the table as the points in which ownership and responsibilities transfer from Seller to Buyer. When negotiating incoterms, it helps to ask yourself: what parts of the shipment process do I want control over?

We generally recommend importers buy FOB terms for savings, protection from liability in origin country, and better control and oversight as the Buyer names the freight forwarder. Similarly to moving a bed through the Bay Area, you wouldn’t want the Seller to have her friend with the banged up pickup truck handling your new bed and risk it getting damaged, so you purchase the furniture on FOB terms and take charge of your own destiny once it’s in your van!

Fighting Unnecessary Detention and Demurrage

Port_of_Oakland_(Oakland,_CA,_USA) (1)

The recent West Coast port congestion disrupted nearly every supply chain stakeholder in the US. Adding insult to injury were exorbitant detention and demurrage fees imposed on drayage providers, importers and exporters as equipment and space became increasingly scarce.

The Federal Maritime Commission released a report in April to examine this issue in depth, and last week a group of 95 organizations wrote a letter to the FMC pressing the agency to use its authority to prevent ocean carriers and terminals from imposing these additional charges during periods of port congestion. Spearheaded by the Pacific Coast Council, a lobbying group made of the members of the five west coast brokers/forwarders associations, their chief request is that “penalty payments should be prohibited when factors beyond the control of the shipper, receiver, or motor carrier make it impossible for them to return chasis or empty containers, or pick up or drop off loaded containers within free time limits.”

Importers, exporters, brokers and forwarders alike hope this continued pressure will lead the FMC to implement preventative measures.

See contents of letter below:

Image 2015-06-18 at 3.14.17 PM

 

Bloomberg: Flexport is the Uber of the Oceans

Flexport is featured on the home page of Bloomberg today! The article discusses our CEO’s history in the import-export business, the beginnings of Flexport, and our mission to revolutionize global trade. Flexport is making international trade easier and more transparent, and as Paul Graham states, “there will be more international trade because of Flexport, and international trade is a very big thing for there to be more of.”

Check out the full article here.

 

 

Importing 101 for Crowdfunding Campaigns

Running and completing a successful crowdfunding campaign requires creativity, dedication and maybe even a bit of luck. Importing your products should not.

Check out to the guest blog post we did for Fulfillrite below:

 

Although the logistics and customs clearance process can seem like a bit of a black box, the actual process is pretty simple. We’ve included a few tips below to shed some light on the process for those of you that are new to the importing process.

1) Select the Best Supplier

Finding the right manufacturer is key step #1 that may require some homework. You want quality, reliability and communication – cheaper does not always mean better. It pays to shop around in order to identify which partner will be by your side when you need to meet a last-minute production deadline.

Tips on locking down the right one:

  • Research manufacturers of your products around the world via portals such as Alibaba and Global Sources
  • Check out your competitors’ suppliers on ImportGenius.com
  • Attend an international trade show for the opportunity to meet potential suppliers face to face
  • But before you start your campaign, make sure the product you are importing is actually allowed into the U.S. and complies with all U.S. regulations (the legal stuff can get a bit boring, but we included some tips in section #6 below)

2) Plan to Plan Ahead

Shipping goods internationally takes time. Until the driverless hyperloop is complete, your primary options for moving products will be Ocean or Air.

In terms of timeline:

  • Ocean Shipments: Estimate about one month from the time your goods leave your supplier to arrival at your warehouse in the US.
  • Air Shipments: Estimate approximately one week for air shipments, but keep in mind air freight is significantly more expensive (sometimes up to 3x the cost of ocean shipments).

3) Don’t Navigate the Import Process Alone

Demystifying the import/export business can be overwhelmingly difficult. While big companies have dedicated teams with the luxury of direct relationships with major carriers, small and medium sized businesses will usually book through agents. These middlemen are notorious for poor service and price discrimination, offering far better rates to clients with bigger shipping volumes.

Get a customs broker and freight forwarder on your team during the early planning stages – you can find great ones at NCBFAA.org. Don’t wait until your first shipment is ready to move. These companies have a wealth of information that will help you avoid the most common pitfalls experienced by budding global companies.

In addition, a reputable freight forwarder will help you negotiate the best rates and manage the importing process for factory to final destination. They will make sure all documents are in check and keep tabs on the status of your shipment.

Some key documents you’ll hear about include:

  • Commercial Invoice – Issued by your supplier confirming the quantity and price of your goods
  • Airway Bill / Bill of Lading – Issued by your freight carrier confirming the title and movement of the goods

4) Be Nice to Your Customs Broker

Clearing your shipment through U.S. Customs can also turn into a headache without proper guidance. Depending on what product you are importing and from which country, there are 120 different forms that may need to be filed with more than 10 different government agencies. And the legal responsibility for complying with these regulations lies with the importer (aka you).

We recommend using an experienced customs broker to help ensure compliance with all the various laws (and assist with paperwork!). A strong customs broker will make sure your goods are properly classified and all the right forms are filled out on your behalf. Oftentimes brokers and freight forwarders are one in the same or close partners.

5) Factor Import Costs In Your Estimated Product Costs

There’s a real cost to moving a container to the other side of the world. In addition to the costs of manufacturing your product, don’t forget to include freight, customs and insurance when calculating the total costs of goods.

Painting an accurate picture of your total product costs is crucial in determining your product margin (and your profitability!). Working with a great forwarder and customs broker is invaluable in figuring out your landed cost.

6) Don’t Forget About the Legal Stuff

Like we mentioned above, you’ll want to make sure the product you are importing is actually allowed into the U.S. Certain items, such as furs and ivory, rare or protected goods and pirated designer products may have restrictions imposed on them at the country of origin.

And when importing electronics and some of the great new hardware devices, it’s important to understand there are extra rules around products that contain batteries. Batteries are classified as “Dangerous Goods” and must be shipped adhering to strict regulations. This means you’ll want to make sure:

  • Your supplier has an export license and are willing to declare themselves on all necessary documents
  • Your supplier has all updated documents (like a MSDS and Drop Test Report

But don’t fret too much about the legal stuff – your freight forwarder or customs broker can help you make sure that you comply with all the regulations. Which is why you want them involved early, rather than discovering a potential show-stopping issue once cargo arrives at the port.

Assuming you made it through all the tips above, you are now well-prepared to begin the process of importing your goods after your successful crowdfunding campaign!