With increasing penetration of ecommerce and online platform, many people are getting the perception that it is very convenient to start a trading or online selling business, which is to find a Chinese supplier, source low cost products, ship the products to home market and sell at a higher price over there.
Sounds logical and convincing, isn’t it.
But wait, before really going full speed ahead with your promising business plan, there are a few questions to be asked and problems to be solved, for instance;
How well do you know about your products and your suppliers?
How well do you understand shipping and import/export process?
In this article, we will give a complete introduction on how to import products from China and walk you through some of the commonly overlooked factors.
Study your product
No matter you are about to sell your owned private labelling products, OEM products or simply source already-made products for resell, make sure to conduct a thorough study on
Intellectual property right or brand authorization
Customs officer at Chinese gateway conducts random check on export shipment, if no supporting documents for established band are provided, cargoes will be confiscated by customs office following by a fine.
Materials requirement
Understanding the materials used will improve communication efficiency with supplier and give you the confidence in price negotiation. Moreover, knowing the material also provides the indication on landing cost since the HS code applied shall affect import duty at destination country ( i.e. US hikes import tariff on Chinese import goods)
Tooling and modelling requirement
Very important and greatly affect unit cost until production scales up, and Intensive product customization requires deep cooperation with skillful manufacturer.
Manufacturing process and production time
Gives you the indication of products readiness for shipping, payment arrangement and marketing preparation.
Import regulation at sales country
To ensure receiver are able to import and clear the products at sales country
Product Safety and compliance regulation in sales market
For electronic goods, toys etc，different safety certification or test report are required in respective country, keep in mind that CE certification（Conformite Europeene) in European Union is not compatible with UL (Underwriter Laboratories Inc.) in the US, although they are similar in one way or another. Make sure to check and confirm
Find your product supplier
Once there is a clear picture over the products to source, most buyers will look for Chinese suppliers through B2B ecommerce platform like Alibaba.com and globalsources.com.
Keep in mind that suppliers on B2B ecommerce platform are just like any seller on B2C platform i.e. Amazon.com and ebay.com, they register account with the platform, upload the listings with good product picture and attractive product description ( ring a bell?).
Take a quick search on respective platform for product “Shaker”
Basically, everyone can sell on a platform due to limited verification process over supplier background, product safety and supplier fulfillment capability.
And normally, there are way too many search results for you to finished reading from top to the end. To save time, here are a few tips for you to filter and shortlist the ones that meet your requirement;
Know your supplier
1. Background and Seniority
There is one very useful website to check company background including registration status, operation location, business coverage etc. if you do not see “production” in registered business coverage, the supplier you are dealing with might probably be a trader instead of a factory.
2. Production capacity and manufacturer certification
Production certificate or factory audit report from global customer are good indications of both capability and industry knowledge of your supplier
3. Export experience
Experienced suppliers know all the bits about export process and the safety or compliance regulation in sales market. They are able to alert you on important issues that are easily overlook, and to efficiently provide Profoma Invoice, packing list and HS code for customs clearance.
Simply ask your supplier a few questions about export process to your country or request for the shipping B/L from most recent shipment to verify.
4. Location
The closer your supplier located to seaport or airport, the lower pre-carriage transportation cost to your shipment.
Look for cheap price ( but NEVER the lowest price)
It is a universal truth that competitive cost gives the flexibility in sales strategy, however, there are a few more things to look at when getting quote from supplier;
1. MOQ
Known as Minimum order quantity, the smallest amount of goods your supplier agrees to sell at the price quoted, cheaper price most of the time comes along with a big MOQ.
2. Price structure
It worth paying attention to how the price is quoted, what has been included or excluded.
From time to time, supplier are keen to offer convenience package to ensure the price is looking cheap and competitive.
3. Product Certification
Certification or product test report are important and expensive, make sure to double check with supplier if the product comes along with a valid test report issued by a distinguished third party testing agent or lab (do remember to check the issue date)
Although there is trade assurance, golden supplier or its likes in place, in reality there is no return or refund in international trading business due to customs clearance and high shipping fee. In worst case scenario, the supplier giving extremely low price might be sending products in worst quality condition.
Whenever there is a price quoted significantly lower than the others, stay alert and keep in mind that we always get what we pay for.
Explain clearly your requirement
Suppliers care about their business as much as you care about yours, and international trade is done on the basis of mutual trust. Make sure to conduct a complete supplier background check, to communicate clearly about the product, quality control and payment requirement to establish a win-win relationship.
Reliable suppliers are the cornerstones of a successful business.
Learn the shipping
When importing goods, shipping is never easy
Generally speaking, to gain a healthy profit margin, total shipping cost should be kept within the 10% ~ 15% range in sales price (assuming there is 10% ~ 20% in sourcing, another 30% something in distribution, marketing or referral commission, leaving 30% ~ 50% in gross margin).
However, we do see customers paying more shipping fee than product sourcing cost, especially when the goods are light and bulky. ( i.e. 100 pieces of plastic bottle packed in a big paper carton)
Therefore, the condition of goods (quantity and size), shipping volume and shipping method are deciding factors in shipping cost.
Here is the comparison and suggestions to shipping methods;
E-packet (Post)
Works for package below 2 KG, cheap shipping cost but extremely slow.
It takes 2 to 5 weeks for delivery and there is no reliable tracking due to irregular checkpoint update in the service provider system
International express
International express is suitable for cargoes under 250 KG, normally in 2 ~ 5 business days the cargoes will be delivered to the hands of receiver.
International courier (FEDEX/DHL/TNT) shall facilitate customs clearance as long as proforma invoice, packing list and receiver ID are presented.
International express is the most efficient but expensive shipping method.
Air freight
Air freight is suitable for cargoes within 1 Ton, in 2 ~ 5 days cargoes will be delivered to destination airport.
Lower shipping cost compared to international express while the receiver needs to arrange pick up from airline cargo center and to facilitate customs clearance through a broker by themselves.
If DDP or DDU term being applied, it is better to work with a freight forwarder who shall facilitate the process and bring cargoes to the premises of receiver
Sea freight
As explained in another article (all the basics you need to know about container shipping), sea shipping is the most economical way for international transportation.
FCL is suitable for large volume or consolidated cargoes from multiple supplier in the same origin. Giving the prevailing ocean freight rate today, shipping cost in FCL could be well managed within 10% of total cargo value.
Within 30 ~ 45 days, a shipping container can get to most of the country in the world
Cost wise, LCL is suitable (most of the time) for shipment within 4cbm. However, there is longer delivery time for LCL shipment compared to FCL shipment due to extra operation work done at destination (container pickup, devanning, transfer etc)
Due to the complexity in sea shipping operation, it is easier to work with a freight forwarder who shall facility the process from A – Z.
Calculate the landed cost
Getting quotes from supplier is just the first step, importer should calculate (or run a stimulation on) the landed cost before really placing the purchase order. Landed cost reflects the bottom line in sales pricing and importer should always refer to this bottom line to see if the business plan really works.
Don’t put yourself in a difficult situation where
landed cost already exceeds your estimated selling price
A landed cost is the total price of a product once it has arrived at a buyer’s door, it consists of many components and to make a list of key variable ones as followings;
Original price of the product: variable depending on quantity and unit price
Transportation fees (both inland and ocean): variable depending on shipping method
Customs Duties: variable due to HS code clarification and tariff applied
Insurance: variable due to cargo value and insurance cover
Taxes: variable due to freight cost, customs duty, declared value, insurance rate and the tax rate applied in respective country.
Putting the calculation into a formula
Landed cost = EXW price + shipping cost (shipper premises to receiver door) + customs duty/tax
Price of product: you get from supplier in China
Shipping cost: you get it from freight forwarder like us
The rest, consult with customs broker or freight forwarder through HS clarification and regulation verification.
In conclusion, when executing a business plan for import and export, make sure to start with the end in mind by taking into account all the factors that affect cost structure and sales bottom line. Find good products and good supplier who shall support the start and growth of your business.