AboutHank S Expertise Ask me about sourcing products in China, finding manufacturers in China, importing from China, developing new products in China, moving manufacturing to China, price negotiations with suppliers in China, and logistics-related issues.
Experience I lived in China from 1993 to 2003 where I learned Chinese and worked in the fields of logistics, marketing and manufacturing services. I have visited hundreds of factories in China. I am authorized by the NYS Unified Court System as an interpreter of Mandarin Chinese. I have an MBA in international business and entrepreneurship. I work in a U.S. company as product development and sourcing manager.
Education/Credentials MBA, International Business & Entrepreneurship, City University of NY
BA, East Asian Studies & Chinese, City University of NY
Studied international trade taught in Chinese at the University of International Business & Economics in Beijing
Chinese language study at Beijing University & Nanjing University
Question I am very confused and really do not know where to start to get the right information or to at least get pointed in the right direction to determine the cost of importing product from China into the United States. Is there no standard import cost to add to the factory cost? I am well aware of the market for Stage Lighting and TV/Motion Picture Spotlights in the USA. I have searched and found two factories in China that I want to do business with. Let's just deal with one to make it simpler. I have been quoted Distributor Net cost on a line of stage spotlights. I have to get a bank loan set up a distribution business, so I need to find out what the landed cost will be. I just don't understand why I can't find a simple multiplier to come up with the landed cost for these spotlights which are mostly die cast aluminum or sheet steel construction with electric socket for lamp, and wiring that would lead to a plug (not included). There is also usually a specific type of optical lens, like parabolic, fresnel, or ellipsoidal...in other wores different spotlight types for different purposes. They would be coming from Town,Baiyun,Guangzhou,R,P,China to Port Elizabeth, NJ, USA). I need the landed costs for a business plan in order to get a business loan. Is there some what to just come up with a import cost percentage, like 6% - 8%, or 10% - 12%? If not how can I get this information before I am ready to place orders. Why is it all so mysterious? Any advice?
Answer There is no mystery to this, only ignorance on your part which will kill any potential of getting bankers to lend you money.
Besides the cost of the product itself, there are two main components to the cost of importing product into to the U.S.: (1) freight/shipping; and (2) duty/import tax.
You can ship your products by air or by ocean. In your case, you will ship by ocean. Ocean freight is shipped in units called TEUs and FEUs, which stand for "Twenty foot Equivalent Unit" and "Forty foot Equivalent Unit", respectively. These are shipping containers. Ever see a truck hauling a trailer? The trailers are shipping containers. They come in numerous sizes, but the standard sizes are 20', 40', and 40' high cube. Here are the specs you will need to know:
40' container:
Interior:
L: 39' 3/8"
W: 7' 8-3/8"
H: 7' 9-5/8"
Max. Net Weight: 40,000 lbs
Cubic Capacity: 2,376 cuft.
Usable Space about 1850-2200 cuft.
20' Container:
Interior:
L: 19' 5"
W: 7' 8-1/8"
H: 7' 9-5/8"
Max. Net Weight: 40,000 lbs
Cubic Capacity: 1,164 cuft.
Usable Space about 850-1050 cuft.
40' High Cube container:
Interior:
L: 39' 3/8"
W: 7' 8-3/8"
H: 8' 9"
Max. Net Weight: 40,000 lbs
Cubic Capacity: 2,678 cuft.
Usable Space about 2100-2400 cuft.
If you are not buying enough freight to fill up one of these containers, then you are shipping "LCL" (less-than-container-load), and your freight is measured in CBM (cubic meters).
You'll need to know the measurements of the goods you're buying from your supplier in order to calculate the cost of shipping the goods.
Here's how the process works: Steamship lines own and operate the gigantic container ships that sail back and forth between China and the U.S. Freight forwarders negotiate contract rates with the steamship lines by promising to book X numbers of TEUs or FEUs per year. On the basis of the forwarders' promised purchase volume, the steamship lines sell forwarders the space on their vessels at bulk rates. The freight forwarders then go out and sell their services to people like you and me. Think of the steamship line as the wholesaler of shipping services and the freight forwarder as the retailer. You must but from the retailer.
To ship spotlights from Guangzhou to New Jersey, the first thing you need to do (after finding a supplier) is find yourself a freight forwarder that has experience moving freight from Guangzhou to NJ. There are hundreds of freight forwarders out there. Some are global in scope and some specialize in certain specific trade lanes. Don't base your decision on which forwarder to work with on price alone. Do your due diligence on the forwarder; ask them for customer references.
The cost of moving a container from China to the U.S. varies widely and changes constantly. It depends on dozens of different variables. My company pays approximately $2000 to ship a 20' container and $2500 to ship a 40' High Cube container from Southern China to the U.S. east coast. But we ship lots of containers and have a long relationship with our forwarder. You should budget twice this amount, since as a new entrant you have neither volume nor relationships.
If you are not shipping FCL (full container loads), then you will need the forwarder to quote you a cost per CBM. Freight forwarders purchase freight space measured in TEUs and FEUs, but they can sell it in smaller units: CBM. But it is really not cost-effective for an importer to ship LCL, especially when you're shipping large items like spot lights. I pay approximately $100 per cbm from S. China to East Coast USA. But if I ship using a 40'HQ container, my per cbm rate drops by more than half. Shipping costs are all about economies of scale. Shipping cost is probably the single most underestimated cost of importing.
By the way, all of the above is based on you buying FOB China or Ex-Factory (also known as "ex-works"). If you don't know what these acronyms stand for, then you should look up "Incoterms" and educate yourself. Here is a distillation for you: Incoterms are internationally-recognized standard contractual definitions of international buyer-seller or importer-exporter business transactions. Simply put, Incoterms tell you specifically what the buyer is responsible for and what the seller is responsible for, and at exactly what point in time ownership (and risks associated with ownership) of the goods transfers from the seller to the buyer.
If you buy FOB (free on board), the vendor in China is responsible for delivery of the goods to your appointed forwarder's warehouse in China. Your forwarder takes it from there. You essentially take ownership of the goods when the goods pass over the rail of the ship. If you buy Ex-works, the vendor is responsible only for making the packaged goods available for pick-up (by your forwarder's local agent in China) at his facility. If you buy CNF or CIF (cost & freight or cost, insurance and freight, respectively), then the supplier is responsible for making all the shipping arrangements (via his own export agent or forwarder) and delivering the goods to your appointed warehouse. So, a quote from a supplier for a spotlight for $1000 FOB China is a lot different than $1000 CIF New Jersey. My advice is to buy FOB China and take responsibility for the shipping yourself; appoint your own freight forwarder. The more control you can have over the process the better.
The second of your two cost components is import duties. This is a protectionist tax the U.S. government levies on imports. You need to find out the rate for spotlights. I can't tell you the duty rate without charging you, but I can give you a URL where the answer is one click away. Your problem is going to be understanding the answer and making 100% sure you're correct. Duty rate miscalculations can be costly. Go here and do a find (ctrl+F) for "spotlights": http://hotdocs.usitc.gov/docs/tata/hts/bychapter/0901c90.pdf
It looks like there are different rates depending on the specific type or use of the spotlight.
In addition to a freight forwarder you need a customs broker. When selecting a freight forwarder, price shop among companies that provide customs brokerage services in addition to shipping and consolidating services.
My questions to you are: what kind of due diligence have you done on your supplier in China? Are you sure that they're the actual manufacturer of the goods or are they a middle man? If they're a factory, do they have their own export license or are they using an agent? What's the extra fee for the agent? What kind of after sale support will the seller provide? How do you know the seller is a legitimate company? Have you flown to China and met them face-to-face? Who is going to inspect the goods at the factory prior to shipping to ensure you get what you're expecting and there are no unpleasant surprises when you receive your shipment? The bankers will want to see answers to these questions in your business plan.
Don't underestimate the importance of the business plan you're crafting. If you can't demonstrate that you're intimately familiar with every detail of the shipping and importation process, especially the associated costs, no bank is going to lend you money. Assuming you have the capability to SELL these spotlights, you must be able to procure them, and you must know your costs with certainty, not just have some guess or use some "simple multiplier".
Typically bankers will only loan money to business that already exist and have demonstrated that they're viable. You would need to invest tens of thousands of dollars of your own money in procuring, importing and successfully selling one shipment of spot lights. Then your business plan can spell out the process, the associated costs, and a detailed explanation of how you plan to use the borrowed money to grow your business. If a bank sees that you have not invested a reasonable amount of your own money in proving that your business is viable it probably won't lend to you. Read "Bankable Business Plans" by Ed Rogoff.
