Is it big or not? Your Order Sizes in the Eyes of Your Supplier

When I first started importing, I always wondered what my suppliers would consider a big order and what they would consider a small order. Admittedly, even today I am not entirely confident on this although I have a better understanding. The table below gives my experience on how a supplier views potential orders based on their dollar amount.

Total Order Value Chinese Supplier’s Perceived Value of You
Under $500 per SKU Small buyer. Little incentive to negotiate on price or fight for your business; May not respond to emails, phone calls, etc. Any order will be of least priority.
$500-$5000 per SKU Small buyer. Enough profit potential to offer some flexibility on pricing. Normally responds to communication requests. Some priority given to the order if the right buttons are pushed.
$5000-$20,000 per SKU Serious medium/large buyer. Will offer price discounts to get your business. Order is of good priority to ensure you stay happy.
$20,000+ per SKU Large buyer who must be a major player in their market. Ultimate price flexibility offered and top priority given to their orders.

This is entirely relative to the size of the supplier of course. For Foxconn, $10,000 worth of a SKU wouldn’t even get you in the door, while for other suppliers $10,000 would get you their first born. However, it gives a very rough idea of where you’ll potentially stand in the eyes of your supplier.

What have your experiences been?

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China and Tariffs/Duties and Most Favored Nations

When you are importing goods into your country, you will have to declare the goods to customs and possibly pay duties. It may come as no surprise to you that, depending on which country you are importing your products from, you will pay different duties. So a toaster being imported from Canada into the Unites States will be treated differently than one being imported from China into the United States. If you live in North America, you probably know about NAFTA (a trade agreement which ensures most goods are duty free).

When I first started my career in importing and I learned about this I thought, Surely China must have a lot higher duty rate than other countries seeing as China is stealing jobs from all of us Westerners and governments typically want to encourage local manufacturing.

Wrong.

Most countries have three levels of duties for countries:

Most loved (or at least we signed a free trade agreement with you)
Most hated (think Axis of Evil)
Everyone else (ironically called most favored)

 

 

Tariff Rates for Countries

Harmonized Tariff Schedule for the U.S.  with different rates listed

So if you’re like me and you want to start importing “Tileboard which has been continuously worked along any of its edges and is dedicated for use in the construction of walls” (seriously what is this?) you will pay anywhere from 0% to 45% depending on where it is coming from.

While classifying your goods can be tricky, knowing which duty rate applies to it is simple. The middle category, “special”, is reserved for countries that have special trade agreements with another country.  So in this case, that would apply to countries like Canada (this tariff schedule is for the U.S.). The third column is reserved for the truly nasty of nasty countries which likely have severe trade sanctions on them. Think North Korea. There are only a very small handful of countries that this applies to and if you are new to importing and thinking about importing from these countries, all I can say is good luck to you!

The first column is the most interesting. This is ironically referred to as the “Most Favored Nation” category. (so what is a country like Canada? most-est favored nation??) Most countries, even if they have somewhat iffy relations with your home country, i.e. China, fall into this category. Generally, for a country to be removed from another country’s “Most Favored Nation” list is paramount to diplomatic war.

So a very long story short, China is considered a “Most Favored Nation” by most countries. So, if you’re importing “Tileboard which has been continuously worked along any of its edges and is dedicated for use in the construction of walls” and it has a density exceeding 0.8g/cm, refer to the first column. Therefore, you will actually pay 0% duty on it. However, if you’re importing that same product from North Korea, you will pay 30% duty on it and you may want to re-consider that trade-trip to Pyongyang.

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Dealing with problems with your supplier

 

You will eventually have problems with your suppliers. China manufacturing gets portrayed, for better or worse, as having proportionately more problems than the West. Whether or not this is true or not, the Chinese way of dealing with these problems is vastly different than in the West.

My significant other once made me read a relationship book that taught that in every relationship you make emotional deposits and withdrawals. As long as your account has a positive balance, your relationship will be healthy, and if you make more withdrawals than deposits, it will be unhealthy. The same is true with your relationship with your supplier.

Assuming you are a relatively small company, you must understand that just by placing a relatively small order you are making a relatively small deposit into your relationship with your Supplier.  One of the problems I see often is that Westerners over-estimate the size of the deposit their small order represents. Small orders are often fine, but you must be sensitive to how much you can withdrawal.  If after you receive your first order you complain to your Supplier that one of the boxes you received had a small tear in it and you would like to receive a replacement you have effectively drained your account with your Supplier. They will likely stonewall you and/or refuse to deal with you in the future. In fact, I would suggest that if you ask for any compensation for a relatively minor issue within your first few orders, you will drain your account with your Supplier.

How to create positive deposits with your Chinese Supplier

How to create positive deposits with your Chinese Supplier

The more withdrawals you make into your Supplier/Buyer account the more deposits you can make. Good types of deposits are:

  • Big orders
  • Big orders
  • Meeting your supplier
  • Mailing a small gift during Chinese New Year
  • Paying promptly
  • Sending limited emails/phone calls back and forth

And by the same token, types of withdrawals:

  • Asking for compensation for a small problem
  • Sending more emails than necessary
  • Asking for unreasonable discounts
  • Using any language that causes your supplier to lose face

I’ve used a bad “Relationship Self Help Book” metaphor but the above really comes down to the Chinese long term view of relationships. For us in the West it can be agonizing the length of time it takes to make these deposits (often years) but it’s necessary when doing business in China. For those who are impatient, often they get surprised when their emails no longer get answered by their supplier: a clear sign they bank account has been overdrawn.  However, if you keep a positive balance in your Buyer/Supplier relationship, you can potentially get preferential treatment over their other clients, who may be your competitors, and you can make larger withdrawals.

 

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Non-Deliberate surprises when receiving your products

A lot of importers may be familiar with deliberate actions from Chinese Suppliers which reduce product quality, such as substituting an inferior material without telling the buyer. However, along with dealing with issues like these (which are common in China) there are also the non-deliberate, but equally as frustrating, actions by Chinese suppliers which also compromise product quality.

One of these situations arose last week when we received a new shipment from our supplier. Before we placed the order we asked that all items have our bar code affixed to them. Upon receiving the new shipment, everything looked fine except  for one of the products that came packaged with 2 inner boxes per master carton (i.e. each carton had 2 products in it, individually packaged). For some head-scratching reason, they decided to bar code the master carton and not the two cartons inside. Subsequently we had to manually re-barcode all of our items ourselves. Our supplier likely did this out of sheer ignorance rather than malicious action, but alas, that is China.

Over the years, I’ve encountered several such occurrences.  Some of the best are:

  • Having a decorative stainless steel item engraved in very large letters “MADE IN CHINA”
  • Ordering spare replacement screw kits for one of our items which included 64 different screws per item.  Each different screw was mixed together in large box rather than separated out
  • Marking boxes containing black widgets “White widgets”, and marking the white widgets “Black Widgets”
  • Routinely on Master Cartons only Chinese Characters or some other ambiguous markings

I’m sure every importer could include their own list of head scratchers.

The big issue with these types of things are that you cannot plan for them. Even if you try to identify every foreseeable problem clearly in your order specifications, your Chinese Supplier will eventually find an unforeseen way to surprise you.

While no matter how clearly you lay out your specifications you may still be surprised, doing this will lessen how many times you experience such things. Ultimately though, one of the only ways you can truly eliminate such things is to actually have boots on the ground inspecting your shipment before it leaves China.

 

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Customs Examination (Part 2)

If you followed my previous post, Types of Customs examinations, you will know that last week one of my company’s containers was pulled aside for a customs examination. This is an extremely frustrating part of importing as the end-result of these examinations is normally either a) a big invoice or b) a bigger invoice.

The freight forwarder in charge of this shipment issued us the invoice and it was as follows:

Charges for a 20' Container Examination

Charges for a 20′ Container Examination

You’ll notice not only were we charged for the actual examination of the container, we were also charged for the moving of the container, various “in/out” charges from the port of Vancouver, and of course, the obligatory “admin fee” (which we were actually charged for twice). Adding to the frustration, you normally get five days to pick up a container. Common sense would say that this five days should begin after the examination (as you can’t pick up the container prior to this) but every day in examination counts against this.

Keep in mind, this examination was completely random and they found nothing improper with the shipment and we were still invoiced for this.

If you read my previous blog post you will also know that initially I was told this was a simple “dock side” exam but this was the much more intrusive CEF exam. My initial suspicion I was misinformed about this being a dock side exam.

Long story short, an importer likely has cause to resent the customs examination process a great deal. However, currently, it is what it is, and it’s one of those inevitable costs of being an importer.

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Types of Customs Examinations

Once or twice (or even a few times) per year I get notified that one of our shipments has been selected for a customs examination. One of those times occurred this week at the Port of Vancouver as I was just informed it would be a “Dockside Examination”.

Admittedly I’m not an expert on the whole examination process so the word “Dockside Examination” wasn’t clear to me.  However, I knew that earlier in the year we were footed with a bill for over $1000 when a container was taken aside (i.e. transported many kms to an offsite facility) and inspected. So my suspicion was that a dock side examination is performed at the port, meaning it doesn’t have to be transported to another facility, hopefully meaning that the charges won’t be as high. As an aside, in case you’re not aware, the importer must bare all of the costs associated with an examination, which IMO is a severely flawed system, but it is what it is. As per The Canada Border Services Agency:

It is the responsibility of the shipping industry to select warehouse operators for the transportation, unloading, and reloading of containers at centralized examination facilities. The facility operator generates the fees for presenting the goods for examination, to cover the cost of transportation to and from the examination facility and for unloading and reloading the container. The facility operator bills these costs to the shipping lines that in turn pass the cost to the importer.

CBSA Website

U.S. Customs says roughly the same thing here, as well as most other countries I suspect.

In my research of different examination processes, I found that there are essentially three types of examinations Canadian Customs will perform:

  1. Examinations at a container examination facility (CEF) BAD
    The container is moved from the port to another facility and completely de-stuffed (i.e. all of the goods unloaded). Customs officers than use a variety of tools to test of drugs, weapons, and other contraband. 
  2. Pier/Dockside examinations NOT AS BAD
    Customers officers open the container and do a visual inspection. They’ll lightly inspect the goods closest to the door and if they don’t like what they see, they may refer the container for an off-site examination. 
  3. Large scale imaging (LSI) examinations OK
    An X-ray is performed of the container to identify if an ‘intrusive examination’ is needed.

As mentioned, the container has been selected for a dockside examination. Assuming the customers officers do not find anything that raises any eyebrows, my hope is the container will be released within a day or two and with minimal charges (<$300). I’ll follow up with another post once I find out the results.

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The Key to Finding Good Products

iPhone cases- don’t do it!

One of the comments I get asked by friends, acquaintances, commenters on this blog, and so on, is ‘do you have any ideas for what products to import?’.  My answer is, of course, “Yes, I have an entire spreadsheet full of potential products, and no, I won’t share”.  Even if I was more benevolent, the chances are my little Excel spreadsheet would be of no use to the vast majority of people as it relates to one or two specific niches that most people care nothing about (nor have any desire to care anything about!).  So that right there is the key to finding successful products to import: you have to have a niche or two that you are an expert in.

One of the examples I routinely mention of a product to import is horse saddles. I know almost nothing about horse riding except I know that I am not alone in knowing almost nothing about horse riding. By virtue of that fact, that means someone who does know something about horse riding eliminates their competition drastically (I sure as hell won’t ever be their competition!). For the iPhone case importer, they will compete against almost any other potential importer who has ever had a great idea to import iPhone cases (and trust me- a lot of people have had that idea!).

Aside from eliminating your competition by concentrating on a niche, you also also have the opportunity to offer a lot more value to your customers.  Because I am an expert in my niche, I often find myself looking at existing products and thinking of how to make them better, even in the slightest way. I might find good complementary products to couple with the products or I might improve the documentation included with the item. In a couple of strokes of engineering genius, I’ve even been able to suggest different materials for some components to increase quality.  These are things I can only do because I know the products I import, inside and out.

One of the other benefits of focusing on a niche opposed to a mass market product is that the suppliers for these products will be on the smaller side. Such suppliers are normally open to smaller orders and you can actually become a client who matters to them. The number of suppliers will also be smaller, so it makes picking a supplier a lot less overwhelming. Aside from that, Scammers would rarely think to target horse saddle buyers in some Western Union money scam.

If you’re not an expert in a particular niche, you can likely become one in a short time. Visiting brick and mortar stores that either specialize in a niche you’re interested in or at least sell certain items in that niche is a great way to start. Magazines specializing in that niche give a lot of information regarding products in that niche and also contain advertisements which let you scope out your competition quickly.

Ultimately, if you’re able to become an expert in the products you’re importing, your customers will be happy and your bank account will be too.

 

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The Holy Grail of Just In Time Inventory for Importers

Hour Glass

 

Just In Time Inventory

Just In Time Inventory

Mastering lead times, i.e. how long it takes your supplier to produce your goods, and transit times, i.e. how long it takes to receive your goods once production is complete, is often a fine art and an extremely critical part of your business and definitely mine.

In the dozen or so years that I have been importing from China I can only venture to guess how much money our company has lost in sales because we did not have the products in stock when needed. I do not think it would be a stretch to think our sales overall could have been 25% greater during that 12 years or so.

The issue is that one must order products normally a minimum of 4 to 6 months in advance of when they will need them (and that is playing with very tight margins; 6 to 8 months is more realistic).  If you’re a business that relies on the Christmas season, that could mean ordering products in March to June when sales are stagnant on the hope that they will increase during Christmas. For my company, which has our prime selling season go from March to August, it means putting together our POs in October.  Our October sales volume is approximately 25% of our June volume and needless to say it is scary committing that much cash when your sales have taken a sudden and dramatic drop off during the off season.

Perfecting Just In Time inventory management for the importer normally means attempting one of two things:

  1. Making far larger orders and holding a lot of inventory.
  2. Trying to time things just right so your products arrive at exactly the right time.

Option number one is fraught with problems. First, it ties up a lot of your cash. Most people and businesses cannot afford to hold a year worth of inventory- and always remember, a large number of profitable businesses go out of business because of poor cash flow. Second, if all of a sudden you get a bad shipment of products from your supplier (or something else unforeseen happens) more of your money is at risk. Of course, if you receive good quality products and have lots of it in stock, you will not lose any sales due to stock shortages.

Option number two is possibly the best option. You know you need xyz number of widgets in for abc month so you order them at just the right time. The problem with this option is reality: something always seems to happen to screw up your estimates. A once in a life time flood hits your supplier in Ningbo and your shipment gets delayed a month and misses the Christmas season (it happened to my company).  A port strike hits Vancouver and your shipment is stuck in port for an extra three weeks (it also happened to us).

So what can a savvy importer do? There are a few key points I try to exercise:

  1. You must be able to accurately forecast your demand. Don’t order Halloween costumes to arrive in November.
  2. You must know your supplier and their realistic lead times. If they say 30 days, double this. If they make Halloween costumes, the chances are they’ll get behind in production a few months before October (even if they truly believe they can handle the added demand).

Know the transit times to receive products and pad these estimates. If you think it will take your goods 25-40 days in transit time from China to your home country, assume it will take 40 days.

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Shipping a Container from China Infographic (including dimensions, prices, transit times, etc.)

Container Overview  Infographic

An infographic showing critical dimensions, costs, transit times, and lifecycles in the process of shipping a container from China.

Above is an infographic showing the critical aspects of shipping a container from China. It’s a good reference point for experienced importers and a good overview and starting point for new importers (shipping a container from China to your home country is easy!).

The infographic includes approximations for price and transit times. I’m always hesitant to include such approximations because someone is bound to take them as a hard rule. They’re not. However, it gives importers, especially new importers, a general idea that shipping a 20′ Container to New York costs about $1300 and takes about a month.

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The Alibaba IPO Isn't Really an Alibaba IPO

Alibaba, ahem, TaoBao IPO

All the buzz in the tech community recently seems to be about the forthcoming Alibaba IPO. Why? Because it could be the largest internet IPO ever, easily surpassing Facebook, Twitter, and other North American internet powerhouses. If you haven’t heard, Alibaba surpasses even Amazon in total sales.

For importers, Alibaba is all too familiar with us as the way to connect with Chinese suppliers (whether you swear by it or curse it). The first time I heard of Alibaba’s size and scale I couldn’t help but to wonder how a site connecting factories and trading companies in China to those in the West could be that big. Then I found out the secret: Alibaba owns TaoBao. If you’re not familiar with Taobao then I strongly encourage you to get a Chinese girlfriend or boyfriend and watch how many purses or running shoes they’ll buy through this site. In China, TaoBao has a near monopology on ecommerce. And if you didn’t know, China has quite a few people!

So the truth is, the Alibaba IPO really has nothing to do with Alibaba. That just happens to be the name of the holding company. The Alibaba really is a TaoBao IPO.

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