The ins and outs of shipping
Moving goods is an imperative part of ensuring your business’ success. When it is overlooked, not carefully planned or not budgeted for, it can cause a world of grief. Acacia Logistics founder, Marni Clarke, discusses the mistakes companies make and shares her tips and tricks to fix them.
1 A lack of understanding of freight options available to move goods―a client of mine used to move goods using DHL as their quantities weren’t that big. After the gift fair their orders increased significantly and so they decided to move their products via sea freight as this was now the cheaper option. Or so they thought. One container holds 70 cubic metres (m³), which is a lot of product. The client only filled the container with about 5m³ worth of product, however, he still had to pay for the whole container!
It is important to know what your options are. These depend on several factors:
Size of cargo―how much are you actually shipping? Obtain estimate on how many cartons your goods will be packed into, their dimensions and weight. Your supplier should be able to tell you how much the weight will be, how many boxes, etc. When it comes to moving goods costs are based on the weight and volume.
Speed of cargo―speed at which you need to receive the goods. This can be either by air or across the sea. Within these categories there are different options. How quickly do you need the cargo? By sea is the slowest and steady option, but you pay less on a freight cost per unit basis, while by air is quicker but you pay more.
Considering these factors, what are your actual options?
● Moving your own container load―filling the container to the brim (FCL ie full container load) with product is the most cost effective option and has the lowest freight cost per item that you are moving across the ocean. But it takes a lot of product to fill a container, from around 20m³ up to 75m³.
● Less than a container load ie LCL―this is an option not many brands are aware of. If shipping a full container load is out of the question, you can combine your goods with other people’s products into one container. Minimum charges on LCL start at 1m³, so keep this in mind when you are placing your orders as you still pay for anything under 1m³. LCL costing moves exponentially, so if you are moving 3m³ worth of product it is not going to cost you three times as much. Ultimately, the more you ship, the cheaper the freight cost per unit.
A lot of brands divide their shipments up in smaller consignments to stay under the $1,000 threshold and avoid paying GST and duty free tax when importing. However, doing it this way they are shooting themselves in the foot because while they might save a dollar on duty―which might not even exist depending where they are buying from―they are spending more on a freight cost per unit basis because they are shipping smaller lots.
When speed is of the essence―bulk runs are behind, you need stock fast, eg to hold onto buyers― and you are looking at moving goods by air, there is air cargo or air courier. With air cargo, commercial airlines will carry your goods and is best suited to large weights/volumes that are needed quickly. This can be direct or indirect. A direct service doesn’t pass any other airports on the way through, while an indirect flight might go to three different airports before touching down at the final destination. This, obviously, will take longer and for that you will get a slightly better price.
Air couriers are suitable for very small quantities and include companies such as DHL, TNT and FedEx.
2 Not taking the time to learn the Inco terms of freight ie the ‘language of logistical love’― International commercial terms (ie Inco terms) define buyer and seller responsibilities in the international sale and movement of goods. There are a set of acronyms designed to make moving goods easy. If you can get your head around some of these common terms that exist, it will definitely help you to avoid some of the common costly errors that occur from now knowing―who pays for what during the movement of goods, who bears the risk and at what stage does ownership pass from seller to buyer?
For example, you have negotiated a great price with an overseas supplier and you ask if freight is included and he says yes. Happy days. A few days before the goods are meant to arrive at the warehouse you get a phone call from some unknown freight company or someone that works for Qantas that handles air cargo―your goods are about to arrive but before you can have access to them, there is a series of port or airport charges that you need to settle first.
You also need your goods customs cleared so there will be custom charges, taxes and someone to deliver the goods. So how is this possible as your supplier said freight cost was included and these charges outweigh the retail price you had on this product? However, if you want your goods these charges need to be paid, no matter what!
This situation can be avoided! When the supplier said freight was included he meant CFR, cost of goods and freight, which is only up to your closest port. This doesn’t cover all the charges once the goods come off the boat or plane.
TOP TIP: go FOB (free on board), the most commonly used term in trade. Your supplier is responsible for getting goods to the closest port in their country. Risk and costs pass over to you once the goods pass over the ship’s rails. It gives you the best transparency and cost control over freight―you minimise the ‘surprise’ element of unexpected port charges when the goods arrive in Sydney
Understanding the language of logistical love will put you in the drivers seat when it comes to contract negotiation, clear understanding who pays for what in the international movement of goods and indicate your risk and obligations and where ownership passes from buyer to seller in the movement of goods across international borders. It’s fundamental to shipping 101 when it comes to moving goods.
3 Not having a full comprehension of the costs involved in moving the goods―you need to get your head around the full set of costs that are involved when moving goods internationally in advance and pressing the green light on production. It comes back to that planning concept, not only does this mean understanding the mechanics behind freight pricing, but also understanding there are customs taxes and duties that are applicable on goods when they move across international borders.
● Freight cost―whether by air or sea, there are fixed and variable charges. This quote from your supplier is based on an estimate, final charges will be based on actual size and weight which are measured at the port or airport before they are loaded onto the plane or ship. Sometimes this can be different from what was estimated, so you need to be mindful you might need to revisit the price before you ship the goods, just so can be prepared for that pricing.
Rates are impacted by market factors, therefore the same shipment at different times of the year can mean different freight rates. If there is little space that means freight costs are high as the space is in high demand, especially around Christmas and Chinese New Year this can happen. Rates can be triple the rates you see in the middle of the year, for example.
If you are not necessarily restricted to the time of year that you need to move goods, shipping in the middle of the year, so June/July typically means lowest freight costs of the year. This also applies to air freight, we are seeing double the rates at the moment.
Freight costs also made up of documentation fees, port related charges, handling fees, delivery, etc.
● Custom related charges―it is easy to overlook what kind of charges are involved in moving goods internationally. Duty is charged at the time of import, determined by customs in the receiving country and particular to the characteristics of the products that you’re importing. This is based on the purchase value of the goods, so how much you paid the manufacturer for these particular items. Typical lifestyle products duty rates are about five per cent.
● Taxes―import GST, is calculated on how much you are spending on the goods, so the purchase price; marine insurance to protect your cargo during the move or transit, protects it from loss or damage; duty, you get taxed on a tax basically.
TOP TIP: If your business is registered for GST, you can claim that back on your next BAS.
If your goods are worth less than a $1,000 you don’t pay duty and GST! But that threshold is supposed to be abolished 1 July 2018. Don’t try to cheat, customs might ask for more documentation to confirm your goods are worth less than $1,000, for example proof of payment. Penalties are very high and you get blackmarked!
4 Not taking advantage of easy ways to save money when it comes to moving goods internationally―in particular FTAs (free trade agreements). FTAs are agreements in place between countries that are bound to facilitate the smooth movement of goods between countries. For example, under the FTA you don’t pay the five per cent duty, which can make a huge difference!
TOP TIP: If you have been trading with a country that has an FTA with Australia but have been paying duty you can claim this back as far as five years providing you have the the correct documentation.
5 Taking a ‘one size fits all’ approach to domestic movement of goods―finding that right service provider that can deliver your goods out to stores as well as to your consumers if you have an online store, continues to be an ongoing concern headache for a lot of brands.
Brands that get it right take themselves through a bit of a trial and error journey, in addition they continue to renew their dispatch options as their business grows and evolves and their reach extends further across the country. There is not necessarily a one size fits all solution.
The winning tips from Marni Clarke
● Be clear on freight options available
● Get to know the language of logistical love
● Understand costs―comprehensively
● Take advantage of opportunities to save $
● Be prepared to trial and error domestic movement options