Guest writer: Jimmy Ting, President and Co-Founder of Cargocentric.
One of the most common mistakes occurs when importers allow the shipper to arrange the freight and pay for insurance coverage. In many of these instances, the insurance coverage is only from door-to-port. This may not seem like a big issue, however it’s leaving a large part of the cargo journey uninsured.
Expanding sales to international markets has huge promise, but it comes with huge risk as well. It’s imperative to be strategic when determining the best market fit before launching a new arm to your shipping strategy. To execute a great international shipping program and ensure it will be sustainable, sellers must rely on experts to help.
DCL has many international shipping partners who we rely on for freight forwarding, international warehousing, customs compliance support, and more. We reached out to our friends at Cargocentric, a freight and international shipping company, for their top tips for sellers new to international shipping.
Know Your Incoterms
The Incoterms are a set of internationally recognized shipping terms that help define who is responsible for the various portions of the international shipping process. They specify the party responsible for paying for and managing the shipment, insurance, documentation, customs clearance, delivery and other aspects of the shipment’s logistics.
Some examples of Incoterms include: FCA (free carrier), FAS (free alongside ship), CIP (carrier and insurance paid to…), DAT (delivery at terminal), DDP (delivery duty place), and there are more.
Companies importing their products must be cognizant of Incoterms when negotiating with suppliers. When it comes time to decide between multiple suppliers, if the Incoterms the suppliers are offering are not laid out in the same way, the importers will not be able to make a true apples-to-apples comparison.
Importers should review the Incoterms carefully to make sure which Incoterms they are comfortable with. There are advantages and disadvantages to shipping under the various Incoterms. Experienced importers know exactly which Incoterms they want to use and can negotiate with suppliers to request the desired Incoterm.
Consult with a Customs Broker BEFORE Shipping
One of the biggest mistakes you can make when expanding into any new sales channel is putting the cart before the horse—don’t launch your products without investigating import compliance regulations beforehand with a customs broker. This is even more true now in 2020 than ever before. US Customs and Border Protection and other government agencies continue to increase the number of import regulations.
A good customs broker will be up to date with the most recent compliance protocols and know how to document your specific products. Be sure to ask your customs broker about these topics:
- Duty implications—there are very specific duty and tax laws that correspond differently to various import scenarios. Be sure you know exactly what to expect in terms of these fees due to Customs.
- Other government agency compliance—are your products also regulated by the FDA, USDA, CPSC, EPA, DOT, or F&W? If so, you’ll need to include special documentation when at the time of entry.
- Proper labeling requirements—do you need to alter, change or include new information on your product labels? Ask if there are any specific trademark/copyright issues that need to be addressed.
Understand Limited Freight Liability and Freight Insurance
Freight companies (steamship lines, airlines, freight forwarders, trucking companies) transport billions of dollars worth of product on a daily basis. On any one aircraft, vessel, or truck, the value of the product carried can easily exceed the value of the freight company. Freight companies limit their liability by necessity.
Importers should seriously consider purchasing freight insurance (also called cargo insurance) to protect their goods from loss and damage during transit. This can be accomplished either by purchasing insurance directly with the freight company or by negotiating independently with an insurance provider.
That said, not all insurance policies are created equal. Some policies have very high deductibles, essentially only insuring for catastrophic loss. Other policies do not cover shipments from door-to-door. One of the most common mistakes happens when importers allow the shipper to arrange the freight and pay for insurance coverage. In many of these instances, the insurance coverage is only from door-to-port. This may not seem like a big issue, however it’s leaving a large part of the cargo journey uninsured. Most damage or loss isn’t discovered until after the cargo is received at the destination warehouse. Importers have a very difficult time making a claim under such scenarios when the freight insurance coverage is only from door-to-port.
Damage to Cargo in Transit
There is a realistic issue that cargo may be damaged or lost during transit. While any seller who is well-versed in ecommerce shipping knows that as a margin of error, some shipments will be compromised. Just like domestic carriers have different ways of dealing with this reality, so do various modes of international freight transport offer various levels of risk.
Least Risky: Full Container Ocean Freight (FCL)
When shipping via FCL, the overseas shipper loads the cargo and seals the container with a seal with a unique seal number. The container is not opened until it arrives at the final destination. Barring a customs examination, the container seal should remain intact and the goods should be in the same quantity and condition as when loaded in the container. The main risk to the cargo is if the container itself were to have been compromised. For example, one issue is when water or moisture enters a container. Containers are not airtight, and in some cases containers have holes in the ceiling allowing water to enter.
High Risk: Ocean Freight (LCL)
When shipping via LCL ocean freight, importers have their cargo combined with that of other importers. The cargo is loaded into the container at a CFS warehouse overseas. When the container arrives at the destination port, it has to be unloaded and segregated at another CFS warehouse. If the cargo has to be transported to an inland port, it may need to then move via truck to another CFS warehouse inland. Each warehouse location is an additional touch point where cargo can be lost or damaged.
How do sellers combat water damage? Importers can minimize potential damage by shipping their products shrink-wrapped on pallets. It is also strongly advised to label shipping boxes so that shipments can be accurately identified by warehouses as belonging to the importer. Per the above water damage issue, strong and clear weather-proof labels are ideal in this instance.
Medium Risk: Air freight
Air freight shipments are handled by airline cargo warehouses both at the airport of departure as well as the destination airport. These touch points represent the greatest area of risk for the integrity of the cargo because airline cargo handling warehouses have been known to damage or lose boxes. What balances out these risk factors is the fact that transport air freight has a shorter transit time, which naturally decreases the potential risk of damage or loss during transit.
As with LCL ocean freight, it is best practice for importers to ship their products on pallets when shipping via air freight. Along with labels, this packaging can help keep products intact and not exposed to elements or disturbance en route.
If you are ready to start selling to an international market, it’s important to know what you’re getting into before you start shipping. Working with an expert can help tremendously when negotiating freight rates and establishing relationships with new partners.
Cargocentric has a reliable and helpful staff who can help with your freight and customs questions. If you are looking for a 3PL to work with, DCL Logistics supports high-growth brands with many fulfillment needs. Reach out to see if a partnership might be a good fit for your brand.