If you are a small- to medium-size shipper, your obstacles include:
A freight forwarder can step in to calm the stormy seas of today’s shipping climate, but only when smaller firms understand industry basics. This guide will help you ask the right questions and prepare for a successful partnership with an international freight forwarder.
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The long-term logistical consequences of the COVID-19 pandemic continue to negatively affect shipping on a global scale.
Supply chains ground to a halt during COVID-19 lockdowns and restarting the manufacturing machine has proven more difficult than anticipated. Natural disasters in key areas like Bangladesh, China, and India, along with man-made problems like the Suez Canal crisis, have contributed to the tough shipping situation we continue to endure today.
Amid the turmoil of the past 18 months, the shipping industry is still wrestling with COVID-19 lockdowns—a sole case among longshoremen can shut down an entire port, and a single case on a vessel can lead to port refusals. It’s become a carrier’s market, leaving shippers with limited options as they navigate big challenges.
Carriers lead the way with skyrocketing shipping rates. In April 2019, shippers paid about $1,600 to move a container from Shanghai to Los Angeles. Today, they can pay upward of $15,000 per container.
With an ever-shifting shipping landscape, carriers will not commit to transit times. Port congestion and COVID lockdowns continue to impact carrier reliability, which dropped from 52% to 33.6% in August for ships coming from Asia, the lowest since 2011.
As the world emerges from its pandemic cocoon, we’re seeing a surge in consumer demand. If demand skyrockets, so does the need for containers—a finite resource, as the industry only has so many to go around: half a million containers sit off the coast of Southern California alone. Further, a mere 40 out of every 100 containers that arrive in North America get returned to Asia. The others sit on ships and in warehouses and inland ports. Container production also remains lower than demand. Carriers are scrapping containers faster than manufacturers can build new ones.
The current shipping capacity remains extremely tight. Sea carriers now position available containers and equipment on the most profitable sea lanes between Asia-Europe and Asia-United States. Smaller shippers lament their inability to secure containers or space on vessels at ports of origin, as demand for ocean freight outstrips supply, keeping ports congested and prices high.
Unprecedented cargo volumes further strain resources at U.S. ports, particularly in Long Beach, Los Angeles, New York, and New Jersey. Supply chains are bursting at the seams as carriers, terminals, trucking companies, and rail systems struggle to keep pace.
Two of the nation’s top ports—the Port of Long Beach and the Port of Los Angeles—provide a glimpse into a common situation at most U.S. ports. Imports through Los Angeles-Long Beach spiked 41.1% percent in the first six months of 2021. From July 2020 through June 2021, Los Angeles and Long Beach terminals handled an average of 855,411 TEU per month in 2021 versus 697,892 TEU in 2019.
Because congested ports lack sufficient equipment to manage the increasing volume, heightened demand is adding to delays. Truck drivers sit idle as they wait for a chassis to become available. The average truck turn time in the Los Angeles-Long Beach port complex has risen from 58 minutes to several hours.
Companies are behind the 8-Ball in this shipping climate. Hasbro found itself in a shipping pickle during the 2020 holiday rush, but the toy giant teamed with the port director to get its containers moving. However, a small to midsize company lacking internal or outside support and shipping clout may struggle to do the same.
Shipping products without fully understanding how Incoterms affect your freight creates a risk that can cost several thousand dollars and potentially bankrupt your business.
Incoterms, also known as International Commercial Terms, define the terms of trade for the domestic and international sale of goods. These rules dictate when purchase orders are cut, covering everything from liability to duty responsibility.
Eleven Incoterms exist. Not all apply to your unique situation. Every business is different, as are its shipping needs. Getting to know these Incoterms is a crucial step toward ensuring your shipping process always goes smoothly.
DDP (Delivery Duty Paid). The seller bears all responsibility for the cost of the shipment, duty included.
Though Incoterms detail who pays what, they do not replace a contract. A contract should break down each international move and who handles each part of the process. Let’s say an export gets picked up in Shanghai City, leaves on a vessel in the Port of Shanghai, arrives at the Port of Los Angeles, and gets trucked to San Diego. Each move involves charges and payments, duties, and electronic filings. Incoterms determine who pays each charge and where risk transfers.
Our video FOB vs Ex Works will help better break down the difference between these two popular Incoterms.
Even if a shipper contracts with a freight forwarder, the law holds them accountable for the shipment. This means Customs will hold importers responsible for shipping mistakes, even if they are unaware they violated the law or their freight forwarder caused the error.
A freight forwarder helps shippers move products from Point A to Point B. They arrange air or ocean freight, truck or rail transport, and act as brokers and intermediaries between shippers and carriers.
However, while a freight forwarder takes on the heavy lifting, companies must understand their own roles. Freight forwarders can move shipments, prepare documentation, and help you comply with Customs, but they cannot perform these tasks without the right information.
Knowing your Incoterms (or terms of sale) provides a framework that determines the nature of your transaction. When discussing Incoterms in your contract, include your name, place of sale, and the amount you will pay. It’s important to determine who is responsible for each part of the shipping process before hiring a freight forwarder. This information will help your freight forwarder arrange the shipping.
Shipping by rail or over-the-road works well when transporting goods domestically, but what if you must import or export cargo across the globe? You have two main options for international shipping:
The country of manufacture, production, or growth is considered the Country of Origin. It’s not enough to simply inform Customs of the Country of Origin. Shippers must prove they’ve done their due diligence to list the Country of Origin correctly.
Knowing your HTS codes prevents problems down the road. HTS codes classify and define internationally traded goods. Every good shipped internationally must have an HTS code that corresponds with the Harmonized Tariff Schedule of the Country of Import.
Importers must supply correct HTS classifications on import entries and/or importer security filings (ISF). It’s your responsibility to provide this information to freight forwarders unless you pay them for classification services.
When shipping hazardous goods, you must adhere to specific rules and regulations. For example, only cargo planes, not commercial aircraft, can carry lithium batteries. Shippers must also follow specific rules when transporting lithium batteries via truck—and this is just one example!
You can find guidelines for shipping hazardous goods in two places:
Companies must also determine the correct UN Rating for containers shipping hazardous goods. UN numbers dictate the container types used to ship and store hazardous materials.
While a freight forwarder can guide you through the complexities of moving goods across the globe, a shipper must provide all documents needed by the Country of Origin and destination.
Shippers must provide a commercial invoice and packing list. These detailed documents list product and packaging details for each shipment. Shippers must share this document with freight forwarders, shipping lines, importers, and other parties along the supply chain.
An export packing list notes the seller, buyer, shipper, invoice number, date of shipment, mode of transport, and carrier. It itemizes quantity, description, and packaging types, such as boxes, crates, drums, or cartons. Further, it details package quantities, total net and gross weight, and package marks and dimensions.
Partner Government Agencies (PGAs) regulate commodities imported into the U.S. Each PGA regulates specific commodities. For example, the Food and Drug Administration (FDA) regulates food and drug manufacturing, storage, shipping, and Customs clearance, whereas the Drug Enforcement Administration (DEA) regulates imports of controlled substances. The National Highway Traffic Safety Administration (NHTSA) regulates and enforces vehicle safety standards, to name a few. Knowing how each PGA works and applies to your goods will improve your Customs compliance.
Before soliciting a freight quote, make sure to gather all the information you’ll need to secure the most accurate quote possible. Provide your freight forwarder with:
The more information you can provide, the better. Once you’ve gathered your information, receive multiple quotes and review them before entering a contract.
To ensure you are getting the best bang for your buck, gather multiple quotes and compare them. Remember to pay attention to the fine print—a low-cost quote may include hidden fees. In today’s global shipping landscape, you should always expect surprises!
And don’t forget: every word in a contract—including fine print details—is part of a binding legal agreement.
A knowledgeable freight partner can help you select the right Incoterm, but it’s your responsibility to ensure the rule is listed correctly in the contract. The person who prepared your quote may assume it's a port-to-door instead of a door-to-door shipment, or a contract may make a shipper responsible for door delivery when it should actually fall on the carrier. You will not know the details of your situation if you don’t take the time to look.
Carriers charge a per-container size/type charge known as sea freight for each container. But they also add in other fees, as well. Protect yourself by learning how to recognize these charges.
LCL and FCL refer to two types of container shipments.
Other shipping movements, such as door-to-door, pier-to-pier, and intermodal or multimodal movements, lead to ancillary charges that include:
Container lines are adding port congestion surcharges that range from $350 to $5,000. They may appear on your quote as GRIs (general rate increases), PSSs (peak season surcharges), and value-added. If you see these charges on a quote, ask questions to identify what they are, why they are necessary, and when to pay them.
Erroneous paperwork can lead to Customs inspections and delays that rack up costly fees and fines. Common documentation mistakes include:
You can avoid some documentation errors by knowing the rules that apply specifically to your goods. The binding ruling program allows importers to have their goods assessed with binding pre-entry classification prior to import. A simple CROSS (Customs Rulings Online Search System) search can uncover this information. This Customs database allows users to search past binding rulings by keyword, HTS codes, and more.
Accidents happen. Many factors pose a risk to cargo on its journey. A container ship can sink. A long-haul truck might crash. A container may even slide off a vessel into the ocean. Without cargo insurance, your company absorbs the cost of lost goods.
The primary benefit of cargo insurance is minimizing the financial effects of cargo loss. The small premium you pay provides peace of mind as goods leave the warehouse.
It’s best to add cargo insurance even when it’s not required. The shipping process exposes freight to risks along its journey. Even if carriers assume liability for the load, insurance generally costs less than the total value of the shipment. Ocean freight carriers pay $500 per package/shipping unit or the value of the goods—whichever is less. Air freight carriers will pay up to $24 per kilogram.
Knowing your Incoterms helps you determine when your load needs insurance protection and when it does not. There may also be points in the journey where the burden falls on the seller, not the buyer.
Do you have more questions on Cargo Insurance? Our blog Does Your Company Need Cargo Insurance may answer your questions!
There are a variety of cargo insurances.
Land Cargo Insurance: This insurance protects cargo that moves by land, whether long-haul trucks or small delivery vans. It covers theft, collision, damages, and other risks. The insurance scope falls within a country’s boundaries.
Marine Cargo Insurance: This insurance safeguards cargo moving by air and ocean during international shipping. It covers loading/unloading damages, weather damages, piracies, and other risks. There are several types of marine cargo insurance:
All Risk Insurance: This insurance safeguards cargo damaged or lost in transit if goods are new and are not prone to spoilage or damage. This insurance should cover:
Free From Particular Average: These insurance policies cover major damage or loss to cargo in most cases, except when losses occur during stranding, sinking, burning, or collusion. It covers risks not included in an all-risk policy. Shippers are only liable for part of the damaged or lost shipment.
General Average: This insurance is required for marine freight, and it covers partial shipment losses. Insurers base this policy on the idea that all cargo owners with freight on a vessel must pay for cargo losses if part of the cargo gets lost at sea. For example, if a container falls into the ocean, all cargo owners (even those unaffected by the loss) cover the cost.
Warehouse to Warehouse: This coverage insures freight once it gets unloaded from a vessel and begins transport to a customer’s warehouse.
Cargo insurance does not cover losses that shippers can control. These policies exclude coverage for:
Providing the following information when submitting your claim will expedite the claim:
The most commonly used modes of transport are air and ocean freight. How do you decide which to use? There are many factors to consider.
Cost is often the No. 1 factor when deciding between ocean or air transportation. Air freight can cost up to 10 times more than ocean freight. But if you need goods quickly, air freight may be the best option.
Either way, shippers must understand how carriers bill for air versus ocean freight. Air carriers bill by chargeable rate, calculated by combining the weight and size of the shipment. Ocean carriers price cargo by container, charging a flat rate for a full standard container and billing by cubic meter for less than container load (LCL).
Shipping by ocean makes sense with large, heavy shipments. But as load size decreases, price margins between air and ocean tighten, and you’ll need to weigh other factors to make the best decision for your shipment needs.
It is also important to assess your timeline when moving goods. Ocean freight is less reliable and takes more time than air freight. Most air shipments arrive within 1-2 weeks, whereas ocean freight can take 8-10 weeks from door to door.
Shipping by air makes sense when you have a drop-dead delivery date. Port congestion, weather, and COVID outbreaks can delay ocean freight for weeks.
Our blog Freight Forwarding: Time VS Cost breaks down the pros' and cons' when it comes to time vs. freight in your supply chain!
Air freight is more dependable than ocean freight. Though flights routinely experience weather delays, the airline industry has a history of bouncing back quickly. Ocean carriers often fall off schedule—even more so since the pandemic began.
Shipping by air makes more sense when reliability is a concern. A delay by air will correct itself within hours or days, while a delay by sea can take weeks to fix.
As governments across the globe increase environmental protections, shippers may seek more sustainable shipping options. It’s worth noting that air transport creates more CO2 emissions than ocean transport.
Freight bounces around more on a ship than inside a plane, making it more prone to damage during ocean transport.
Freight shipments classified as hazardous have limited options. Airlines often pose quantity limits on products containing batteries or magnets. Large shipments of hazardous goods must go by sea unless you break them into smaller loads to put on separate flights.
Shippers must often choose between truck and rail transport. Both options offer a set of positives and negatives.
Rail shipping connects inland ports within the U.S. and Canada and represents a vital part of every supply chain. Shipping by rail:
Rail shipping works best when moving large volumes of freight across long distances. But a trend called “metering” can impact when goods arrive. Railyards are limiting the number of containers that move inland when inland depots get congested.
Truck transport works well for short distances and smaller loads. Trucks can load and unload quickly and operate efficiently. Shipping by truck:
As challenges occur en route, shippers may need to consider transloading or transshipping.
The most pressing final mile challenges are equipment shortages. Ports assign a chassis for the freight as it comes in. But there are not enough chassis for current freight volumes, and freight must sit until a chassis becomes available. Once a chassis becomes available, freight may sit on it until labor becomes available to unload it or a warehouse becomes vacant. Port congestion also causes problems, as truckers wait up to an entire day to pick up a load once it becomes available. This factor has pushed trucking rates up by thousands of dollars. Truckers now ask for a 30-day notice on arriving loads, but there is no guarantee that loads will arrive at their scheduled time.
Free Trade Agreements (FTAs) are contracts between two or more countries wherein countries agree on certain obligations that affect trade in goods and services, as well as protections for investors and intellectual property rights. Their main goal is to reduce barriers to U.S. exports, protect U.S. interests abroad, and enhance the rule of law with trade partners.
FTAs can:
The United States currently has 14 FTAs with 20 countries. Shippers can find a full list of free trade agreements here.
The United States-Mexico-Canada Agreement (USMCA) went into effect on July 1, 2020, to replace the North American Free Trade Agreement (NAFTA).
The new trade agreement alters the rules of origin for automobiles, information technology, communications equipment, pharmaceuticals, healthcare, cosmetic products, and chemicals.
USMCA requires a Certificate of Origin listing specific information to claim a duty reduction. Customs will not accept existing NAFTA Certificates. New rules of origin can affect whether a product qualifies under USMCA. The new agreement adds exemptions for products to meet before they can qualify for reduced duty. The change impacts HTS codes with headings 04.01 through 04.10.
USMCA allows an importer, exporter, or producer to complete a Certificate of Origin and claim preferential tariff treatment. A completed Certification of Origin confirms:
Importers must now show origination is based on a valid Certification of Origin and possess the certification before shipping.
NOTE: Importers who do not ask for preferential tariff equipment at the time of shipping can request preferential tariff treatment up to one year after import. To do so, they must have transported goods directly from the Country of Origin or prove the goods remained in Customs’ control as they traveled through regions outside the FTA.
The USMCA also puts additional obligations on importers, including:
Know the difference between quota types that could affect your shipment. Import quotas control the amount or volume of specific goods that you can import into the United States over a period of time.
Three types of quotas exist:
All inventory shipped to Amazon fulfillment centers must include an importer of record (IOR) for all shipments that enter the United States from another country. The IOR:
Amazon also may require the IOR to get a Customs bond to cover all duties, taxes, and fees owed to the government.
The company may refuse shipments that do not comply with specific product preparation requirements, safety standards, and product restrictions. Amazon may also block future shipments to the fulfillment center or charge for additional preparation and noncompliance.
You can prevent problems by not allowing a manufacturer to manage your supply chain and shipping, adhering to Amazon’s strict acceptance policies, purchasing cargo insurance, and developing packaging that withstands the rigors of shipping.
To ensure compliance with Customs and Border Protection, Amazon has a strict list of prohibited items. However, through the proper permits and authorizations, many of these goods can still qualify for FBA, or Fulfillment by Amazon.
Amazon prohibited items include:
Amazon is not responsible for any duties or shipping costs associated with a third-party shipment. Any goods that are shipped to an Amazon fulfillment center with outstanding fees will be refused, no exception. Determine what tariffs may apply to your product to avoid surprise fees. If your product will pass through multiple countries on its way to the Amazon center, it is especially important to research requirements and regulations for each locality.
Big box stores like Wal-Mart and Target have an accessible book that details their routing guide for retailers. The book includes compliance rules importers must follow to avoid fines.There’s no shortage of fines in these routing guides. You must use a certain carrier, specific pallets, boxes of exact dimensions, and labels printed in the proper format and displayed in a specific place.
A startup business running out of its own warehouse without a best-in-class shipping system may struggle to meet these regulations. Missteps will reduce your revenue.
Using a freight forwarder can help you avoid these penalties. Freight forwarding professionals are familiar with routing guide specifications for big box stores. They also have the logistics infrastructure and partnerships to make quick turnarounds to avoid unnecessary delays.
When you select Deringer as your supply chain partner, you can trust that your business is in the hands of dedicated, knowledgeable professionals, who have a strong commitment to carrying on the company's legacy of exceptional customer service. Our caring people work with you to develop tailored solutions that improve efficiencies, reduce overall supply chain costs, and manage the risks associated with global trade.
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