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Getting Started with International Logistics

Alibaba.com Insights
December 5, 2017
3 min read

Moving products from one part of the world to the other can be both complicated and expensive. We’ll step you through some of the basic terms you should be familiar with when choosing an international logistics partners and highlight some of the potential costs you’ll run into when shipping goods.

1. Terms of Trade

There are a set of commercial terms designed to clearly define the responsibilities of both buyers and sellers when trading internationally. These guidelines, called Incoterms, clarify who is responsible for the delivery, risk, and costs associated with shipping.

 

When comparing the costs of your logistics providers, make sure that the terms are agreed upon and then quoted on your invoice.

 

Here is how common Incoterms may affect your logistics costs:

  • Ex Works (EXW) means that the buyer will bear all of the cost and risk involved in the transfer of goods from the seller's site to a desired destination.
  • Deliver Duty Paid (DDP) means that the seller is responsible for delivering goods to a desired destination and that the seller covers the cost of duties, taxes, and customs charges.
  • Free on Board (FOB) applies to sea freight and means that the buyer is responsible for all costs and risks from the port of export.
  • Cost, Insurance, and Freight (CIF) applies to sea freight and means that the seller pays all costs, insurance, and freight to a named destination.

 

FOB and CIF are the most commonly used Incoterms among Alibaba.com buyers and sellers.

2. Insurance

Exporters may provide insurance automatically, but Incoterms 2010 clarifies when risk transfers from the seller to the buyer. You may also want to consider purchasing cargo insurance to cover damage to, or loss of, goods in transit, and to factor these costs into your overall budget.

3. Customs Clearance  

Duties, taxes, and sales tax (VAT) are different everywhere and are usually applied at the point of import. Your logistics partner should advise you on the appropriate paperwork needed for export and import. At the very least, this will include the shipment value, product descriptions, the VAT number, and the terms of trade on commercial invoices.

 

Most logistics companies will recommend a customs broker or will provide this service directly. Depending on the transportation method you have selected, these brokers may be needed to clear the goods on your behalf.

 

Your logistics partner can handle payment of duties on your behalf, but they will charge a fee for doing so.

4. Import Duties and Landed Costs

Your “landed cost” means the total cost of your product, including logistics. So knowing the import duties in advance is key to calculating your landed costs.

 

In fact, this step is important if you plan to sell your products in advance of their import, or if you are researching the viability of importing certain products. Many nations have trade agreements that provide preferential import tariffs.

5. Restrictions

Some items may be restricted from leaving one country or from entering another. Restrictions may apply either to the type of goods being imported or to their potential use. Goods may be restricted because of:

  • the potential to cause harm (i.e., tobacco products, weapons or harmful chemicals)
  • national quotas
  • tariffs
  • embargoes

 

It's important to ensure your goods are not on the restricted list. If they are, then you may need an import licence, which will raise costs. Your logistics company can advise you on restrictions and prohibitions, but the ultimate responsibility (and cost) lies with you.

6. Warehousing and Storage

The cost of warehousing and storing your goods before departure and upon arrival obviously depends on both the size and volume of your shipment and the method of transportation you have selected. Most carriers will provide short-term storage at reasonable costs, in both the country of origin and the destination country. Many provide bonded warehouses, which ensures that duty and taxes will not be payable until the item leaves the bonded facility. Bonded facilities are commonly used for goods that are subject to excise taxes.


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