Air Freight & Courier from China – Basics, Strategies & Issues

Courier & Air freight are two popular modes of importing goods from China. New importers often do not understand the difference between“couriers” & “air freight”so this post goes into the differences as well as looks at when it is a good idea to send your goods by air as opposed to sea, which air channel to use, key issues to avoid when shipping cargo by air & some strategies to reduce costs when using courier or air freight. Before we get into the nitty-gritty of choosing between air & Sea as well as between courier & air freight, it is important we look at the difference between “courier” & “air freight”. How is air courier different from air freight? Courier, also known as “express” is basically a “door to door” service, where the courier company will get your goods from Point A (normally your suppliers or consolidators address in origin country) to Point B (Your delivery address in destination country).   They will manage all the processes required in getting the goods from A to B, i.e. local pick-up & delivery, customs clearing at origin & destination port, payment of taxes & duties (They will bill you for this bit separately), etc. Popular courier companies are DHL, Fedex, UPS & TNT.Air freight on the hand is essentially am “Airport to Airport” service, as opposed to a “door to door” service. This means, the carrier is responsible for taking the goods after they have cleared customs at the origin airport & delivering them to the destination airport.A customs clearing/forwarding agent is required at each end to clear the goods & arrange further delivery to your door. Air freight is often, also referred to as “air cargo”.Your trade terms with the supplier will dictate who arranges for & pays for the forwarding agent at origin & destination. For e.g. if you are buying FOB, your supplier will clear the goods at origin port, while your nominated forwarding agent will do so at the destination port & arrange for the goods to be sent to you from the airport. “Air freight” services are provided by many of the large express courier companies like DHL & Fedex as well as passenger airlines. Most passenger airlines have space to accommodate commercial cargo and this roughly accounts for 10% of their revenues. The decision on whether to send your goods from China using an air cargo service or via sea shipping is a function of three key factors, i.e. the volume of goods, weight of goods & the value of your merchandise. Using air freight is normally a good idea in the following cases:

• For sending samples.
• For high value – low volume goods (that are not extremely heavy), e.g. Tablets, Watches, etc.
• When your goods are time-sensitive or there is an urgent requirement.
• When you want to keep your cash-conversion-cycle (CCC) short as compared to sea, air shipments tend to take much less time.

So the most common question that comes up at this point is, at what kind of volume does sending by sea become more feasible than sending by air? This depends on quite a few factors such as the “air freight” rate for the week (Changes weekly) & actual weight of the goods. However, I have found that once you cross the 1CBM mark you can start looking at LCL sea shipping as an option. We find, importers, including experienced importers often get confused about how courier & air cargo costs are calculated.When a courier services company, forwarding agent or supplier quotes you on per kg basis, they are normally referring to the cost per kg of “Chargeable Weight”. Chargeable weight refers to the higher of actual weight of the goods & the volumetric weight of the goods. Volumetric weight (also known as “dimensional weight”) is calculated by multiplying the dimensions of the carton and dividing it by the “dimensional factor”. Importers often ask suppliers for the weight of goods & take a quote from the agent based on the actual weight & end up surprised when they find a large courier bill, due to the fact that they were charged on volumetric weight, as it was higher than the actual weight. To add to this confusion, the calculation formula for calculating volumetric weight for “courier” shipments is different from “air freight” as the “dimensional factor” for courier is 5000, while that for “air freight” it is 6000. This is where even experienced importers trip, when they are trying to decide between courier & air freight, as they use the same weight to compare options. So let’s look at an example.   Product: Android Tablets Qty: 500Pcs No. of Cartons: 10 Carton Dimensions (Cm): 80 x 50 x 40 Actual total Weight of 10 Cartons: 200Kg. Volumetric Weight (Courier): ((80x50x40)/5000)10 = 320Kg Volumetric Weight (Air Freight): ((80x50x40)/6000)10 = 267Kg As the volumetric weight exceeds the actual weight of the cargo in the above case, the courier charges would be based on 320kg & air freight charges based on 267kg. Important: Modern day courier companies use advanced laser scanning machines to calculate the volume of cartons. This means, even a small bulge in your cartons can lead to a significant difference in volume. Here is a little video that shows how these scanners work. If your cartons have any sort of bulging, depending on the nature of the goods & packaging, it can also risk the safety of goods in transit & therefore this should be one of the checkpoints on your quality control checklist for the pre-shipment inspection of goods. So how do you decide between courier & air-freight? As with sea-freight, there is a fixed cost at each end for customs clearing, forwarder’s fee, and domestic trucking, therefore using courier is normally a no-brainer when it comes to small packages & samples. Continuing with the above example, let’s say you were importing goods from China to the US & were quoted $5/Kg for courier & $4.5/Kg for air freight, your costs would be: Door to Door courier: $5 x 320Kg = $1600 Air Freight = $4.5 x 267Kg = $1200 But wait, there is a reason why importers find comparing these quotes confusing. Let’s assume under both cases you have bought your goods on EXW Basis, in this case, using air-freight you would need to pay for:

• Haulage/domestic courier from factory to the airport
• Customs clearance costs & forwarder costs both in China & USA
• Haulage/domestic courier from the airport in US to your door

Let’s assume that as a ballpark figure these come to $300 in China & $450 in US, so a total of $750. So now our options look like this: Door to Door courier: $5 x 320Kg = $1600 Air Freight = $4.5 x 267Kg = $1200 + $750 = $1950 In the above scenario, courier is clearly the better option. To add to that, another important consideration is that express courier in almost always the faster option unless you have chosen for one of the super-slow courier services which tend to be cheaper and your package goes on a world tour for 7-10 days before reaching its destination. So, the key question is, at what point does air freight become more economical than courier? From my experience of sending out 1000’s of courier & air freight shipments from China over the years, I find that in most cases, at around 400-500Kg chargeable weight, the “total cost” of air freight starts to become cheaper than using air courier. In the attached calculator for example, if you change the number of cartons from 10 to 20, you will find now that the total dimensional weight goes to 533Kg and in that case air freight is a cheaper option than courier. For weight below the 500Kg mark, using air courier is also a simpler option than air freight, as you do not have to worry about dealing with forwarders etc. which means you can use that time to focus on other key areas of your business.

1.      Damage in Transit:

When sending goods by air, it is important to ensure that you avoid damage in transit by being specific in your instructions to the supplier about your packing requirements. This should look at both the packaging used to protect the product as well as the quality of cartons. I have seen a lot of cases where goods that were perfectly OK when they left the factory ended up with all kinds of damage by the time they hit the importers warehouse.Why does this happen?

1. People handling these cartons are not always too kind to the packages and often throw them around & when you are importing from China, those large “Fragile” stickers often don’t work either.
2. Packaging, especially the quality of cartons is an area where suppliers do like to cut corners when possible to cut costs.

2. Expensive Surprises

For some reason which I am yet to understand, Chinese factories often miscalculate the correct volumetric weight of goods, especially before the goods have been produced. This has been a constant issue for us especially when working with new factories. You would believe that a factory making standard products and sending them out regularly would have mastered the volumetric weight calculations, but there is often a big difference in “volumetric weight” informed by the factory to the client and that measured by courier companies. This often leads to an expensive surprise when the importer receives the invoice from the courier services company or forwarder.

3. FOB Quotes Changed to EXW

When getting quotes on B2B websites, suppliers often quote on FOB basis. However, importers often end up getting goods by courier or getting goods from multiple suppliers sent to one consolidation location. This normally means, this you are essentially now getting the goods on EXW Basis, i.e. the suppliers quote included their expenses for “customs clearing” in China but now they do not need to do this. Many importers, in this case, end up paying more for logistics. Therefore, it is important that you decide on your logistics plan early. If you are planning to consolidate your goods or use courier an EXW quote is a better idea than an FOB one.

4. Risk of Pilferage

There is always a small risk of pilferage when opting for “air freight” as the goods go through several hands. This is something that applies to LCL shipments too. My experience over the years has been that this risk is quite small in China, however we do see more cases of pilferage in “developing countries” at destination port as opposed to developed countries. This risk can be minimized to some extent by “smart packaging”.

5. Changes in Courier & Freight Quotes

Many importers ask us to quote for a courier shipment that will be ready after a long period of time. We have to tell them that we can quote them however the quote would only be valid within that week. This is because like “sea freight” rates, courier & freight rates update weekly, primarily due to the “Fuel Surcharge” element which is linked to oil prices. Therefore, you should always get a fresh quote once your goods are ready. This, when combined with re-confirming the volume of goods will also help avoid expensive surprises and can often result in good news if the rates fall. By making small changes to your goods & packaging you can significantly reduce your air courier costs.

1. Fully use the carton space

Leaving empty space in cartons (or containers) is almost a crime when it comes to international trade. When you do this with LCL shipments you can get away with a little impact on your margins but with air cargo & courier this does add up and eats into your margins. Packaging Tip for China Imports To avoid this, you should ensure that you give specific packaging instructions to your suppliers & ensure that no space is wasted. Other than the cost benefits of doing this, this also helps minimize “damage in transit” as cartons with free space often get damaged as heavier cartons are put on top of them during their journey to your warehouse. Smart suppliers will normally do this for you, especially selling on FOB basis however when importing from China, it is normally a good idea to be proactive about these things.

2. Package Design

This is an area where you can get really creative & something that often gets ignored, especially with small & mid-sized importers. A lot of the private label sellers for example like to differentiate themselves by going for “premium-packaging” which is a great idea. However, sometimes the packaging is extremely bulky while the product is tiny, in an attempt to copy the premium package designs of branding stalwarts like Apple. This is a great idea if your product has the same price tag as an iPhone, however, this can really eat into margins when your product sells for anything under $50. Pro Tip: In the e-commerce/Amazon space, competitive advantage can often be gained by spotting products selling well & coming up with a package design that makes your “logistics costs” half of that of the competition.

3. Product Design Changes

The above concept can also be applied to product design, although this might not always be viable for smaller importers. Being creative with things like the type of charger to use or the size of an accessory can all help reduce package size, which results in logistics $$ saving.

4. Type of Courier Service

When using courier services there are a lot of services that many importers are not aware of that can help cut costs significantly. I am not referring to the choice of companies here although different players like DHL, Fedex, UPS, etc. do have different pricing & routes where they are strong. Courier companies offer large discounts to forwarders or accounts with large volumes, depending on the volumes you are shipping which is why it is often expensive to go directly to a courier company. We for e.g. at Wedoimport have at least 8 different types of courier services depending on the speed vs. cost preference of clients.

5. Tiered Pricing

The pricing in courier industry is often on tiered basis, therefore if you have been quoted $5/Kg for 200Kg and you do 4 shipments a month & your cash flow allows you to do 1 shipment a month instead, this means, you may be able to get access to a lower price if you were to do a single 800Kg shipment. I think you will find this theme repeats itself everywhere when it comes to international trade, i.e. increase the volume to reduce your “unit costs”, whether its pricing from suppliers, quality control companies, logistics, lab testing or pretty much anything else. Choosing the right mode of transport in the right situation is something that will come naturally to you once you have done a few shipments, however by making small changes to your product & packaging, planning in advance and understanding the numbers, you could make significant savings in logistics costs which ultimately boost margins. If you found this post valuable please spread the love by sharing the post using the share buttons on the left. It helps this blog get found & provides me the motivation to keep writing. As always, If you have any questions about shipping from China by air freight or courier please feel free to ask in the comments section below.