All About International Ocean Freight & Step by Step Instructions
In this article I’ll give an overview of Ocean Freight and also the step by step instructions you need to take to arrange for ocean freight and actually receive your goods.
Air Freight is Reasonable When Ordering Samples
The first thing to consider with Ocean Freight is whether you are actually better off shipping via Air Freight. For small orders under 20 lbs (especially samples) air freight, such as through FedEx, UPS, or DHL, is often the cheapest method. If the order size is around 20 lbs or smaller, air freight is your cheapest and best route, although you can expect to pay $200-$500 from China to North America. While this may sound like a lot, especially if you’ve seen Ocean Freight quotes for much lower than this, Ocean Freight will almost always be close to $300-500, no matter how small the shipment, once you take into consideration many of the overhead fees (see below).
For All Other Orders, Use Ocean Freight
For any orders over 20 lbs, Ocean Freight is normally your cheapest option. Ocean Freight has high base costs but it scales very well. For example, your ultimate costs to ship a 20 lbs box via Ocean Freight you may be $300, but for 200 lbs you will pay $310, for 2000 lbs, $390, etc. For Air Freight there is almost no scaling. A 20 lbs box will cost you $300 and a 40 lbs box will cost you $600. For some great general advice on Air Freight, see my interview with Will Williams from Freighto here.
Sea Freight comes into two varieties: Full Container Load (FCL, 20’ and 40’ containers) and Less than Container Load (LCL).
LCL freight simply means you have one or more pallets put into a container along with other companies’ goods. Full containers mean you get the full container to yourself. Simple, right?
Full containers cost anywhere from $2000-$4000 for a 20’ container to North America (always cheaper to the West Coast) and LCL is pretty close to fractionally equivalent to how much of the container you’re using up (if you’re taking up 25% of the 40’ container, you’ll pay around 25% the cost of a 40’ container). LCL is very reasonable- 3 or 4 pallets of goods will only cost you $200-$300 in sea freight going to the West Coast. See the included image for sample sea freight quotes from February 2012.
Sea Freight can be delivered to most major ports. Vancouver (Canada), Seattle, San Francisco, and Los Angeles are the big ones on the West Coast.
Be Prepared for a Lot of Surprise Fees
With Ocean freight there are a lot of surprise fees when the shipment comes to your country. On my first several imports from China, I felt I would spend half a day driving around Vancouver paying random fees to random companies with little idea why. I still have little understanding of why, but at least I now know what. These fees include, but are not limited to:
Dock Fees: $50-100
Freight Forwarder Administration Fee: $75-200
Security Fee: $50-100 (normally on Full Container Loads)
Custom’s Clearance Fee: $100-200 (plus applicable duties/taxes)
Final Truck transportation from bonded warehouse to your doorstep: $100+ (unless you pick up your shipment yourself)
The last two fees, Custom’s Clearance Fee and Final Truck Transportation, you can escape and do yourself. You might do this on your first couple of shipments but eventually you will come to your senses that it’s just easier to pay someone else for. In my eBook, Importing from China is Easy, I give a handy Estimated Costs Worksheet you can use to get a good idea of the true costs of what your shipment will be.
These are just the fees once your shipment arrives in your home country. They do not include the fees from within China (re: beware EXW) or the actual sea freight itself.
Ocean Freight is Very Different From What You Are Used To (Sort Of)
Most of us are accustomed to shipping things via USPS, FedEx, etc. and other small parcel carriers. Ocean freight at first seems very different from these types of services, but when you think about it more deeply, you’ll realize they are actually very similar.
If you are shipping something via USPS, you know that you have to drop the item off at a post office. With Ocean Freight it’s the same way: someone has to drop it off at the post office! Except in this case, the port is the post office.
If you imagine the United States for a second, you know that Kansas is very far from the ocean. So to ship a few pallets to, for example, the Port of New York, you some how need to have the goods shipped up to New York. The same thing is true if you order something from your supplier in Chengdu (central China) to the Port of Shanghai.
Thankfully, you don’t actually have to arrange with some random Chinese truck driver to pick up your goods. Most freight forwarders are happy to arrange to pick up your goods from your Supplier’s factory. But it will cost more money. That is why things called Incoterms are very important. For example, if you and your supplier agree to the shipping terms FOB Shanghai, this means your Supplier will pay for the cost of having your goods shipped to the Port of Shanghai. If you agree EXW Chengdu, you will pay for it (see my warning on EXW here). Shipping goods hundreds or thousands of miles via truck isn’t cheap, no matter what country you are in, so always be aware of this!
Once your goods are shipped to the port, they get put on a container, and the next time you hear of them should be when they arrive in your home country. How long does it take to deliver goods from China to your city? See this excellent website here for an idea of how long.
When Your Shipment from China Arrives to Your Country
When your goods are close to arriving in your city, your freight forwarder will give you a call to let you know how much you owe them (more on this later), an ETA, and where to pick your goods up.
Keeping with the USPS example, you know that if you’re not home when the mailman tries to deliver your package, you will have to pick it up at the post office. The same thing is true for ocean freight except they won’t ever try to deliver your package to your home. You always have to pick it up from either the port or a nearby warehouse.
If you ordered a full container, you will almost certainly pick your container up at the port. In my case, this is the Port of Vancouver.
If you ordered LCL freight, then remember you have only a fraction of that container with a bunch of other people. Your goods could be at the very back of that container, so some how they need to facilitate a way for you to get those goods. Time at the port is very expensive so they’ll move your container to a nearby warehouse (nearby could mean 30 miles away) and destuff the container, in other words, they’ll take your goods out and put them in a warehouse to make for easier and cheaper pickup. In the graphic below, you can see that the goods are moved from the Port of Vancouver (where the container gets unloaded), moved to a nearby city (Richmond) and then moved to a warehouse.
Continuing our post office example, you know that the post office will not hold your package forever. Eventually they’ll simply return it to the sender. The same is true for Ocean Freight. You generally have five free days of storage. After this they will start charging you storage (for a container it’s about $100/day and for LCL Freight it is around $50 a day, depending on the size of the LCL freight).
Your Goods Are Being Held Ransom at This Point
So your goods have arrived in your home country (great- you know the boat didn’t sink!), however, they are now being held ransom in a sense. Three parties need to be paid, and the warehouse or the port will not let you pick up your goods until you have paid these three parties. These three parties are:
- Paid Your Supplier
- Paid your freight forwarder or shipping agent
- Paid Customs
Below is one of the “In-Bond Manifests” I’ve received. It has all sorts of good information like the name of the freight forwarding company, the cargo control number (more on this later), etc. You’ll be referring to this lots.
Paying Your Supplier
At this point, you should have already paid your supplier. However, your goods are like a car: you need to have the title for them in order to claim ownership. An original Bill of Lading is essentially a title to the goods. Your supplier will mail you 2 or 3 physical copies of this (photocopies are not permitted- they must be original) and you must give one of these Original Bill of Ladings to the freight company in your local country (normally in the city of the port, but not always). Your supplier may also Telex Release the goods to you, which basically means they telephone the company and say “Please release the goods to Dan’s XYZ Company” and forgoes the need for an OBL. Ask your supplier which way they prefer.Paying Your Freight Forwarder
The freight forwarder will also ask you for a small payment at this time, normally in the range of $100-200 (they will also ask the Sea Freight costs if they were not already paid for by your supplier). The $100-200 is basically their administration fee. Yes, it sucks, but there’s nothing you can do but pay it. When you pay your money to the freight forwarder, confirm with them the location of the warehouse with your goods. Also ask them for something called the “Cargo Control Number”. This is basically the unique ID of your package. The warehouse will not be able to find your items without it. When the Freight Forwarder initially contacts you to tell you that your goods have arrived, they should forward you a document telling you both the warehouse location and cargo control number, like seen below.
The final thing you will have to pay for is customs. This actually isn’t quite true- you may not actually have to pay for customs (if your goods have a 0% tariff) but you will have to clear customs.
Customs clearance is a complex topic (although it’s not that hard clear customs yourself). Basically, countries require a record of all goods entering the country. Most goods, especially those from China, have some percentage of tariff/duty associated with them, normally in the 1-15% range, although many actually have 0% tariff/duty. Regardless of the amount of duty owed, you have to fill out a customs declaration form. A customs broker can handle this all for you, for approximately $150-200 + applicable duties. There are literally thousands of customs brokers, but the one I use is Pacific Customs Brokers (they can handle Canadian and/or U.S. Clearance). For new importers I always recommend to use a customs broker (even if it doesn’t make economic sense for your first small order) as they can also help to answer any questions you will inevitably have.
Once you have cleared customs, they will notify the warehouse holding your goods something along the lines of “Dave Bryant has cleared customs- you can release these goods to him”.
The steps above might sound complicated but after one or two times, it takes very little time and is effortless.
You’ve Paid Your Ransom- You Can Pick Up Your Goods!
Once you’ve paid your three ransoms, you can finally pick up your goods. You simply go to the warehouse (in the case of LCL freight) or the port (for containers) where your goods are and pick them up.
If you are picking up LCL freight the warehouse may charge you $25-50 for a dock fee which is often only payable in cash, so bring cash with you just in case. Remember that your goods will likely be on a pallet. If you have a vehicle, like a pickup truck, that you can simply load the pallet onto, that is the best. If you have a small car, you could be disassembling the pallet for a while and stuffing your car with boxes.