Thursday, January 06, 2005

International Shipping and Logistics

The quick answer to "How do I get something from a factory in China to my warehouse?" is...find a good logistics agent in the U.S. The long answer is that this topic is a source of great frustration for many businesses. It should be simple, but it isn't. Why?

There are just too many levels involved in international freight. Too many moving parts causes things to go wrong often, resulting in delays. In a typical LCL (less than container load) transaction, your logistics provider (Entity 1) has a partner in China (Entity 2), who arranges for a trucking firm (Entity 3) to pick up the goods and take them to a logistics firm's (Entity 4) warehouse at port in China. The China-side logistics partner (Entity 2) hires another China firm (Entity 5) to help clear export customs, and also works through a shipping aggregator (Entity 6) that serves as wholesaler to help the operator of the ocean liner (Entity 7) sell space. Your logistics provider will also buy insurance from an indemnity firm (Entity 8) to insure against loss and damage.

The operator (Entity 7) depends on Port services (Entity 9) to help load and unload their vessel. When the liner arrives at it's destination (e.g. the USA), it is unloaded at the dock (Entity 10) and moved to a contractor warehouse (Entity 11). It may be x-rayed by the Department of Homeland Security (Entity 12). It may be inspected by U.S. Customs (Entity 13). If either of these things happen there will be an additional charge. Customs will probably accept the Harmonized System Code declared by your logistics provider, but if they change the category there could be a change in the tariff. This is unusual.

At any rate, now that it has cleared customs, and your logistics provider contracts with a U.S. based freight services firm (Entity 14) to pickup the product at the warehouse and bring it to you. It is likely that they subcontract to another firm, or to an owner operator (Entity 15).

If you are thinking, "This is scary and horrifically complex!", you aren't the first and you won't be the last to react this way. Things are made even worse by the fact that many people that work in shipping and logistics are truly incompetent. It is a commodity market that doesn't pay very well and requires little education. Companies come and go, and the barriers to entry are small. You might think larger companies are better - but they aren't necessarily. There is a pandemic problem in this industry.

So what to do about it? Find a partner with both an office in your country (near you and your clients if possible) and an office or partner in China. If they work overseas via partners and not branch offices, make sure their relationship with their partners is strong. If you don't like their performance, try a new partner. Keep looking until you find someone you can trust.

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