China Shipping 2021 and Beyond: Delays, Dangers and Best Practices
Shipping rates continue to rise, experts expect the situation will remain problematic beyond Christmas and Chinese New Year.
China Shipping 2021: Background and why we wrote this article
There are plenty of articles out there explaining the factors that contributed to this mess (Covid, Price Gouging, Shifts in Supply/Demand…) and no shortage of pundits offering their forecasts about when a correction may take place, but there is not a lot of content offering tips from a legal perspective to small-to-medium sized importers of Chinese made products, who can’t delay production and need to ship right now.
So, we wrote this article to offer practical and affordable tips to help our clients and readers. In doing so, we need to expose some of the new dangers and shipping scams targeting buyers of China products. But first off, let’s manage some expectations.
Managing Expectation: China Shipping Rates, Opportunities & Dangers
Sorry, in this article we can’t give you the name of a logistics provider with low cost, great service, and reliable delivery schedule…because they do not exist at this time!
In “normal times”, for the typical importer, “logistics” was all about finding a great rate from a 3rd party logistic provider (3PL) to move product from point A to B on their behalf. It was a competitive advantage to find a 3PL that could move product on time at a good rate. Today the situation is turned on its head. Everybody is overpaying (relative to their traditional shipping costs) and it’s a competitive advantage just to be able to avoid a growing number of pitfalls.
China Logistics 2021: The good, the bad & the ugly. No good, only bad and ugly!
The emails are pouring in to our lawyers these days from new clients with new problems related to shipping. In terms of common pitfall and solutions, here is what we are seeing, on the ground, in China.
Problem One: Supplier won’t eat the increased costs and refuses to ship
The most common scenario is where the buyer has negotiated a delivered cost with the seller. But now that the shipping costs are so high, the seller would lose money if they ship the order. So, the Chinese sellers are coming up with all sorts of excuses to delay or cancel the order. Since many buyers don’t have proper contracts, it is actually quite easy for most factories to “de-commit” from their promised delivery date.
- Obviously, use a contract! Have penalty clauses in place so that it is less expensive for them to just ship it than to screw around with your order.
- Consider buying FOB China if you have a reliable shipping partner. That takes the exposure off the seller and put it in your lap, but at least you are in control of your own supply chain from port to port.
3. Structure your payments so there is incentive for the seller to keep the order moving.
Problem Two: Using a “Special Arrangement” to get the goods moving
If some Americans are desperate (and gullible) enough to take horse medication like ivermectin as a covid treatment, you can rest assured there are even more international buyers even more desperate and even more gullible enough to entertain the idea of paying somebody under the table in China because “the factory’s owner’s cousin works at the Chinese port and can get a shipment expedited if he is paid $10,000 in bitcoin”. True story. Dumb, dumb, dumb. You can guess what happened to that 10K! Gone, gone, gone!
- Obviously, use a contract! If the “special arrangement” can’t be made legally binding, or worse yet, the parties involved are not formally named, run away because you have no recourse when things go bad. And rest assured, they will go bad.
2. Be transparent with your customers. Sadly, people are getting used to ordering with the understanding that lead times cannot be guaranteed.
Problem Three: Switching suppliers for wrong reason
Too many buyers make the mistake of having suppliers quote door to door. The problem is that some suppliers have good production lead times and great factory direct pricing, but they are bad at arranging logistics. On the converse, some suppliers (often trading companies, not real manufacturers) are really good at getting competitive shipping rates, but internally they over pay on production and can’t control their quality or lead-times. My preference is to let the factory be a factory and leave the logistics to a 3rd party that I arrange directly.
- Conduct Due Diligence to know who you are dealing with. Are they trading company or manufacturer, for example?
2. When conducting the RFQ (request for quotation), give yourself the ability to compare apples to apples, but asking potential vendors to quote production and shipping as separate line items.
Next steps: China Sourcing: Logistics 2021 and beyond
Feel free to write in with your problems and/or solutions. We’d be happy to share more best practices with our readers and if you need help, we will try to point you in the right direction.
Check out AsiaBridge Law Resources for more articles and video tutorials.
ABL Blog: Sr. Editor and Primary Content Creator: Michael J. Bellamy
Originally from Upstate New York, Mike moved to Asia in 1993 and is a China business advisor to both Fortune 500 companies and small businesses. Recognized as an expert on doing business in China, he has been interviewed by WSJ, CNBC, FT & Bloomberg.
A featured presenter on China issues at seminars, trade shows and corporate events across the globe.
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