How can they ship the goods to you and what are the laws governing this?
This article is part of my Manufacturing for a Kickstarter series.
If you’re using a local manufacturer, getting goods shipped to you is pretty straightforward and you could even go pick it up yourself to save money.
But if your manufacturer is in another country, you will need to deal with exporting, shipping, insurance and importing. The rules are constantly changing too, which is why one usually goes through a shipping company to handle everything.
Caveat: Everything I am covering is from the perspective of shipping to the US. Also, I am not a shipping expert, so please consult an actual shipping company before you begin.
For goods to leave a country, it is not as trivial as trucking the goods to a port to be loaded on a truck or ship.
The factory needs to declare to their government of the intention to export and some countries even require them to get approval from their government for each individual shipment.
Some countries place limitations on which companies can export goods (out of their country) based on what operations the company is registered to do. Be aware that just because a factory is big and professional, it doesn’t necessarily mean they have the legal ability to export goods. They may only be licensed to produce goods for local consumption.
Some countries also determine the factory’s tax rebates in this way and try to catch tax cheats in this way so it is important to do this properly and legally.
If a factory cannot export goods themselves, they may know dedicated export companies that can export goods on their behalf. You shouldn’t involve yourself into this as a customer, as usually it is a legal bottomless pit.
You should always ask your factory if they know how to handle the export process, to be safe. Ideally you should involve your shipping company in this because sometimes a factory will underestimate what is involved to “export” if they haven’t done it before and will incur additional costs which they then pass on to you.
Note that filing export paperwork often costs money which the factory pays to the government.
If your manufacturer is far away, it may be most cost effective to ship your goods on a container ship in a standardized container.
Depending on how many goods you are shipping, you might need to use several of those containers or you may only need a tiny space and your goods will be consolidated with other people’s goods to be shipped at the same time.
You may have seen containers on the road with “Maersk” or “K-Line” painted on the side of them. Those are the big shipping companies which own huge container ships. More often than not, you will not be directly interacting with those companies and will instead use shipping company agents or freight forwarder agents that help you arrange your shipping and also offer to consolidate shipments from various customers into one container to save money. These agents will work with several big shipping companies and can find the cheapest one for you or one with a vessel schedule that fits your time constraints.
The first step is finding a shipping company or freight forwarder, which you can easily find in a regular web search. There is nothing to it and you will probably need to shop around and find one that fits your budget.
When you ask them how much shipping costs they charge, they will ask you how much the goods weigh as a whole (including all the packaging) and how much space the goods occupy measured in cubic meters. If you don’t know this, your factory can provide good estimates on the final weight and volume.
You will need to tell the shipping company whether they should send a truck to the factory to pick up the goods, or if the factory will deliver it themselves to the shipping company’s warehouse or port. Most factories that specialize in exports will include the cost of trucking to the shipping company as part of their service as they are expected to know the best route and transport method.
You will also need to tell the shipping company whether you want the goods to be delivered to your warehouse in the destination country or whether you will go to their warehouse to pick it up yourself.
These will be factored into the shipping costs.
Whether you pay for shipping or the factory pays for shipping is dependent on your agreement with the factory.
For goods to enter your country, it is not as trivial telling the shipping company to forklift the goods out of the container and putting it on your truck.
Import taxes need to be paid and paperwork need to be filed with the government. You will need to find a Customs Broker which you can find in a regular web search. You can also ask your shipping company to introduce one to you as shipping companies frequently need to communicate with various customs brokers.
Even before you begin manufacturing, you should contact your customs broker to learn whether your product can be imported, whether there are any restrictions and what the tax rates are.
Some categories of products have restrictions on how much can be imported annually into a country after which you may not be allowed to import anymore or a higher rate of taxes will be charged after a quota limit is reached.
Some products have such high taxes that it may no longer be cost effective to produce it in that country.
After you have settled on everything and your goods are ready to ship, you will need to tell your customs broker to communicate with your shipping company directly to arrange the clearance of your goods and how it will be delivered to you.
There are a lot of laws governing exporting and importing so your shipping company and customs broker are valuable sources of information. I am not an expert in their fields and there are probably things that I’ve over-generalized, so please consult with them first.
Drop shipping simply means the factory ships goods directly to your customer or to a retail location. The idea is that goods don’t need to sit in your warehouse first before being shipped again to your customers.
Products sold on Amazon sometimes do this where the outsourced factory ships a product directly to your customer under your instruction. You will need to ask your factory whether they can provide this service and you will need to be aware that you are exposing your factory to your customer and your customer to your factory.
Retailers also sometimes do this by asking factories to ship select quantities of each product directly to multiple stores and therefore skip shipping to the retailer’s warehouse.
The disadvantage of drop shipping is that the shipping costs go up and there is less transparency on what gets shipped. There is also risk in not having your goods stored under your watchful eyes. The advantage is that you don’t need to maintain a warehouse space and warehouse staff.