Thinking about expanding your sourcing activities globally? Almost every region of the world offers some unique quality or competitive advantage—and China is no exception. China's greatest competitive edge is an abundance of low-cost labor, coupled with a strong work ethic. If the product you are sourcing requires specialized or unique machinery, then this country may not be a good choice as capital-intensive production is still scarce. But if you're seeking relatively low-tech, labor-intensive items, China can be an excellent source—as a growing number of U.S.-based companies are discovering.

Companies that have identified a source in China face such critical tasks as arranging for letters of credit, assuring product quality, and protecting any proprietary information. In attempting to respond to these issues, they often overlook one of the most important aspects of sourcing from China—moving the freight. That's the focus of this column.

Even before the final sourcing decision is made, it's wise to ask a key freight-related question: How physically large is the item you plan to source? Obviously, the larger the cube, the higher the per-piece freight cost. On some inexpensive items already produced domestically, higher freight costs can quickly negate any of the lower labor costs of offshore production. When it is time to estimate your freight costs, you will need to determine your product's cubic meter (CBM) displacement.¹ Once you have determined that, calculating the per-unit cost of moving a container from China is a straightforward mathematical exercise. Any import broker or freight forwarder can help you with this. But while you're completing this exercise, note that container costs have tended to fluctuate over the past few years and extra costs for expediting shipments can add up during peak shipping periods.

Moving goods in full containerloads out of China basically involves four stages—each of which can hold potential pitfalls for the ill-informed importer. But even before the first of these stages gets under way, something can be done to help make the shipping process a success. Specifically the importer can retain a reputable inspection company to inspect the import. These companies provide an invaluable service in preserving the integrity of your freight. In fact, you should put as much effort into selecting a quality inspection company as you do into finding the right supplier. All it takes is one bad shipment, and the money you think you're saving by avoiding the inspection fees will seem like a mere pittance. These companies also provide other value-added services like helping you find meeting space during your trips to that country or accompanying you to supplier sites.

After selecting an inspection company, the importer then can turn to considering those four key stages of moving goods out of China. These stages are overland transport from the production site to the port, overseas transport to the U.S. port, customs entry, and transport inland to the importer's facility.

Stage 1: Overland transport from the production site to the port

Arranging overland transport in China can be tricky, so everyone involved needs to understand the ground rules up front. Generally, it is a good idea to buy the goods FAS (Free Along Side) or FOB (Free On Board) Freight Forwarder's Dock. Let the exporter handle the details of getting the container to the port. Truck, rail, and river transport in China is a Byzantine world of regulations and fees. In addition to the bona fide drayage charges for moving goods into Hong Kong from the rest of mainland China, for example, there are a number of unofficial "fees" typically collected along the way. Again, dealing with these issues is best left to the local parties.

Shipping from the Port of Hong Kong will clearly be your company's choice if you are buying products made in southern China. Yantian is another southern port that has very good marine access, and as the infrastructure at this port develops, it may become a viable alternative to Hong Kong. If your products come from the North, Shanghai and, to a much lesser extent, Ningbo offer deep-water access. There are some depth constraints in Shanghai, however, that limit access by large ships. It is not uncommon for items produced in the North to be transported down south to ship out of Hong Kong.

Stage 2: Overseas transport to a U.S. port

There's a lot more to this step than calling a steamship line and asking it to move a container. Generally, anything less than 200 40-foot containers will not attract a big steamship line's attention. Given that most new importers—and, in fact, most importers in general—do not generate this kind of volume, they will need to find a good freight forwarding/customs entry agent. These companies can make all the arrangements to move goods from a Chinese dock through customs. Savvy importers will insist on a detailed cost breakdown of every aspect of their charges to avoid the buried "fees" for which some of these companies are notorious.

In choosing a forwarder/agent, keep these questions in mind:

• Do they employ staff in Hong Kong, or do they work through an agent? An on-site presence is preferable.
• What level of business are they committing to the steamship lines? Most forwarders don't like to give this information because it indicates how much clout they have with any given line. You do want your forwarder to have a certain amount of clout. The steamship lines will first take care of the forwarder bringing them 20,000 containers a year before they get to the little guy bringing them only 2,000. During peak season, that kind of influence is tremendously valuable.
• Do they have an office at the U.S. port-of-entry working with customs on a daily basis? Direct face-to-face contact with the local customs officials can go a long way in expediting freight movements.
• How well staffed are they in the domestic market? Do they have expediters working the import through customs? Do they have ready access to lawyers and other specialists in customs and tariff-related matters? Do they track shipments with state-of-the-art software and systems?
• How many modes of transportation do they handle—that is, can they easily arrange for air or rail shipments? Ask them for detailed specifics on how product would be air freighted from Hong Kong to your nearest airport in the United States.
• How much business do they do worldwide? Do they operate in only one trade lane, or do they handle significant shipping business all around the globe? You may not need to use their international services now, but you might in the future.

Stage 3: Customs entry

In some ways, bringing product into the United States is like walking through a minefield. There is ample opportunity for a novice to make a costly misstep. For one thing, if you sign a customs-entry document and something is wrong with that entry, it's not your company or your agent that customs will want to talk to. It's you. So let your forwarder/broker navigate that minefield. You should, however, diligently track customs information. Your broker should give you very clear instructions on setting up your documentation files. If you are ever audited by customs, they will expect to see those files appropriately organized—on site.

Beyond being adequately prepared for an audit, there's another important reason to keep accurate records: You have better control over your import business. In the event that you change customs brokers, your new broker will need all of this information on your import history. This is particularly important for those complex items that could be classified in more than one way. Sometimes the duty rates associated with those classification decisions can be significantly different. Knowing the rationale for choosing to classify an item under a particular tariff will be important.

Stage 4: Transport from port of entry to the importer's facility

Containers from China typically arrive at Los Angeles/Long Beach or another West Coast port. There are two options for moving the containers inland from the port of entry: over-the-road truck and truck-rail intermodal. Shipments destined for the western part of the country typically are trucked. The trucker you hire will need a special chassis to carry your container. Your forwarder/broker will need to make the appropriate arrangements with the steamship line so that your trucker can pick up the container.

For longer hauls inland, intermodal can be a cost-effective option. Intermodal marketing companies specialize in handling all aspects of the move, from local drayage to reserving space with the railroad for the line haul.

Sourcing and then bringing product in from an overseas location like China is a complex process. But like any such process, it helps to break the task down into smaller parts. Ensuring a smooth shipment takes time and requires careful planning. Fortunately, there are a number of resources out there to help you make the right choices, from freight forwarders to inspection firms to intermodal marketing companies. Take full advantage of the expertise that is readily available, and focus your efforts and skills where they are most needed—on finding the right partner for your company.