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SOURCING FROM CHINA

China supply chain & logistics.

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Contents.

01.

China supply chain logistics

02.

Australia’s merchandise trade with China

03.

Engaging Experts

04.

Engaging Suppliers

05. Terms

07. Payment

08.

Quality Control

09.

We can help

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China supply chain & logistics.

China exports goods to many countries, and Australia comes in at number 11 in terms of volume, which is to be expected considering our much smaller population than the United States (number one). Hong Kong comes in at number two, and much of this product would be exported from Hong Kong elsewhere, and Japan comes in at number three. China is Australia’s number one trade partner. There are many options available for setting up supply chains and logistics in China. If you haven’t done it before, the best approach is to engage experts who know the landscape, and have a network of suppliers who can help.

01.

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Australia’s merchandise trade with China. A$m

Exports to China

80,000

60,000 Imports from China 40,000

20,000

‘07

‘08

‘09

‘10

‘11

‘12

Year

Source: Department of Foreign Affairs and Trade

02.

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Engaging Experts.

Consultant Before you place an order, it’s a good idea to engage a consultant who can guide you through the process, ensure specifications are correct and help you verify potential suppliers. VECCI Global has a team in Victoria with over 60 years experience and is linked with 16 Chambers of Commerce in China. It’s a powerful network in an environment where it’s not what you know, but who you know, that counts.

Freight Forwarder If you have a consultant, they can also handle freight, but if you don’t, a good freight forwarder is a fantastic investment. They will not only be able to ensure that your goods are packed and delivered for transport, they know their way through the myriad of customs and government requirements.

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Engaging Suppliers.

There are plenty of potential pitfalls in selecting a supplier – from scams to quality issues and goods not arriving at all. There are also many suppliers with skilled workers and the latest technology ready to do an excellent job. A consultant like VECCI can assist in connecting you with a selection of quality potential suppliers.

tip. Factories sometimes sub-contract out, so it’s important to know where your work will be done.

Before engaging a supplier you should: ∆

∆ See

∆ Visit

paint. Despite having a long-running relationship with a primary toy supplier, subcontractors used cheaper paint and the paint issue was not picked up in

proof that they have all the

necessary licenses and certifications.

In 2006/2007 Mattel had to recall toys with high levels of lead in the

Ask for references.

their factory and be satisfied that

the work will be completed by them. ∆

Ask which trade shows they attend.

∆ understand

the agreement you are going

quality control. The toys were sold

into – including quantities, deliveries,

and a huge recall was the result.

materials, quality control and logistics.

The business relationship with the primary supplier continued, but Mattel’s reputation suffered significantly and there was a huge financial impact.

∆ Make

arrangements for payments

to be made securely. These are minimum measures. Depending on your circumstances your advisors will be able to give you the appropriate guidance.

04.

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Terms.

There are a range of terms which are used with regard to importing and exporting. It’s useful to have an understanding of these even if you have a consultant managing the process. Some of these terms include: ∆

Commercial invoice (CI): An invoice for goods received. It should include a description of the goods and itemise any other charges.

∆ Force

majeure – French for ‘greater force’. It is

often included in contracts to cover events outside the power of the seller including natural disasters, transport accidents and worker strikes. Insurance can be purchased to cover some of these scenarios. ∆ Free

on board (FOB): A quote which includes all

costs up to shipping stage, excluding shipping goods through international borders and import duties at the other end. Often listed as FOB [name of destination], for example FOB Hong Kong. ∆ Harmonized

Commodity Description and Coding

System (HZ or HS): is an international system for categorising traded products. How much import tax you pay is linked to the HZ, so it’s important to get this right to avoid delays at customs. ∆ International

Commercial Terms (Incoterms):

These are a widely used series of three-letter trade terms. FOB,

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Terms.

∆ Landing

costs: the sum of: cost of goods, loading

onto transport, freight forwarder’s costs, import duties, local (China) transport costs, and the costs of any service providers used by the supplier (inspectors, agents). ∆ Letter

of credit (LOC or L/C): A letter of credit may

be drawn up between the seller and buyers’ banks detailing conditions upon which payment will be released. ∆ Minimum

opening order (MOO): The minimum order

quantity available. This minimum quantity may also apply to reorders (RO). ∆ Pro-forma

invoice (PFI) – A seller will sometimes

provide a PFI to a buyer so that everyone understands what the invoice will look like. ∆ Purchase

order (PO): a document confirming

the goods ordered, quantity, price and terms and conditions. If you don’t understand any term in any correspondence or agreement, it’s important to ask an independent advisor.

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Payment.

Payments are an important control in the import process. Payments can be staggered with a 30% deposit and 70% on completion, or 30%deposit, 40%on completion and 30% on delivery, or other variations. Ask an independent expert for advice and be assertive about these terms in negotiations. You should also pay attention to how your supplier wishes to be paid. Many importers say you should be dubious about suppliers who ask for funds to be wired, especially through Western Union. Whilst wiring a small amount of money may be low risk, for larger amounts, other arrangements should be made. A credit card payment for one-off transactions may be useful as it’s easier to trace.

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Quality Control.

Quality control is an incredibly important part of the process. Once your order is placed and you have an agreed upon prototype, arrange for yourself or an independent agent to visit the factory, check on the progress of the job and check the goods and materials against the prototype. It is not unusual to send your agent to watch the goods being packed into the container, and to follow the container until it is sealed at customs to ensure that goods aren’t swapped out. The cost of paying for this is worthwhile to ensure the goods you receive are what you need.

Repeat the process for your next shipment. Unfortunately, just because your first shipment went well, it doesn’t mean every shipment will. You (or your agent) need to be just as attentive for every subsequent order.

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We can help.

As you can see, the supply chain and logistics requirements of global trade are complex. Our VECCI team in Victoria and on the ground in China can facilitate all of your supply chain and logistics needs. Please feel free to call us if you have any questions or require assistance. Eddie Zhao VECCI International Business Development Manager email. [email protected] phone. 03 8662 5234 www.vecci.org.au

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