Importing from China: A Complete Guide (2017 Update)
Do you want to learn how to import from China? Then you need to understand how importing from China works. It’s essential to know the costs involved, the time frame for delivery and a number of other things. Importing goods simply means buying goods from a supplier outside of your country. China is the largest country that people Americans and Europeans import from. The purpose of this guide is to demonstrate how importing from China takes place but also how sourcingbro can help take the worry of importing out of your hands and help grow your business.
This is a perfect manual for small and large businesses around the globe. Below, there is a table outlining each subject we will cover.
Terms Used when importing from China
1. EXW (Ex Works)
EXW or Ex Works refers to the international trade agreement whereby the supplier is expected to make goods ready for pickup at his/her business place. The buyer will be responsible for all costs and liabilities of the shipment once it leave the sellers business address.
When using these shipping terms, the cost and risks of shipping goods lie with the buyer alone. This implies that Ex Works enables the buyer to have a clearer picture of the costs involved ahead of time. The buyer will also be in control of the whole shipment thereby preventing the seller from increasing their local costs.
2. FOB (Free on Board)
FOB or Free on Board is an agreement that demonstrates whether the buyer or the seller has liability for goods that are damaged in transit. “FOB shipping point” implies that the buyer will bear the risk if the goods are shipped while “FOB destination” implies that the seller will bear the risk of any loss until the buyer gets the goods.The term FOB is employed in non-containerized sea freight or inland waterway transport. It does not refer to the transfer ownership of goods.
3. C&F (Cost and Freight)
C&F or Cost and Freight refers to a legal recourse term that is employed in international trade whereby the seller does not need to procure marine insurance against the risk of loss or damage to the goods being purchased while shipping goods. Under this term, the seller is expected to cater for the carriage of goods by sea to a port of destination and give the buyer the necessary documents.
4. CIF (Cost, Insurance and Freight)
CIF or Cost, Insurance and Freight is a trade term that requires the supplier to arrange for the transportation of the goods by sea to a port of destination and also provide the buyer with the necessary documents. EU countries use the CIF value for calculating the duty that must be paid on an import.
B/L (Bill of Landing) refers to a document issued by a carrier or its agent to a shipper. It stands as a contract of carriage of goods. It also acts as a receipt for a cargo that is accepted for transportation and needs to be presented before the goods’ delivery can be taken at the destination.
A bill of landing contains a number of components, these include;
- Consignor’s and consignee’s names,
- Ports of departure/arrival
- Vessal name
- Dates of departure/arrival
- List of goods being transported
- Packaging details
- Weight, volume and cost of freight
AWB (Airway bill) is a type of bill of landing that enables tracking of the cargo. Once the airplane departs, the cargo rights will be changed from the supplier to that of the consignee. Airway Bill serves as a receipt of goods by a carrier, contract of carriage between the shipper and the carrier. It provides information about the conditions of carriage and the carrier’s limits of liability and claims procedures. AWB is a non-negotiable instrument and does not state the flight that the shipment will arrive with or the time of delivery.
7. ETA and ETD
ETA and ETD (Estimated Time of Arrival and Estimated Time of Delivery respectively) refer to the time and date that a ship will arrive at a particular port. The estimated delivery date depends on the supplier’s handling time, the shipping service used and when the supplier receives the cleared payment. Knowing the estimated delivery date will enable you to determine how long it will take you to get your item.
8. FCL and LCL
FCL (Full Container Load) and LCL (Less Container Load) are terms used in shipping under international trade business. FCL refers to one full container load (20” or 40”) that contains cargo for one importer. It is the cheapest means of transportation when importing products from China.
LCL refers to a cargo that is owned by different importers and grouped together in one and the same container. It enables importers to ship a small amount of cargo that are not large enough to fit into the FCL option.
9. POD and POL
POD (Port of Destination) refers to the intended final point of arrival of a shipment.
POL (Port of Loading) refers to the place where the cargo is loaded by the carrier onto the ocean vessel.
RMB (Renminbi) is the official currency of the People’s Republic of China. Its basic unit is the yuan.
PI (Proforma Invoice) signifies a sales contract or an estimated invoice that is being sent by a supplier to an importer in advance of a shipment or delivery of goods. It portrays the nature and quantity of goods, their value and other important information like weight and transportation charges. They are often used as preliminary invoices with a quotation or for customs purposes while importing goods.
MOQ meaning is Minimum Order Quantities. Chinese suppliers are utilized to 10,000 amount orders for their domestic industry. Therefore they typically look down at something under 500 portions, which does not all the time fit well with a small-scale business or start-up.
Importing from China 101: The Chinese Culture
A number of trends have emerged that effect how people do business in China, for example, solid economic expansion of rural areas in China, rapid market changes and government reforms have transformed China from being a country for low-cost manufacturing to an attractive destination to carry out business transactions.
Unfortunately despite the increasing influence that China has on the world’s economy, those looking to do business in the country encounter some challenges when they set out on their journey of importing from China. Intense competition, corruption, business etiquette, language and cultural barriers all hamper small businesses succeeding in the Chinese marketplace.
It’s important to understand Chinese culture by using the concept of “face”. This implies a blend of understanding culture, public perception, social roles and self-esteem. These can either destroy or build business relationships. A foreign CEO can give "face" by attending meetings on time, accepting invitations gracefully, giving expensive gifts from time to time and being sensitive to Chinese culture.
On the other hand, entrepreneurs can lose face by insulting someone in public, turning down invitations or by behaving in unacceptable manners that are considered as a lack of self-control. The above examples are extreme, however, things like addressing a person when meeting them can play a pivotal role in building business relationships.
Chinese business people respect cultural differences and will not expect foreigners to fully blend in with their culture. One thing you need to know is that Chinese are very pragmatic. If you have what they want, they will be willing to do business with you. One factor that is important in running a successful import business in China is developing mutual trust. Furthermore, you need to treat whoever you are dealing with respectfully.
Importing from China 101: Deciding What Products to Sell
One of the hardest decisions to make for those that want to start importing products from China is choosing the right product to import. This section is about selling products from china and how you can choose products that can be purchased off-the-shelf (wholesaled) from China. The most important thing is pay attention to product details that will be profitable for you.
Highlighted below are the steps to take:
1.Know Your Niche
You need to know your niche to choose the right product when importing from China. Make sure to pick a product that you know very well (this is a great mistake that new importers make). If you don’t know the niche in which you will be operating in, you will not know how to conduct quality inspections.
Your hobby or area of interest is a good starting point in identifying which product to import. In case you don’t have a suitable hobby, identify an area that you can learn about.
2.Choose A Niche With Less Competition
In order to be successful when importing from China you need to start with a relatively small niche.
The best niches to operate in are those where major retailers do not operate in. The focus here is to choose a popular customisable product. See below a quirky example, customised toilet role.
You can easily identify a good niche by visiting a magazine stand at your local grocery store. If the niche that you’re interested in has a magazine devoted to it, then there’s a hungry market for it and it’s a profitable niche to delve into.
3.Choose A Product That Retails For More Than $30
This tip is useful if you’re just starting out. Higher ticket items will give you more room for error. You can go for lower ticket items when you have experience and have a deeper idea of the true costs of the entire process.
4.Choose A Product With Low Risk
Importing products that hurt someone is one thing you want to avoid by all means. Product liability can ruin your business. Go for products with low risk. One of such products is dining room furniture.
5.Choose Products with small size（less than 18"/45cm）
As a new small business owner with a very tight budget, it’s important to import products with small size. This will reduce the shipping costs and improve your ROI. It is important to note that these products must have high value.
How to Decide on What to Sell Using Amazon
Using the Amazon Best Seller Categories Tree is another useful method that can be used to determine what products to sell.
For instance, if we use Flying Toys, we can have:
Toys & Games / Novelty & Gag Toys / Flying Toys
My best advice is to choose a product in the third level category or even lower . Doing so will help you to focus your area of expertise and you’ll also have a great opportunity to introduce variety to that category.
Using the Amazon related search suggestion as below:
Products to Avoid
Do not import counterfeit products. For instance, if there is a product with brand names such as Samsung, Gucci, Rolex, Apple, etc. then you need to know that such product is fake. Also, if you see signs such as ® or ™ beside a product, such product is trademarked and therefore counterfeit.
How to Validate Your Product Ideas
This is a very important step that helps you to avoid wasting time and money on a product that no one needs. Google Trends can be used to validate your product ideas. It tracks the terms that people search for. You can refine the search results by using time period and location to see the relative popularity of search terms at a glance.
Google Trends will give you insights into the different search terms that have changed across time. It will also give you an idea about the trends changing within the last few hours or days.
You can use Google Trends to validate your product idea in the following ways:
1.Popularity of Your Product
Google Trends will enable you to see the number of people that have been searching for products that are similar to yours and to know the direction of the trend (whether upwards or declining). You will be able to know how the trend is doing in real-time.
2.Where Your Product Is Most Popular
You can also use Google Trends to find products that are popular. This will provide useful insights about those markets that can be tapped into.
3.Previous Similar Trends
With Google Trends, it is easy to look at crazes that were once in vogue and see what their lifespan looked like. This will go a long way in helping you to decide if there are irregularities in your product.
4.Times of The Year Most Popular For Your Product
Seasonal products can be researched with Google Trends. For instance, in the picture below, the trend for a wig is fluctuating across the year. However, there’s a significant surge around October for Halloween. These insights will influence your advertising and promotion. You will be able to know the best months to put on offers and the best months to cut your losses.
5.Sneak On Your Competitors
You can use Google Trends to search for your competitors and see how they have developed. This works for larger companies or Chinese companies that you aim to be like. You will be able to see how they have developed and also know when interest in their product increased.
How to Safely Source Products From Alibaba
Alibaba is the largest B2B (Business to Business) platform in the world. It connects suppliers and supplier directories with buyers from all over the world. Alibaba has millions of products from China and hundreds of thousands of suppliers. As a result, there’s not much you won’t find on this platform.
Here are how you can safely source from Alibaba:
- Search For The Product You Need
Using Alibaba supplier directories is similar to other marketplaces. You can either browse the product categories or search for the particular product that you need.
You can search for a product on Alibaba by either searching for the items based on product descriptions, for instance: dog collars (this will give you thousands of results for dog collar products).
You can also select “Suppliers” from the drop-down menu and then find suppliers that deal in the product that you need.
- What To Pay Attention To On Product Pages
You need to pay attention to the following when searching for a supplier on Alibaba (in this case, we’re using the collar dog listing):
For this listing, we found $1.1 to $1.5 USD FOB. FOB implies that the supplier will pay costs associated with getting the product to the marine port while the buyer pays for the cost of transporting the goods to the ocean from where it will be sent to the final destination.
2.Minimal Order Quantity (MOQ)
The minimal order quantity refers to the smallest order (a small order) that the manufacturer is willing to accept. This, however, can be negotiated. In the example that we are using, the order is 100 units. When we multiply that by the higher-end price of $1.5, we’ll have a minimum order of $150 together without shipping costs. Knowing this will help you when negotiating.
How To Select and Verify Suppliers
When importing from China it is important to verify suppliers to protect yourself from scams and from selling products of low quality.
For instance, when we search for “dog collars” (as shown below), we got 1533 suppliers. Crazy right? We can narrow down this huge number of suppliers.
The first step to take in narrowing down this huge number is to select “Gold Suppliers.” Gold Suppliers are registered members on Alibaba and they pay 29800 RMB per year to retain this status. It doesn’t mean this group of sellers are good.
The second step involves selecting “Assessed Supplier.” This gave 242 suppliers.By choosing “Assessed Supplier,” you’ll gain insight about the companies’ statuses like product and service, number of employees, total building size and site images amongst others.
The third step of the verification process involves selecting “Trade Assurance.” This option will protect you from point of making payment till your product is delivered. More details about this can be found at: https://tradeassurance.alibaba.com/bao/buyer_advertise.htm?tracelog=from_list_filter
You can then choose your preferred payment method as shown below:
You can also choose a supplier based on the number of years they’ve been operating on Alibaba. Suppliers with higher number of years are more reliable. The first word of the company’s name is usually the name of the city in which the company is located. Ensure that the supplier you settle for is close to your forwarder or the area you want to ship the goods to.
Another factor to consider is the response rate. You definitely don’t want to waste your time to waiting a supplier who will never reply you.In addition to Alibaba’s verifications, you can make use of independent 3rd party services that are in China. Such services will visit factories on your behalf to verify the supplier and the quality of their products.
In addition the aforementioned points, highlighted below are ways through which you can verify suppliers:
- Ask Questions And Follow Up
Ask lots of questions as you begin narrowing down suppliers. Ask questions about their business and products. Request for a copy of their business license and phone number (ensure you call it). Also, request for photos of the factory and sample products. Ask for anything that makes you feel comfortable doing business with the supplier.
- Get Samples
Before investing any significant amount of money, you need to get samples orders to verify the quality of the products. You can contact them through another fictitious name and email to get additional sample so that you can compare the quality.
Finally, be mindful of prices that are too good to be true. Be ready to walk away if you feel a particular deal doesn’t feel right.
Email will most likely be your means of communication when importing from China. In most cases, they can be making use of translation program like Google Translate to translate your mails as their response. However, there’s nothing to worry about because most of the suppliers can speak English nowadays.
To have clear communication, keep your emails short, straight to the point and error free so that the manufacturer can give you better replies. When asking your questions, number them so that the supplier can easily reply to each number thereby creating a clean and organized communication.
- Requesting For Quote
This is a simple process. However, it is important to take few minutes to plan your email so that you can have better replies. Highlighted below are some important questions that you can include in your email:
- (Again) Minimal Order Quantities
Double check the MOQ of a listing to ensure it is correct. If the MOQ is beyond what you can afford, you can ask the supplier if he or she is ready to negotiate minimums. Let them know what you can afford. Note that MOQ is almost always negotiable.
- Pricing For Sample Orders
You need samples to verify the quality of the products. Ask for their pricing for samples. Some suppliers may offer you samples at a discounted rate while some may provide samples for free if they perceive that you’re a serious buyer.
- Production Pricing
Ask the supplier how much your products per unit will cost. Suppliers usually give a range on Alibaba. You need to ask them for the exact cost of each unit.
- Production Time
It is important to know how long it will take to produce your import order. Time is critical based on the type of your business.
- Payment Terms
Knowing the payment terms is important because inventory is a major cost for ecommerce startups.
You can use the email template below to craft an email when contacting suppliers on Alibaba:
My name is Jack and I am with Yitoye Company.
I am interested in placing an order for __________. However, before I do, I have some questions:
- What is your minimum order quantity?
- What is your cost per unit and at what quantity levels do you provide quantity discounts?
- What are the payment terms that you accept for new customers?
- Before placing a full order, can you please send me the cost for the sample including shipping to:
90 Alex Ave., Floor 5
Paying and Shipping Sample
You can pay the supplier through any of these methods:
1.Upfront TT (Bank Transfer)
This payment method is risky for the buyer. With this method, the supplier will receive 30% as deposit before the production commences. The remaining amount will be paid before delivery. This is only recommended when you trust the supplier that you’re dealing with.
2.Letter of Credit
This payment method is relatively safe for both buyer and seller. It carries some complex procedures and it’s recommended for a larger import order (such as $20,000 and above).
This is very risky for the buyer. It is not recommended if the payment is not protected by escrow. You should use this method only if you’re dealing with those that you know very well.
It is fairly safe for the buyer. It is easy to use and has a good buyer protection. It is less popular with suppliers due to the difficulties encountered in withdrawing money, high tax rates and potential charge backs from dubious buyers.
5.Secure Payment(also known as Escrow on Alibaba)
Secure Payment is fairly safe for the buyer. With this service, the buyer’s money will be held by a 3rd party and will only be released when the buyer confirms that he or she has received their order. It protects both buyer and seller.
This option is currently available for wholesale orders. If you intend to use this option for orders that are not wholesale, you need to ask the supplier to draft a Secure Payment order for you.
Here is a quick comparison between Trade Assurance and Secure Payment:
To ship the samples, ask your supplier to arrange for shipping and add the charges to the invoice. Provide your supplier with your address. If they ship the samples via air freight, they can use UPS, Fedex, DHL or TNT. They can also declare a very low value on your products so that you can pay very little duty. You should, however, note that air shipping from China is expensive.
- Import duty calculation
In most cases, import duty is calculated as a percentage of the customs value of the import. The customs value varies by country. The duty rate depends on the product classification.
In some countries the customs value is based on the FOB value:
Duty = duty % * product price
In most countries the customs value is based on the CIF value:
Duty = duty % x(product price + cost of shipping + cost of insurance)
- Sales Tax calculation
Sales tax (VAT, GST, etc.) is calculated as a percentage of the customs value plus the duty paid. Some countries may also factor other taxes, if applicable, in the calculation of sales tax:
Sales tax = sales tax % x (CIF value + duty)
Many countries have a standard sales tax rate to which most imports are subject, but a reduced sales tax rate may apply to certain goods shppied like basic foodstuffs, medicines, books, etc. In some cases a higher sales tax rate may apply to certain products, e.g. alcoholic beverages.
You could check the standard sales tax rate in your Country from: https://www.dutycalculator.com/sales_tax_rates_by_country/
Import duties depend on the type of imported products. So, it is important to check the actual rate of by using http://www.dutycalculator.com/ (note that you have just one free trial to use this site).
For instance, when you import from China to UK , the HS code for jewelry is 71179000. We can find the duty and sales tax rates from: www.dutycalculator.com/get-import-duty-tax-rates/After submitting all information, we found that Sales tax rate (VAT) to be 20% while the duty rate was found to be 4% in United Kingdom. We assume the CIF price is 5322 USD.
Duty = duty % x(product price + cost of shipping + cost of insurance)
Sales tax = sales tax % x (CIF value + duty)
Total landed cost=CIF value+ Duty+ Sales tax
Import duty is usually between 2% to 5%. However, same products in different country can be as high as 11%.
Also, you may not have to pay import duty on some products. Make use of the calculator in the link dropped earlier to know exactly how much import duty you will pay for your goods.
Testing Your Samples
If your sample was shipped by air freight, it should arrive within 3 to 10 business days. If it was shipped via sea, it may take about 15 to 45 days before it arrives. Once you get your samples, here are what you need to do:
- Inspect The Quality
Is the quality what you expect? Use the item for a while and see if it holds up and how it holds up.
Check to see if the packaging is sufficient to ship to your customer. If your items are lumped into one box, inform your supplier to box them on future orders.
If your goods do not come with instructions and if your supplier does not have instructions, then you need to create or borrow some instructions ad include them with your goods.
Is “Made in China” marked anywhere on the box? If not, ensure this is done on the next order.
Things Your Should Know Before Placing an Order
You need to pay attention to how your goods are labelled. Most countries have laid down rules on how products should be labelled. A label can provide the following information for the customer:
- The manufacturing country
- Order size, product materials and other product information
Some labelling requirements apply to all products. For instance, all products in the United States must be labelled with the country of origin (i.e. Made in China). Some labelling requirements also apply to a specific product such as toys, textiles and electronics. Each of these products has its set of unique labeling requirements.
The product must be manufactured according to technical standards or restrictions so that it can pass the necessary tests.
You (the importer) need to create and store a set of documents. The documents can include the circuit diagrams, design drawings, component lists and risk assessments.
Payments and Delivery for Bulk Order
It is a form of bank transfer which is a fast way of transferring money overseas through banks. It is, however, risky for buyers to pay through this method because the money goes into the supplier’s shipping account directly before you receive the order.
2.Letter of Credit
It is a letter from a bank that guarantees that a buyer’s payment to a supplier will be received on time and for the right amount. The bank will be required to cover the full or remaining amount if the buyer is unable to pay. This method of payment has become an important aspect of international trade or trade with China is due to distance, government policies and the difficulty in knowing each party personally.
3.Documents against Payments
This is an arrangement whereby a supplier instructs the bank to release shipping and title documents to the buyer after the buyer fully pays the accompanying bill of exchange.
4.Documents against Acceptance
It is an arrangement whereby the supplier instructs the bank to release shipping and title documents to the buyer only if the buyer accepts the accompanying bill of exchange by signing it.
These forms of payments are payments that are posted against one or more outstanding invoices. They can be in form of cash or credit card, a credit on the account by your store or by an order deposit.
How to Arrange a Third-Party Inspection to Make Sure Googs Are as Ordered
If you have been inspecting orders before shipping but you’ve not been getting the results that you desire, then you need to take these actionable steps to find success with third-party inspection.
- State Expectations And Product Requirements
Tell the supplier exactly what you want on time. By waiting longer than you should before telling the supplier what you want, the factory may have finished packaging your goods by the time you tell them.
Clearly state your expectations and product requirements before the inspection commences and before issuing the purchase order. It is better if the supplier can sign a purchasing agreement before placing the order so that you can address your need for 3rd party inspection, shipping deadline and the consequences of not meeting your requirements.
Holding a legal recourse, with the supplier accountable, may not be easy. Thus, it is advisable to hire a local attorney who will draft a contract in the local language. With this, you can take the supplier to court if he goes against the laid down agreement.
- Conduct Product Inspection
To be successful with 3rd party inspection, you need to hire a 3rd party to visit the factory and inspect your goods. Inspection (for most products) can occur at any stage of the production. For instance, if you are manufacturing upholsteries, you can inspect them before the upholstering stage so that you can check the dimensions, structural integrity and epoxy binding amongst others.
If you’re manufacturing acrylic sinks on the other hand, you can inspect the finished goods and check them before they are packaged. Your decision on when to inspect will be determined by your budget.
Your budget for inspection will limit the scope of inspection. You can, however, modify inspection to align with your budget. For instance, you can merge similar items and inspect them together. You can also decrease the sample size chosen for inspection. You can also cut the landed cost incurred on inspection by hiring a local inspector.
- Sort Out Issues With Your Supplier
If the report obtained from an inspection shows an unacceptable number of defects, you need to communicate with your supplier and ask them to wither rework or replace the defective items.
You need to discuss how you want the factory to fix the problem. For instance, if the defect is due to an issue related to injection molding, then the factory may be required to trim the excess material by hand. Note that the additional handling of goods can lead to another defect, as a result, consider the method that you’re going for when requesting for a rework.
If the factory is not willing to rework the defects, then you can charge the supplier for those goods that were shipped but cannot be sold. Your relationship with the supplier and the value of your PO will determine if you are able to force a supplier to pay for defective products.
- Re-Inspect To Ascertain Rework
This gives an added assurance that the defects have been resolved.re-inspection will enable you to know any corrective actions taken by the factory so that you can be sure the order is ready to ship.
What to Do When You Receive Your Imported Goods
Once you have received your goods and have ascertained the quality, packaging, instructions and labels, send an email to your supplier and inform them that you have received your goods but have not reviewed them. Tell them you will contact them once you review the items and hopefully, make another order.
I hope you like the in-depth explanation of how to import from China! This ultimate step by step guide will go a long way in turning a newbie into a professional importer if the points are strictly adhered to and implemented when importing from China. Do you find this article useful? Kindly share it with your friends and loved ones. Also, I would love to listen to your contributions and questions through the comment section below. Feel free to contact me directly via this link either!