With so many moving parts (literally) it can be hard to figure out why it is so expensive to ship goods from China to USA.
In China, the shipping cost has increased by about 360% last year, which has severely affected the companies that rely on moving goods. Increased shipping demand and container shortage have made shipping from China and other countries very expensive.
Let’s peel the curtain back and see what’s going on here.
The freight puzzle
What is a freight forwarder
Freight forwarders arrange the shipping of freight for their customers, and then go a step further.
Freight forwarders move goods from one country to another and shipments through customs each location. They also perform assembly and consolidation service. They can book cargo space for customers, often directly with the ocean or air provider, and negotiate rates for transport. Which essentially lowers the cost of importing.
Freight brokers who are sold the rates, mark them up, and bring together multiple customers’ smaller shipments as one big shipment.
In order to be compensated, these brokers will markup the rates. And brokers themselves might work with other brokers, meaning increased cost of shipping from China to USA. Check this out in action:
Pro tip: Ideally skip the middleman (broker) and go straight with a freight forwarder. Check this article on how to choose a freight forwarder.
Let’s check which type of shipping affects your cost of importing from China.
Undoubtedly, air freight will always be faster than ocean freight.
Air freight allows for faster transit times, and flies ‘remote’ destinations which may not be possible by ocean freight directly.
However the price of air freight does increase significantly with the increase in chargeable weight.
LCL (less than container load) is a great option if you don’t have enough cargo to fill a whole shipping container. For example, if you’re shipping a small number of goods, or your products that don’t take up much space. LCL is sometimes called a groupage shipment because your cargo is grouped in with other cargo in the container.
With LCL, you only pay for the space you need in a shipping container.
Once your shipments reach a certain volume, though, you may be better off using FCL (full container load) shipping. FCL shipping is charged as a flat rate, unlike LCL, meaning there comes a point where you’ll save with a flat rate.
LCL is helpful for first-time importers and small businesses just getting into global eCommerce.
We’ve got a pretty in-depth look at the difference and which one to go with, here.
The Cost of LCL
Though cargo weight is a secondary factor, it usually doesn’t add to your price because cargo ships are massive.
The minimum space you can reserve for LCL is 1 cubic meter – or 100cm x 100cm x 100cm. Prices are prorated, meaning they increase as you increase your cargo volume. These price increases aren’t linear, however. Rates can increase sharply at certain cargo thresholds.
For small volumes of cargo, however, you can often double your LCL shipment volume from the minimum (1 cubic meter) before seeing any real difference in price.
Shipping a box of hoodies with a cubic volume of 10cm x 10cm x 10cm. You’re paying for 10x the volume you need because you have to pay the minimum. However, increasing your cargo volume from, say, 5 cubic meters to 8 cubic meters could be quite a jump in price.
It’s best to check the rates per cubic meter from your freight company. Find the price at your average estimated shipment volume, and calculate if the price of LCL is justified.
Here we look at the entire shipping process of when the shipments gets picked up, to when it gets delivered to your door.
Stage1: Export haulage
The movement of items from a shipper’s location to the freight forwarders warehouse is called export haulage. This usually requires the help of a truck or train to move them.
Stage 2: Items Checkpoint
Immediately following the export haulage stage, freight forwarders receiving the goods will check to see and ensure everything was transported without incidents.
Stage 3: Export customs clearance
Before items can be shipped off it requires clearance from the country of origin. This process is performed by customs brokers. They are required to submit details about the cargo and any supporting documents that are needed.
Stage 4 – Import customs clearance
Once the shipment arrives, authorities in the destination country are required to check import customs documents. The secret to this stage is that it can begin before the cargo even arrives. It is the responsibility of the freight forwarder or nominated customs broker to perform this clearance by the time the cargo arrives.
Stage 5 – Destination arrival and handling
This stage involves a number of different processes once the cargo arrives. At this point, freight forwarders will receive all documents for the cargo, including outstanding documentation, carrier bills and more. This process is always taken care of by the freight forwarder.
Stage 6 – Import haulage
This process transports the cargo from the warehouse to the final destination of the intended receiver. This process can be facilitated by freight forwarders or the consignee can choose to collect the cargo themselves.
US duties and tax
Tax duty on imports from China?
Most of the tax duty is about 3% whereas the items with tax tariff is 25% or more (this drastically influences how expensive it is to import from China).
Once you know your product’s Schedule B or HS number, you can determine the applicable tariff and tax rates for importing from China to USA.
The Census Bureau sponsors a free online tool called the Schedule B Search Engine and an instructional video to help you classify your products.
What is the US import tariff rate?
US airfreight and US shipping will have US tariffs, with a minimum of 30USD and no limit. Goods valued below 800USD are duty-free.
China-USA Trade War
The continuous trade war between China and USA continues to not only affect eCommerce businesses but also the costs for importing from China. Overall, the trade war proceeded between 2018 and 2021.
China has lowered the tariffs it applies on imports from the rest of the world. China’s average tariffs toward those exporters have declined from 8.0% in early 2018 to 6.1% by early 2021. The United States increased its average tariffs on imports from the rest of the world from 2.2% to 3.0% over this same period.
Volume, volume, volume and, you guessed it, volume.
When you’re looking for an international shipping solution, your leverage is all about the amount of volume you can ship out. The more volume, the cheaper the price. It’s really just like the wholesale model across any industry - buying more reduces the per-unit cost.
And so with a few hundred kilograms of shipments per month, you should be getting pretty competitive rates, right? Unfortunately, you’re a small fish in a huge, huge ocean. Check out the volume shipped by air by the top freight forwarders in 2019:
• DHL-158,000,000 kg/month
• Kuehne + Nagel-131,500,000 kg/month
• DB Schenker-103,000,000 kg/month
• Panalpina Inc.-78,500,000 kg/month
That’s (literally) tons of goods per month! And check out what some of these Fortune 500 companies are shipping:
• Apple: 2.3 mill kg of iPhones per month
• HP: 10.5 mill kg of computers per month
• Nike: 147 mill kg of shoes per month
• Nintendo: 445,000 kg of Nintendo Switch per month
So when you bring in this kind of volume, you get the VIP treatment, with the absolute best rates.
Unfortunately the hundred kilograms you want to ship aren’t getting freight forwarders too excited and not the nest rates either! Who’s willing to work with you then? We are!!
Current shipping price spikes
No short term relief
The global shipping costs have seen new heights during this year though they had started growing in 2020 at a rapid pace.
Asia-US West Coast prices are at $18,425/FEU, a 50% gain since a month ago. This rate is 503% higher than the same time last year.
Asia-US East Coast prices are at $19,943/FEU, a 30% increase in the last four weeks and 475% higher than rates for this week last year.
Continued global imbalances
The rise of global imbalances in the locking down of countries at various times, production, and demand, in addition to the increased demand and limited capacity of shipping companies due to the pandemic, has pushed shipping prices to new heights.
Few alternatives to ocean freight
One of the major reasons for soaring ocean freight prices is the lack of alternatives. Though there are some alternatives for high-value products, such as electronic devices that can be shipped via train or air. But at the moment, demand is high, and capacity is very limited.
High import levels are driving the congestion. Loaded imports were up more than 23% YoY for The Port of Los Angeles in December and nearly 26% year on year at the Port of Long Beach.
Reduced blank sailings will help ease capacity constraints
The uptick in blank sailings for Yantian means that exports are being left behind as capacity is taken out of the system. The backlog could take weeks to work through even in this best-case scenario, resulting in higher freight prices when importing from China.
Port congestion and closures keep creating delays
The port congestion in the USA and China has led to many shipment delays and cancelations. Dwell loading times have increased 122% in the last two weeks, while dwell departure times increased by 242% during the same time period.
Port congestions have caused a shipping delay of up to 30 days in some cases, which means spikes in shipping prices.
The price of containers is an indication of ongoing scarcity. The price for a new container is now $3,500 per unit versus $1,800 per unit in early 2020 and $2,500 per CEU in late 2020. The cost has remained roughly steady at $3,500 per unit for the past three months.
When demand exceeds supply, this container shortage is driving shipping costs sky-high.
How to decrease the blow of price increases
Plan Plan Plan:
“The early bird catches the worm”. We cannot stress this enough. Book your shipments early to avoid the spikes in shipping rates.
Because of the container shortage and general delay, many shippers are unable to make last-minute bookings.
Make sure to book your shipments as early as possible, even a few months in advance, just to secure a space for your goods.
• We recommend at least 7 days for air freight
• We recommend 2 - 4 weeks for ocean freight
Communication is key:
The last thing you want is to wait for a shipment without knowing where it is or when it will arrive.
Make sure to communicate regularly with your shippers, if they are facing any delays, holds or storage issues. We believe in open and transparent communication between us and our valued customers.
Split your shipping:
Ever heard the saying, “Don’t put all your eggs in one basket”? We agree. Try splitting your shipments between various shipping methods.
An example would be to ship your smaller goods and quantities by air and the larger ones by ocean. This gives you options just in case there are any unforeseen delays.
Allow customers to pre-order your products:
Allowing customers to pre-order your products gives you the time to plan accordingly on how many products you need to ship from your supplier/manufacturer. This decreases the chance of any surprise delays or shipping price surges.
Insurance is a game-changer:
This is a no-brainer. According to industry observers, cargo theft and loss estimates range from $10 billion to $30 billion a year.
Yikes!! Don’t get caught without a safety net, insuring your shipment is valuable.
Check out our article on how to save your cost on shipping
Local Digital Marketing manager and content creator at Bookairfreight. I am someone who loves literature, but here to simplify interesting topics within the logistics industry that are easy to digest.