China to America – Avoiding Customs Clearance Delays

I love that my work phone only rings a few times a week, and the best part is that it is never an unhappy customer. 99% of the time (the other 1% it is probably my mother) when the phone rings it is FedEx Trade Networks attempting to collect missing documents needed to clear a shipment from our Chinese manufacturers. As a company, we provide logistic requirements to our multiple manufacturers for all of the products they assemble.  One of the most important aspects of the logistic requirements are the necessary documents to clear customs without encountering any delays.

A few examples of these required documents are :

  • Letters of credit
  • Bill of lading
  • Dock receipts
  • Import licenses
  • Certificates of origin
  • Inspection certificates
  • Certificates of insurance coverage
  • Packing lists
  • Commercial invoices
  • Toxic Substance Control Act forms
  • Fish and Wildlife permit

As discussed a few days ago, lack of knowledge and skills can be a hidden cost. In regards to customs, I have found that inexperienced Chinese manufacturers often forget to check and confirm, or simply don’t realize the importance of, the logistic requirements and leave out necessary documents leading to clearance delays. Clearance delays can last for weeks if the necessary documents aren’t included in the shipment or submitted immediately by me, which in the worst case scenarios can lead to lost sales because a product isn’t available to sell as soon as originally anticipated.

I am continuously amazed at the small details our Chinese manufacturers accidentally forget to include on the required documents, inevitably leading to customs clearance delays on the American side.  Most often it happens with Commercial Invoices, where customs regulations require a cost break down of any product included on the invoice. For watches, the product I deal with on a daily basis, a cost break down is simply the total cost of the watch split up as follows: 55% movement, 25% case, 15% strap, and 5% battery. Being someone who is extremely detail oriented, I am shocked when this happens over and over again and usually from the same manufacturer. Most often this forgetfulness is due to a lack of familiarity or knowledge of the required documents for international shipments. After experiencing this situation numerous times, I am very specific and clear when communicating the requirements to our manufacturers. I have found that using this strategy and taking these extra necessary precautions is the best way to avoid any sort of clearance delay.

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The Year of the Dragon – January 23rd

Yesterday when I rolled out of bed, I was looking forward to casual Friday and the workweek finally being over. That was when I also happened to look at the calendar in my living room, and I noticed that it was Friday, January 6th, which is Epiphany. As I was perusing the calendar, I myself had an epiphany, and realized that January 23rd is quickly approaching. To some, January 23rd is just another Monday in January, but for those of us that work with Chinese suppliers, manufacturers, and factories, we all know that Chinese New Year (CNY) is only days away.

For us Americans, it is very hard to wrap our minds around the concept that large factories can simply shut down business for a prolonged amount of time (usually about a month) and think nothing of it. For the Chinese, this has been a cultural ritual for centuries and is a highly anticipated month of festivities, parties, eating, and parades. This month of ‘nothingness,’ as I like to call it (in the sense that no business is taking place), is something that people worldwide who work in the supply chain and logistics field prepare for many months in advance.

Preparing for pre and post CNY involves months of planning, forecasting, and negotiations. Where I work, the deadlines for placing purchase orders with pre-CNY delivery dates varied for our different vendors, but it was mostly around the middle of September. Any purchase orders placed after the deadlines were given post-CNY delivery dates, meaning mid-February at the earliest. In the retail and sales industry, depending on the current economic situation, it can be hard to predict how sales will be for October and November, which are historically the largest selling months as major retail stores prepare for the holidays. Being unable to determine how much will be sold in those months makes it difficult to know how much inventory will truly be required after CNY.

On the Chinese side, it is very hard for the suppliers and manufacturers to give solid replies for post-CNY capacity and production rates because they really have no idea how much of the workforce will be returning to the factories after the holiday. Chinese factories are heavily located in Shenzhen, a major city in the Guandong province of China, and most workers leave their families for 11 months out of the year to work and live there. If the Chinese workers are able to save enough money for the next year, why return to a factory far away from their families? I wouldn’t.

As CNY is approaching, the factories are attempting to push up their delivery dates since they are unable to determine capacity and production rates after CNY. In their minds, delivering a product now that originally had a late-March delivery date is beneficial for us on the American side. However, due to our own capacity issues and goals for inventory turnover rates, it actually ends up being frustrating and affects our numbers. Both sides have their justified reasons, which are sometimes unexplainable, but we all continue moving forward because that is how business is when working in China.

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Uncovering the Hidden Costs of Doing Business in China

As the world is ‘becoming flat,’ outsourcing job functions and offshoring jobs to China to cut costs is becoming a common business practice. Developing countries, such as China, present many opportunities for cost and buying savings. An increasing amount of American companies are outsourcing their manufacturing, IT support, and R&D.

Despite these widely chased cost saving opportunities in China and other developing countries, many companies are discovering that the cost savings they originally predicted have not and possibly will not be achieved. These unpredicted and hidden costs are most often due to the following reasons:

  • Cultural, customs, and language differences
  • Currency fluctuations
  • Resistance to change
  • Longer lead times
  • Increased supply risks
  • Lack of knowledge and skills
  • Lack of necessary technology

The leading expense companies are unexpectedly encountering when starting and/or continuing operations in China are the cultural, customs, and language differences. Prior to entering any negotiations or agreeing to binding contracts, a company and its management absolutely must study and know the Chinese culture and norms. For example, the Chinese culture is predominately ruled by the concept of Mianzi, or ‘saving face.’ Disrespecting or not following this Chinese concept can lead to disastrous and expensive mistakes.

The best ways to discover, avoid, and overcome the many hidden costs associated with doing business in China are by education and training (this can be very expensive because your executives and top management will have to travel to China often!), investing in the necessary technology for your company and suppliers, the development of measurement and reward systems for your Chinese suppliers, using an external agent to help navigate the many government regulations in regards to business operations, and finally by the involvement of executives and top management in day-to-day business operations. Without the involvement and dedication of top management, your business will not be able to succeed at operating in China. Following these methods will help ease your company’s entry into the Chinese business world.

As someone who works daily with my Chinese counterparts, I am excited to share my knowledge and experiences with you about doing business with the Chinese! Sometimes it can be very frustrating, but by understanding the cultural differences (and believe me, there are more than I can count!), and by using the proper business etiquette, business in China can be done well and be highly profitable!

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