Skip to content
Search AI Powered

Latest Stories

enroute

to have (an agent) or have not

If your import program's in need of a big fix, the answer might be to lose the slippery selling agent and bring in your own hired guns to manage inland transportation.

If you import goods from China, trouble's your business. You already know about the dismal realities of doing business in the shadowy Middle Kingdom. Bad roads, buying chains that are as opaque as a dirty window, language barriers and red tape make for more twists and turns than the plot of a Raymond Chandler thriller.

What you might not know is that your company could be getting taken for a ride. Most importers have only a hazy idea of what exactly they're paying for or even who's manufacturing it. They just know it turns up and it's cheap, so they don't ask too many questions. But if they nosed around a little, they'd quickly abandon any illusions of lean and efficient supply lines moving their goods from China's interior to the ports, says Bengt Henriksen, president of Quality Logistics Inc., a third-party logistics service provider based in San Carlos, Calif. Instead they'd likely be forced to confront the reality of a well-greased chain of players, all eager for a chance to line their own pockets.


Not that this is anything new. Over the years, all but a few of the most sophisticated companies have decided that when it comes to doing business in China, it's easier to stand for a certain amount of squeeze than to try to make their own arrangements. Importers typically buy their Chinese-made goods from selling agents, and the buying contracts they sign usually incorporate trade terms that make the seller responsible for getting the goods to an international port—Incoterms such as Free on Board (FOB). But there are several problems with that. Truckloads of stuff turn up from a mysterious interior at unpredictable times, and often errors in orders aren't detected until the cargo hits an unstuffing facility on the U.S. side. Another problem is that costs aren't broken out—it's impossible to tell how much the buyer is paying for the actual item … and how much for transportation and middlemen.

Likely as not, it's a lot of dough. Middlemen, which Henriksen says are a particularly Chinese phenomenon in trade (though they may not wear fedoras), have set themselves up with a pretty good racket. In recent years, a few buyers have ventured inside China to find the actual factories and figure out how their cargo gets to port, Henriksen reports. What they've found is that there are four, five, six layers of middlemen, he says, each one adding 20 to 30 percent to the cost.

But making direct contact with factories is often as complex as figuring out who killed whom in The Big Sleep. "A guy walks into a hotel in Shanghai and he's instantly identified as, say, a fireworks buyer. Then he's going to be mobbed by selling agents offering to show him their factories. And the one thing you can guarantee is that it's not the guy's factory," Henriksen warns. "If it was his factory, he wouldn't be hanging out in a hotel waiting to present himself that way." That is to say, importers should be wary of sellers, who are often as shadowy as a weeping widow in Sam Spade's reception room.

But it's worth playing gumshoe and making a few inquiries. By cutting down on middlemen and separating out transportation costs, importers can save huge sums. Henriksen reckons that simply dealing direct with the factory, not even haggling over Incoterms, can save between $600 and $3,000 per container. "Every supply chain is different," he says, "but the savings often add up to more than the total freight!"

Farewell, my middleman?
However, Henriksen doesn't recommend cutting out the middleman entirely. "You have to either use a [U.S.-based] third-party firm that will sort this out for you, or else develop a relationship with a buying agent that will accept a reasonable commission and whose workings are reasonably transparent," advises Henriksen. "But you have to live and let live in China. You have to give them something. If you're cutting 90 percent of the cost, then you don't mind."

Sounds simple, right? After all, contracting for inland transportation should hold few mysteries for the experienced logistics professional. In fact, Henriksen has managed to get a bit of a buzz going in the last few years, making his case for taking control of inbound cargo at presentations like the one he delivered with Andy Rosener, director of international logistics at Hasbro Toys, at a Journal of Commerce TransPacific shippers' conference in March 2002. (Hasbro presented itself as a poster child for the movement to take control of inventory further up the supply chain.)

Yet those shippers who flock to Henriksen's talks have been slower to act than an arthritic night watchman. Tradecard, an electronic trade documentation services firm that handles huge volumes of import contracts for U.S. buyers dealing with Asia, reports that only 10 to 20 percent of contracts are on an ex-factory or non-FOB/CIF basis. That means that 80 to 90 percent of the time, shippers are letting the seller (or selling agent) control the freight up until it reaches the port.

Why are shippers so reluctant to take charge? Henriksen says the trouble usually lies within the importer's own organization. Typically, the traffic or logistics people in a large company are fully aware of how much the company could save by seizing control over the buying process, but the merchandising folks, who don't want to mess with existing relationships or products, don't want to hear about it. "So you have an internal battle between the people responsible for costs—the logistics people—and the people responsible for the product. And they don't want the logistics people to interfere," he laments. "In some companies— for example, Nike—the people at the very top see what needs to be done and will immediately go after the savings and make sure everyone coordinates and works together. But with other companies—no."

Beautiful friendships
But there's more to it than the Fat Man in marketing's reluctance to ruin a beautiful friendship. Cutting buying and transportation costs often means taking charge of the arrangements for inland transport in China. And that, as anyone involved in the logistics business locally can tell you, can be more complicated than piecing together a torn-up ransom note in the dark.

"The problem is that China is not really an integrated market in any sense or form," says Paul Clifford, managing partner for China at Mercer Management Consulting's office in Beijing. "China grew up in the '50s and '60s as regional markets with their own sources and homegrown logistics networks. When you start getting beyond one region and try transporting across many regions, it gets troublesome."

Even Wal-Mart, which will spend $15 billion in China this year and whose whole business model is built around logistics efficiency, is finding it challenging, Clifford says. "They have to outsource a lot of trucking, for instance, and even they find it very difficult to operate across provinces. The regulations mean you have to have a license to transport across borders load by load," he continues. "Of course there are local transport and freight forwarding companies that specialize in that, but they also have a history of being quite local. They're formed of smaller branches that put together a nationwide service by passing the product on to the next branch, but it's not a seamless, reliable service."

Then, of course, there are the roads, which have more holes in them than a drugged-up heiress's alibi. The further inland you go—where labor is cheaper and many new factories are springing up—the worse the infrastructure gets. The roads are not the half of it. Buyers also have to wrestle with decisions like which port to use. Tradecard president Kurt Cavano says the ports in the Pearl River Delta, such as Yantian, Guangzhou, Shenzen, Zhuhai and Shantou, have been giving Hong Kong a run for its money in recent years, siphoning off some of the larger port's business. But all that means is that buyers now have to weigh one relatively undeveloped port against another, or against trucking over the border to Hong Kong.

Mum's the word
Despite the difficulties, some U.S. importers have taken charge of their inbound freight, changing their Incoterms and/or port of export. But they've gone very quiet about it. Even trailblazers like IKEA, the Swedish furniture giant that publicly announced in 2002 it had moved all imports from China to FCA terms ("free carrier"—i.e., handed over to the buyer's carrier, often inland), have clammed up, declining to be interviewed on the subject. Industry commentators say this is because the ability to fine-tune shipping arrangements from China gives them an important edge over the competition.

"It's definitely a competitive advantage, giving you better assurances that the right product will be shipped when you want it shipped," says Maureen Saul, who's been helping U.S. importers consolidate and ship inventory from China for 15 years, most recently as vice president of logistics and marketing for United States Consolidation Services in Paramus, N.J. (now a subsidiary of the U.K. third-party logistics firm Exel).

"We do still see a fair number of selling agents, especially for U.S. companies that don't have offices in China," Saul says. She says companies are looking for transparency not only to save money, but to fulfill the increasingly strict security- related regulations about knowing who packed what and where. "If you go to ex-works terms, you have to know where the factory is, so that helps address the visibility problem," she says. "Customers want more transparency, and the security concern is a big part of that. People are engaging in vendor management programs and vendor certification. This makes it easier."

Overall, it seems even the largest shippers need a little help from an experienced third party when it comes to unraveling the mysteries of moving goods in China. IKEA, for example, makes heavy use of Maersk Logistics. Exel, Nippon Express, Panalpina, Schenker, APL Logistics and TNT Logistics are all active in the region, often working in partnership with the state-owned logistics firm, Sinotrans.

Henriksen's firm, Quality Logistics, also prides itself on knowing its way around China. "When I talk about this at meetings and conferences, I get an overwhelming reaction from importers from all walks, who say they want to know more. But then I explain that you have to delegate it. I can do lots of things for you but you have to let go," Henriksen says. "Our type of logistics service is to unbundle the transportation costs for our clients. [O]ur clients are so busy selling the products that they leave it to us to manage logistics, giving us a free hand to immediately go after the savings on their behalf." Basically, he tells 'em, if you need help, you just whistle. You know how to whistle, don't ya?

The Latest

More Stories

person using AI at a laptop

Gartner: GenAI set to impact procurement processes

Progress in generative AI (GenAI) is poised to impact business procurement processes through advancements in three areas—agentic reasoning, multimodality, and AI agents—according to Gartner Inc.

Those functions will redefine how procurement operates and significantly impact the agendas of chief procurement officers (CPOs). And 72% of procurement leaders are already prioritizing the integration of GenAI into their strategies, thus highlighting the recognition of its potential to drive significant improvements in efficiency and effectiveness, Gartner found in a survey conducted in July, 2024, with 258 global respondents.

Keep ReadingShow less

Featured

Report: SMEs hopeful ahead of holiday peak

Report: SMEs hopeful ahead of holiday peak

Businesses are cautiously optimistic as peak holiday shipping season draws near, with many anticipating year-over-year sales increases as they continue to battle challenging supply chain conditions.

That’s according to the DHL 2024 Peak Season Shipping Survey, released today by express shipping service provider DHL Express U.S. The company surveyed small and medium-sized enterprises (SMEs) to gauge their holiday business outlook compared to last year and found that a mix of optimism and “strategic caution” prevail ahead of this year’s peak.

Keep ReadingShow less
retail store tech AI zebra

Retailers plan tech investments to stop theft and loss

Eight in 10 retail associates are concerned about the lack of technology deployed to spot safety threats or criminal activity on the job, according to a report from Zebra Technologies Corp.

That challenge is one of the reasons that fewer shoppers overall are satisfied with their shopping experiences lately, Lincolnshire, Illinois-based Zebra said in its “17th Annual Global Shopper Study.”th Annual Global Shopper Study.” While 85% of shoppers last year were satisfied with both the in-store and online experiences, only 81% in 2024 are satisfied with the in-store experience and just 79% with online shopping.

Keep ReadingShow less
warehouse automation systems

Cimcorp's new CEO sees growth in grocery and tire segments

Logistics automation systems integrator Cimcorp today named company insider Veli-Matti Hakala as its new CEO, saying he will cultivate growth in both the company and its clientele, specifically in the grocery retail and tire plant logistics sectors.

An eight-year veteran of the Georgia company, Hakala will begin his new role on January 1, when the current CEO, Tero Peltomäki, will retire after a long and noteworthy career, continuing as a member of the board of directors, Cimcorp said.

Keep ReadingShow less

Securing the last mile

Although many shoppers will return to physical stores this holiday season, online shopping remains a driving force behind peak-season shipping challenges, especially when it comes to the last mile. Consumers still want fast, free shipping if they can get it—without any delays or disruptions to their holiday deliveries.

One disruptor that gets a lot of headlines this time of year is package theft—committed by so-called “porch pirates.” These are thieves who snatch parcels from front stairs, side porches, and driveways in neighborhoods across the country. The problem adds up to billions of dollars in stolen merchandise each year—not to mention headaches for shippers, parcel delivery companies, and, of course, consumers.

Keep ReadingShow less