What are the major freight paperwork and how do we overcome those?
If you are using a courier or one of the freight professionals, they do all that for you. You don’t have to worry about the various paperwork, custom claims, etc. This is a skill these guys have been working on for years, they can do it better and more efficiently than you, so let them do it. UPS is around £11 per shipment for customs clearance. DHL is right around there as are most of the others. Since you’re importing the product, most of the paperwork is done by the exporter and you’ll end up with the VAT and the duty. Both of these are calculate off the commercial invoice.
One thing the Chinese like to do to be nice, is send the shipment as samples. If they are a sample, that’s fine. However, if you’re shipment is 500 units, that clearly isn’t a sample. At some point, the guys at HMRC are going to catch on and you may end up with penalties as well as your future shipments getting more scrutiny causing delays.
You have a proper business, so you want to make sure you do things by the book. It may cost you more in duties, but you want to build your business on solid ground.
Another they offer is to lower the cost of the invoice to stay under a certain value at which point things become more complicated. Is that something to avoid as well?
At the end of the day you’re evading taxes, which simply put, is wrong. Also, if you get caught you may end up getting put on a list which will further delay you in the future. If one of the customs officials gets to digging around and realizes your products are valued at more than what was declared, they will put you on a watchlist. Ongoing shipments will be inspected and paperwork will be scrutinized which will hold up your shipment.
Do you need to instruct your suppliers about commercial invoices or will that be checked by DHL or UPS?
A commercial invoice is just like any other invoice. It will detail the value of what your purchased, the goods you purchased, the delivery address, the importer on record’s address, and the commodity code. That is a global code that details what the product is classified as which you can find on the HMRC website. So when the shipment comes in they can charge import duties.
Is that something the Chinese supplier will automatically put on the invoice and get right?
Well… they’ll put it on the invoice. It may not always be right and there is no way of going back and saying this is wrong, so you’ll just have to double-check it and next time you order tell your supplier that they put the wrong commodity code on it. Which could save yourself some money since the import duties can vary depending on this code. It can range from 0-12% on top of VAT.
How is VAT calculated? Is it the value of the goods only? So if I have 500 units that cost $2 a piece, is VAT calculated on that $1000?
It is the commercial invoice value + freight + duty. VAT is calculated on the total of all three.
Is there anything else we need to get on the commercial invoice? Say I order a shipment, sent to your prep company, do I need to make sure all that is on the invoice and how do I communicate that to DHL or whoever?
It does need to be on there, but in Greg’s experience if doesn’t matter. It seems to be a daily battle with FedEx, or DHL trying to get the person on the commercial invoice or airway bill. It doesn’t matte who the consignee is, Greg seems to always get the bill sent to FBA Pep UK at his address. If you look at the paperwork that comes with it, it clearly states the correct customer but they seem to ignore that.
How do you handle that, when you get the invoice in stead of your customer?
It depends on the customer. Some will just pay it which is fine. Even though it’s FBA Prep UK on the bill, they can’t sort it out. The customer has to contact them and tell them that they will accept that invoice.
The biggest takeaway seems to be that it’s best to just use a freight forwarder or use your courier and make sure that your name and the company name is on the paperwork.
Those guys are the professionals. They are doing this day in and day out. Sure you can learn it, but that’s time better spend on your company and sourcing more profitable products.
Another thing you have to worry about is your EORI (Economic Operator Registration and Identification scheme) number. Which is a number supplied by the HMRC (Her Majesty’s Revenue and Customs). You can’t apply for one unless you have a shipment coming, and you can’t get your shipment into Europe until you have it. It takes about 3 or 4 days to get it, so as soon as your supplier gives you all the detail on when the shipment is coming from, where it’s going to land, the size of it, the vessel number, take that information and you can apply for your EORI number online.
Small samples should be ok, your couriers can take care of it. Once you start getting bigger shipments coming in, you’ll want to get your own number. It simply for statistical purposes of what come in and goes out of Europe.
On a side not, outsourcing is vital! It’s a waste of time trying to do everything yourself. Some of the simpler tasks, or task that need expertise can be outsourced freeing you up to focus on growing your business. Here is just one example:
This is a 15×15 grid of everything that needs to be done with products. This is why you shouldn’t order 15 different things from AliExpress and why you need help with prep.
For more ambitious sellers what are the biggest challenges when trying to scale up?
What about people who want to import a lot of one product?
Factoring time scales. If your coming by air now, you’re looking at 7-10 days from China to yours or your prep company’s hands. As you scale up you’ll have to start coming by sea which is about 35 days from China to the UK. Then the ship has to be unpacked which is another 5 days. It’s about 40 days from the time the supplier delivers it to the time you take delivery. Obviously, this is something you have to consider. If you’re doing you analysis to determine when you will need more product, you’ll have to add another 30-40 days onto that or risk running out by the time the ship arrives.
If you’re used to doing your own prep, as you scale up the deliveries will get bigger. You’ll start getting them in pallets rather than loose boxes. If you plan on continuing to do it at home, you have to consider how you’re going to offload the truck. It’s no longer going to be a van or small truck, it’ll be coming in artics so access becomes an issue. Also, you have to request a truck with a taillift if you don’t have a forklift. That will cost another £40.
What about those who want to go from a few SKUs to say 10 or 20 but not a huge quantity of each one?
This is common with things like pencils. Where you have one type of product, but 5 or 10 variations. i.e. different colors which Amazon treats as completely different products. Having the product description on the boxes is a huge help. That way if there is a problem with a particular SKU, it’s easier to identify which ones they are without having to open every box.
Whether you’re ordering 500 unit of one product, or 50 units of 10, the challenges are the same. Where the challenges would come and the cost would rise, is if your importing products from different suppliers. Now, there are services that will consolidate for you. You can have four or five different suppliers send everything to these consolidation warehouses. They will consolidate those and export them as one shipment saving you money.
What do you see coming up in the Prep side of Amazon as a problem?
Amazon will start requesting detailed contents of boxes. You can do it now, as an option, and in the US they have started requiring it. Usually if it happens in the US it will happen in the UK. So you will have to communicate that with your supplies to be more clear about what’s in each box especially of you ship directly. They will also requiring packing notes, so when they open the box, they know what’s in it to speed things up on their end.
Brexit will likely have an impact on shipping in Europe.
Amazon announce recently that they will have an air fleet of about 40 planes to ship products themselves. It’s unknown if freight will change much since it’s a fairly stable and established system. However, Amazon will likely try to takeover that.
How can people get hold of you?