#9 – Amazon Sourcing from China 4/4
This Episode, #9, is the 4th of 4 Episodes specifically dealing in detail with Amazon Sourcing from China. It’s also part 7 of the “Amazing FBA Startup System”, which is a very highly structured series of podcasts designed to take you from zero to having a product launched and selling on Amazon.
SHOW NOTES FOR EPISODE #9
“PAPERWORK” i.e. Forms/Contracts etc.
It’s all about the Commercial Invoice (CI), folks!
Everything in the final stages of documentation (meaning anything you or your supplier write to each other, broadly) is leading up to the CI.
After you have finished negotiating on price, product inspection/testing, payment terms (100% upfront vs 30/70% split are the usual options) freight terms, & delivery date, you need to summarise everything in one crystal clear email. The end result of all your documents is the crucial COMMERCIAL INVOICE (See below). After that is agreed, your order is, in theory, set in stone
Of course in practice, you can look at a so-called “final” commercial invoice, realise you or your supplier have made a mistake, and go back to them and get a correction. But it’s a very good discipline for both you and your supplier to get documents right first time. The Chinese have a strong respect for written documents, so use that to your advantage. It’s all about 2 things: clarity of what you are both agreeing; and holding your supplier to that agreement.
So do your best to do any wiggling, renegotiating and corrections before you finally have the Commercial invoice.
Definitions and “final document flow” (see below for actual contents)
- Draft Purchase Order Email – this is of course not a technical term! But I put it in as it is a prelude to the Pro Forma Invoice (see below). So you need to be extremely precise in what you ask to be put in the PFI. See below for an exact list of all the info you need to put in the email.
- Pro Forma Invoice (PFI) – basically a draft Commercial Invoice (see below). As it is a prelude to the CI, check it very carefully.
- Purchase Order (PO) – your business’s formal request to buy goods. This is a very important document so you need to basically do a “draft PO” by sending a very detailed email to your supplier (details below), so that you get a good quality PFI back and then your actual PO will be accurate.
- Commercial Invoice (CI) -this is the final document to result from all your back and forth before money gets sent to the Supplier and then goods are manufactured then sent to you or your warehouse.
It is the final and most crucial document.
The word “Invoice” in normal business life implies a straightforward document. Of course accurate invoicing is important, but there are not too many consequences if there are errors, as they can be corrected with an apology.
However, the CI can’t be corrected once it is printed and fixed to all the cartons of your precious products, and it is the main document that will get goods through U.S. customs -or cause issues and delays if it is wrong.
So it is a much more crucial document than a normal invoice!
My strong advice: check and double check every single detail. Then CHECK AGAIN. Trust me on this. (use the info below as a check list)
CONTENTS OF COMMERCIAL INVOICE (so put all of this in your “Draft Purchase Order” email, telling the supplier to show all of this in the Pro Forma Invoice)
- Address of “Ultimate Consignee” (US customers term for the person who is actually responsible for the products i.e. your business): Your Name, Your Business, Your Address or Business Registered Address, UK ( note- even if you don’t have a Company registered, use your business name on all documents, websites etc. Be consistent)
- Delivery address: probably Your Name, Your Business, #Work Number of some kind, Warehouse address, USA
- Make crystal clear to your supplier that your UK address is NOT the delivery address! Have the two different addresses in separate parts of the form.
- Your business’s EIN number (definition below)
- Your business’s DHL account number (or Fedex or UPS – whichever courier your supplier is using)
- The products’ manufactured value
- Freight charges, assuming your supplier is handling freight for you (it’s nearly always cheaper and works more smoothly at their end). Exact Freight incoterms, e.g., DAP (see below)
- Any bank or Paypal charges you have agreed to pay the supplier
- Payment Terms e.g. 30% deposit, 70% balance
- Make it clear if you are making the payment of balance dependent on successful product testing/inspection. Spell it out.
I’ll put a sample of each type of document up in the next few days.
I first dealt with this in Episode 6, because even at that stage, when first comparing potential suppliers, you need to be aware what prices they are quoting mean so you can compare like with like.
At this final stage of negotiations and placing the order, it’s more critical to be crystal clear exactly what you are getting.
“Incoterms” are internationally agreed freight terms. Chinese Suppliers are familiar with some of these, although as ever, they tend to use them in their own way.
There are 11 incoterms, each with a unique 3-letter abbreviation. The most important thing each does is: to define precisely when the responsibility for the shipment passes from the Seller to the Buyer. You can further split that into Risks, Responsibility and Costs but I don’t believe you should overthink this at this stage of knowledge!
Here’s a chart showing the detail if you want to educate yourself.
HOWEVER – The good news is that there are only 4 incoterms you’ll probably need to discuss or understand as long as you are using air freight (and I do NOT recommend using sea freight for a first order):
EXW – “Ex Works” – this is the price straight from the Factory Gates. I would never advise you buying on these terms because it means you would have to engage a Freight Forwarder to get the product through all the hoops (clear Chinese customs, get put on board plane, get freight plane over to USA, clear USA customs, etc. etc). It is useful sometimes at the sourcing stage for a like-for-like comparison for price between different suppliers. But don’t agree to it at this final stage.
FOB – “Free on Board” – The Seller will pay for Land transport to the port, export customs, and loading on board the ship. This technically can only be used with Sea Freight but the Chinese use it all the time for sea or air freight.
Again, this is a very common way of quoting price so useful at sourcing stage. At this stage of ordering, I think you should avoid like the plague. I think this leaves way too much for you to organise (international freight, clearing US customs, unloading in US Port, organising freight within the USA to your warehouse etc.)
DAP – “Delivered At Place” – sometimes (incorrectly) called “DDU” – Delivered Duty Unpaid (I am guilty of using this term too, possibly influenced by one of my suppliers!).
This means the supplier undertakes to do everything necessary to deliver your products from their factory door directly to your warehouse, EXCEPT for clearing U.S. customs and paying U.S. import duty.
This is the method I have used so far with both of my current suppliers and all my imports (6 to date). I like it because it takes care of most of the issues, but it still can leave you holding the baby with the U.S. customs. It is my recommended method unless you can get DDP (see below), which is even more straightforward for you.
If you use this method, you will almost certainly get a better freight rate than if you asked for it yourself. That’s because your supplier ships probably 100X more volume per month than you are importing. However, you can check this price is reasonable by opening an account yourself with DHL (or Fedex or UPS or whoever they use for freight), and getting a quote for air freight to your warehouse address.
You need to open an account with DHL (or Fedex or UPS) anyway so you have a way for them to easily invoice you for customs duty etc., so you might as well get a quote while you do that.
You’ll need to know the exact weight and dimensions of each (packaged) unit, or the weight and dimensions of each carton=case of products (and of course the number of units per carton). Then you can calculate the cost per unit and the total cost.
For reference, I’ve generally been charged about 7-8 USD per kilo for air Freight DAP to Portland, Oregon.
DHL/Fedex or UPS only, folks!
It’s really important if you use this method to only work with a supplier who will work with one of the standard courier companies: DHL, Fedex or UPS. That’s because of customs clearance in the USA. If you set up your own (company’s) account with DHL, they can pay for duty and customs charges upfront and will invoice you or charge you directly for it. This means you don’t need a customs broker to clear U.S. customs.
If you allow your supplier to use any courier company that uses a normal airline, you will need to use a customs broker, meaning more costs and more complications for you. SPELL OUT to them that they are not to do this! Guess how I learnt about this!
DDP- “Delivered Duty Paid” – This is the De luxe and simplest of all Freight terms – your supplier will pay for and be responsible for everything from their factory gates up to your warehouse gates, including Customs duty and any customs clearance costs.
I haven’t yet found a supplier who is willing to supply on this basis, as it means they are exposed to the vagaries of U.S. Customs. BUT if you can find one, I totally recommend this unless the price is outrageous.
It means that you effectively don’t have to think about the Freight part of your supply chain and avoid any potential complications with the U.S. Customs.
This is possibly the most worrying/stressful single area of importing, but if you get your paperwork spot on, you should have few problems with it. I’ve only had problems so far when the supplier didn’t use a standard courier as discussed already.
Duty Calculator www.dutycalculator.com As the name implies, you can calculate the import duty %age that any product attracts. Just follow the simple prompts – which country importing from? which to? Product description? etc.
Duty rates vary from 0% to 37% but I’ve only found between 0% and 6.5% for my products so far. Only 3 credits for free so use only when you’ve shortlisted to 3 product types in product research. Then use again at this stage to double check your costs for your Profit & Loss calculations.
WORKING WITH YOUR WAREHOUSE
This is something I’ll go into in more detail in the next episode, along with Amazon Inbound Shipping. But I’m including both here to complete the end of your Supply Chain.
Once you’ve got products to Amazon, you’ve completed the end of your Sourcing Phase of the Startup process.
If your warehouse is experienced and competent, Like ECM or FBAI, it should not be a big deal for them to work sensibly with you. After all, for the first time in a while, you’re dealing with native English speakers (for the most part, anyway!). Huzzah! Also, most places are experienced with Amazon’s requirements.
Again, just be crystal clear
a. that you know what services they can offer.
b. that YOU know which ones you want
c. that you communicate to the WAREHOUSE exactly what you want.
Services receiving warehouses generally offer include:
- receiving goods (this is the most basic service for which you are using them)
- sticking on Amazon FNSKU labels (Amazon can do this for you at 20 cents each, which is similar to what other places charge, but check)
- putting in inserts, e.g., “Go to this website to activate your warranty” – which I use to capture email addresses within Amazon’s Terms of Service (TOS)
- testing products if you haven’t had that done in China (in which case you need to create and send crystal clear instructions – see episode #8 for details)
- inspecting products and product inner packaging superficially
- replacing damaged inner boxes **TIP** get your supplier to create about 10-20% extra inner boxes to replace any damaged in transit. So for 500 units, you want 50-100 extra boxes. Amazon will count damaged inner boxes as defective units
- repackaging inner boxes (units) into outer boxes=cartons=cases ready to ship
- liaising with UPS (Amazon’s dedicated courier for inbound shipping)
Try to agree it all upfront. That’s better for (i) budget planning and (ii) smooth working & quicker timescales with your warehouse. However, stay in touch with them and if you need extra services last minute, they are normally happy to do those. Just expect a small extra delay if you do this. First time out especially, you’re likely to need to tweak things. Don’t give yourself a hard time- just keep moving!
INBOUND SHIPPING TO AMAZON
I’ll cover this in more detail in the next episode, but you need to know about this at this stage.
You will need to have set up a product listing at this stage. I’ll get into detail of that in the next episode but do the very basic steps, so you can therefore get an FNSKU, and set up Inbound shipping.
A crucial Amazon term is FNSKU – The FBA SKU (FNSKU) is an Amazon product identifier for products that are Fulfilled By Amazon (the FBA of this podcast’s title) . The FNSKU identifies the product as yours. You need an FNSKU in order to create FBA Inbound Shipments, which is the next stage.
Inbound Shipping – simply means freight from anywhere in the USA (in our case, from our receiving warehouse) to whichever Amazon warehouse or warehouses Amazon chooses to store your products in. When you create a Shipping Plan (more in next episode), you will input the size and weight of your cases (cartons) and the number of them (and no. units/carton).
Amazon will then automatically assign your products to (a) specific warehousese(s). You just need to fill in all the info, click “Create shipping Plan” & then send the resulting PDFs to your warehouse.
They should then complete the process of getting your products to Amazon. Voilà! You have product live, ready to sell!!
I’ve included the warehousing and inbound shipping info here as it completes the process of getting product from your supplier to Amazon. However, the place to go into both areas in detail is in the next episode. So click here and listen and read your show notes!
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