International supplier shipping explained and broken down for Amazon sellers

This post was created to give you confidence and ease in "navigating the waters of commercial shipping inctoterms" 🤓
Seth Kniep
July 18, 2017
Build your Amazon product
It can feel overwhelming the first time you talk to suppliers about shipping your product to you from around the world. They will throw around terms like consignor, shipper, EXW, carrier, customs agent, FOB, and freight-forwarder as if you grew up speaking a different language. At first it’s a little intimidating. We will help you clarify and simplify this process as much as possible. Once you have a general understanding of the most commonly used terms, it all begins to make sense.

What do you call the supplier and the buyer in shipping terms? 

Supplier = Shipper = Exporter = Consignor

The person or company who built or owns the commodity to be shipped to you, the buyer, is called the shipper. This is usually the supplier who manufactured your product. This party is usually referred to as the consigner (some spell as “consignor”) on the paperwork. They are the exporter because they are exporting the products out of their country, into another country. 

You = Buyer = Importer = Consignee

This is you, the Amazon seller. You are the buyer, also called the consignee, who will be receiving the shipment of commodities. You are the importer because you are importing the products from another country into your own country. 

What is the difference between a carrier and a freight forwarder?

The carrier is the person or company that “carries” or transports the commodities from the source of origin to the destination. They are responsible for any possible loss of the goods during transport. 

The freight forwarder (also called the “forwarder”) can act as the carrier but also takes on a much fuller range of services. FedEx, UPS, and DHL are three typical examples of freight forwarders. Sometimes this includes them acting as the carrier themselves, other times it means they contract with a third party company to act as the carrier. The freight forwarder arranges the entire process for import and export of goods, usually including the following: 

  • ‍Organizing the safe, efficient, and cost-effective transportation of goods
  • Tracking inland transportation
  • Preparing shipping and export documents
  • Warehousing
  • Booking cargo space
  • Negotiating freight charges
  • Consolidating freight (which saves you the consigner, money)
  • Cargo insurance
  • Filing of insurance claims

In most cases the freight forwarder will assume the legal liabilities of acting as a carrier. The freight forwarder acts as an intermediary between you the shipper and various transportation services including ocean shipping on cargo ships, trucking, expedited shipping by air freight, and moving goods by rail.

What is the difference between carriage, cargo, and freight? 

Cargo = goods carried on a ship, aircraft, or motor vehicle.

Freight = same as cargo. 

Carriage = a means of transporting something from one place to another. 

Do I need a customs agent/broker? 

You are not legally required to hire a customs broker to clear your goods. However, many importers opt to do so for the convenience and security as well as to avoid making costly mistakes. Without a customs broker you will be required to fill out multiple and complex forms, especially when shipping by sea. 

Customs brokers services become the most complicated and necessary when shipping overseas. Many documents have to be filled out and signed, including an Importer Security Filing (ISF), an entry filing, as well as obtain a Customs Border Protection bond. This bond is insurance for the federal government. In case you fail to pay the fees, the bond ensures the government that the fees you owe will be paid. 

Other required documents can include a bill of lading (for shipping by sea), an air waybill (for shipping by air), commercial invoice, certificate of origin, certificate of title, and more.

If your freight forwarder offers customs broker services (many of the larger ones do) then this service is already taken care of for you. FedEx, UPS, and DHL all offer customs broker services. You will be required to sign over power of attorney to the customs broker so they can act on your behalf. This usually costs less than hiring a customs broker yourself because the Freight Forwarding company has contracts with customs brokers for reduced rates. 

When shipping by sea, many suppliers prefer to work with a carrier they already have a strong working relationship with. Many of these carriers are not freight forwarders, meaning they only provide shipment service leaving you to take care of customs, paperwork, warehouse fees, ground transportation (from the port harbor to your house or warehouse), and everything else. In this case, I recommend you arrange the shipment yourself through UPS, FedEx, or DHL. If the supplier refuses to work with your preference of a freight forwarder, you may have to hire your own customs broker to manage the entire process with the carrier. 

Huge companies like FedEx, UPS, and DHL are world renown for their capability to act as your freight forwarder. Your payment to them covers not only the cost of shipping but the paperwork for customs, inland transportation, import and export documents, the bond—everything needed.

What are the main kinds of shipping? 

Air Freight

Air Freight delivers your products the fastest and also costs the most. When making your first order from a supplier (after the samples) air freight is the best option because time is precious and the faster you get your products up and selling, the sooner you will begin to create cash flow. 

When ordering small quantities of small products (such as 250-2000 pieces), shipping by ocean is almost never cheaper. Even though the per item cost of ocean shipping is lower than by air, the customs fees for shipping by ocean are usually a fixed rate, meaning you won’t save money using ocean shipping until you are shipping a large quantity (5,000 to 100,000 units, for example). 

Ocean Freight 

Shipping by sea saves you a ton of money if you are shipping large shipments or high quantities. For example, shipping 6,000 units by sea, in most cases, does not cost any more in customs fees than shipping 2500 units by sea. The per item cost of shipping by sea can be three to five times lower than shipping by air. 

This is a great option if you have a strong selling product and are ready to order a large quantity of inventory but are confident you will not run out of your current inventory by the time it ships. Shipping by sea can take 3-5 weeks. 

There are two ways to ship by ocean: Full container Load (FCL) and Less Than Container Load (LCL). 

Full container load (FCL) simply means you are shipping enough products to fill up an entire container. There are many different kinds of containers but your freight forwarder or customs broker can suggest what kind of container is best for you based on the size and kind of product you are shipping. 

Less than container loads (LCL) are used when you are not shipping enough products to fill an entire container, so instead you just pay for the use of part of a container. The rest of the container is filled with other importers’ goods which they are also paying for. This method usually ends up costing more per unit than filling up an entire container because the container needs to go to a CFS (Container Freight Station) to be split. Paying for a full container but using only part of the space is sometimes cheaper then sharing with others as LCL. 

‍Photo by woodrow walden on Unsplash

How to understand the various shipping terms

The following is a list of all the incoterms (International Commercial Terms) that your supplier may present you with. These are contract terms to be added to the purchase order agreement between you and your supplier. Refer to this list when you’re unsure of what your supplier’s quoted price does and does not include. I will first cover the first four most common incoterms. The other eight terms are covered in depth in our coaching program.

EXW (Ex Works)

Explanation

EXW is used when your supplier only makes the goods available for pick up at their own factory or warehouse on an agreed upon date. They will also prepare the Bill of Lading (for sea shipment) or the Air Waybill (for air shipments). The price they give you is for the cost of creating the units plus preparing them for pickup, but does not include the shipping costs for your product. That is your responsibility.

All other responsibilities including the loading of your inventory, inland freight to the port, clearing of the goods for export and international freight are your concern. Any potential damage to your product in the process is assumed by you the buyer. This Incoterm puts the maximum burden on you, the buyer.

Example

Your supplier quotes you a price of $2000 EXW for 500 solar-powered fidget spinners. This means that the supplier will manufacture the fidget spinners and make them available for collection at their factory or warehouse on a specific date. It could, for example, be $2000 EXW Shenzhen, China. You will then contact a freight forwarder to pick up the goods on the specified date at the supplier’s address. This is often made simpler by putting your freight forwarder in contact with your supplier.

FOB (Free On Board) 

Explanation

FOB means the supplier is responsible to transport your solar-powered fidget spinners to the seaport of their country (the originating port), and load them them onto the vessel, ready to sail. Your supplier provides all of the documentation needed to get your products through Chinese customs.  

All further costs of getting your inventory to Amazon’s or your own warehouse are your responsibility. This Incoterm is only applicable to waterway transport.

Example

Your supplier quotes you a price of $2600 FOB for 500 amazing fidget spinners. You agree on a port of loading and the freight forwarder you will use. Your supplier will manufacture and ship your inventory to the originating seaport. They will also load your inventory onto, for example, the DHL vessel. From this point onwards, you will be responsible for the costs of getting your goods to shipped overseas to you or to Amazon’s warehouse.

DDU (Delivered Duty Unpaid)

Explanation

Under DDU, your supplier will quote you a price that covers the manufacturing and transportation of your goods all the way to the final destination agreed upon (such as your warehouse or doorstep) minus duty and other customers clearing expenses.

When the goods arrive at the destination port, you the buyer, are responsible for paying the customs fees and filling out all required entry forms so thee goods can continue all the way to final destination. You can hire a customs broker to do this part for you if you prefer. I recommend a freight forwarding company with a built-in customs broker. This method is often called, “Door to door delivery.” 

Example

Your supplier quotes you a price of $3000 DDU for 500 units. The supplier ships your inventory all the way to a the port of Los Angeles. On paper it looks like this: “DDU: Port of Los Angeles.” After the customs broker fills out all the paperwork and processes the customs fees to receive your inventory the goods are delivered to Amazon’s warehouse. The supplier could also have the shipment sent to your final destination but you still have to take care of customs. 

DDP (Delivered Duty Paid)

Explanation

Your supplier quotes a price that includes all of the costs associated with getting your inventory to the final destination. This could be your house, your warehouse or Amazon’s warehouse. This is why it is often referred to as “door-to-door” delivery. This is the most comprehensive term and affords you the least involvement. Your supplier bears all of the costs and risks until the goods arrive at their final destination. This Incoterm puts the maximum burden on your supplier.

Example

Your supplier quotes you a price of $3100 DDP for 500 units. This price includes the costs of manufacturing each unit, insuring your inventory for transportation, clearing your goods for export and import and all the transportation costs involved in getting the goods to the final destination. All you have to do is pay your supplier the fee and name the destination that you wish to have your inventory delivered to and they will take care of the rest.

To learn the other eight incoterms along with a step-by-step process for how to build passive income on Amazon, including finding huge-potential products to sell, negotiating with suppliers, vetting suppliers, and how to differentiate your products to crush the competition, join the Just One Dime team here.

 

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Most Common Shipping Incoterms

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Seth Kniep

Married a pearl. Fathered 4 miracles. Fired his boss. Turned a single dime into $104,857. Today, a self-made millionaire, Seth and his team of 8 badass coaches teach entrepreneurs how to build passive income on Amazon.

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