Logistics for Startups
Basic guide to the export — import journey
When Mestrae first launched, our order request (about 90% of it) was from overseas for both D2C and distribution. Coming from a product development engineering background, I had a good insight on making the product, but not a clue on logistics. So when it came to export, we had to learn everything on the go. Mind you, we made a lot of mistakes and hurt profit margin badly, so I hope this helps ease up new entrepreneurs who are about to start their exporting journey.
First, let’s break this article down into a few parts :
- Part 1 : Types of Shipment
- Part 2 : Role of Freight Forwarder
- Part 3 : Landed Cost Calculation
- Part 4 : Incoterm
- Part 5 : Miscellaneous Info
Part 1: Types of Shipment
1. Couriers — are normally for lighter shipments (recommended <45kg) and fast delivery between 2–5 days. It has simplified customs clearance(typically for value <$2k for for Malaysia <RM 500 ($120) but import duty and tax are upon the buyer.
2. EMS, or Express Mail Service — This is similar to courier except that it is managed by the country’s own postal. The delivery time is longer (approximately 2–3 weeks) but the cost is much lower than the price of the courier. Sometimes couriers partner up with a universal postal union to optimize quicker delivery time but with lower cost maintained.
3. Freight Forwarders — This is for large volume delivery (typically above 45kg) transported via sea or air freight, large size and for items that are not allowed via courier. It normally requires transportation agents such as freight forwarders.
Part 2: Role of Freight Forwarder
a. The job function
- Booking shipping line /airline
- Transport between seller’s factory & port of origin
- Custom clearance arrangement
- Packaging arrangement
- Is large shipment, organize heavy load. Is small shipment, arrange for consolidated services
b. To select suitable freight forwarders, determine
- Location covered by freight forwarders if any
- Import or export or both
- Shipment mode — sea/air or both
- Types of goods that they specialize
- Ability to secure vessel/airplane space during peak season
- Competitive price
- Ability to provide choices — price vs schedule vs time
- Smooth custom clearance — permit arrangement or registration, early preparations
- To have a connection with import agents or/and manage good communication
c. Shipping Agents vs Freight Forwarders
Sometimes you might come across the terms “shipping agents”. In some countries, shipping agents are a subset of freight forwarders. Shipping agent determines flight, customs clearance, etc, and normally specialise in one type of flight. forwarders specialised in multi-mode and might have warehouses etc. From a brief conversation with Yellow Porter’s CEO Vimal, in other countries like Malaysia, shipping agents or sales agent are the middle person between airline holding inventories and freight forwarders.
Part 3: Landed Cost Calculation
Landed cost becomes crucial when you are setting prices for buyers and distributors. From a brief conversation with Thierry Bayle of Global Fashion Management , smaller buyers would want shipment all the way to their doorstep, whereas larger buyers might have their regular freight forwarders to their preference. Also definition of landed in US and UK differs greatly.
Let’s have this segmented into different parts as follows :
Segment A: Seller’s factory
Segment B: Inland transport — delivery to port
Segment C: Export Port / Port of Origin
Segment D: Freight — Sea /Air
Segment E: Import Port /Destination Port
Segment F: Inland transport — delivery to the buyer
For a standard landed cost calculation, you will want to include the following:
1. Product Cost — COGS, OPEX
2. Shipment Cost — Segment A + B + C + D
3. Custom Cost (Optional) — Segment E depending on the incoterm agreement between seller and buyer
4. Ancillary Cost — Payment Processing fees (bank charges/cc charges), foreign currency exchange fees
Part 4: Incoterm
Incoterm stands for International Commerce Terms, whereby buyers and sellers decide on who bears the cost and risk for each Segment A, B, C, D, E, F
There are 11 Incoterms. I will follow the method of grouping by IINO San as I find it the simplest way to understand and remember.
Group E — EXW — Buyer bears all responsibility (cost & risk) after loading cargo at seller’s factory.
Group D — Buyer bears import tax/clearance at the destination port
Group F — Seller bears all responsibility (cost & risk) until origin port. Buyer bears all responsibility from there onwards
Group C — Seller bears cost until destination but bears the risk until the port of origin only.
The most common incoterm are FOBs for larger distributors, DDP for small boutiques — but this could differ based on pricing. The following is something I put together to make it easier to remember where seller ends and buyers begin
Part 5 — Miscellaneous Details — but Important
1. To export, you need HS-Code (Harmonized Commodity Description & Coding System) to determine tax and duty at the destination port. This can be obtained online
2. Import Duty or Tariffs differ based on country of origin ie Import Tariff for footwear from China to the US is 11–13%. Import Tariff is used for protectionism to reduce Import and encouraging local growth of footwear
3. Import Tax — this can be your GST, Sales Tax, or VAT depending on the country of destination. In Europe, it’s between 20–25% (the UK is 10%, Sweeden 25%, Spain 21%)
4. Duty Exemption for Import — A lot of times, if your imports are dire goods or is used to make export products, you can exempt a satisfying portion of duty (sometimes up to 90%)
And that’s about it folks, all I have for now. Hope this helps give a brief overview before you step into the export, import world. If you have information to share, detail to add or correct, please feel free to add on!
1. Europe VAT rate: https://www.globalvatcompliance.com/vat-rates-in-europe-2021/
2. Category of duty exemption for import: https://www.mida.gov.my/forms-and-guidelines/duty-exemption/