Supply Chain Bottlenecks

There’s no doubt that shipping costs are one of the major costs buckets when considering product pricing. Experts estimates shipping costs to comprise upwards of 15% to 20% of the total net sales. Even if a business produces the goods locally there’s a high chance that some or most of the raw materials were imported. And these imported raw materials have shipping costs baked into their pricing. These days because of the global supply chain crisis, shipping costs have gone up and have made products more expensive for consumers and businesses alike.

While we cannot do much about the global shipping crisis, it is good to know how shipping costs are calculated, what are the hidden costs in overseas freight shipping and how to avoid these costs wherever legally possible.

 

How are shipping costs calculated?

Shipping costs depend on several factors such as the location of the recipient, the type of delivery service provider, and the distance between the sender and the recipient. In addition, the cost of shipping depends on the size of the package, whether the package contains fragile items, and the number of packages being shipped at once.

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Components of shipping costs calculation

Origin : Location with address from where the goods will be shipped.

Destination: Address of where the goods need to be dropped off.

Load: If loose cargo then the goods need to be measured in terms of pallets or boxes.

Pallets: Type, size(dimensions in terms of Length x Breath x Height), Weight
Boxes: Size (Dimensions in terms of Length x Breath x Height) and Weight

If goods are to be shipped in containers then the costs are dependent on container type (20 feet, 20 feet High Cube, 40 feet, 40 feet high cube). Containers can be shipped to or from a business address only if there is a loading dock.

Value of Goods: in terms of currency value most of time in USD.

Other factors that need to be taken into consideration for shipping costs are if the goods are hazardous or if they are perishable. 

 

6 hidden freight  shipping costs that you need to be aware of. 

customs-declaration-Canada-Customs

1. Duties and Taxes:

Duties and taxes depend on the country and classification of goods, most importers and exporters are aware of this but having a customs broker involved will help you with making the correct assessment and having the right paperwork in place before you ship the goods. While importing goods to Canada, you’ll need to pay Goods and Services Tax (GST) regardless of whether the country you’re shipping from has a free trade agreement (FTA) with Canada.

Can you avoid these costs?
These costs cannot be avoided, however If you get it wrong it can result in goods getting held at the ports because of missing payments or paperwork. Having a customs broker manage this piece will help you avoid other costs that might be incurred in case you don’t get is right.

2. Costs of damaged goods

Shipping goods always carries a risk, especially in overseas shipping where the goods are on sea for multiple weeks even months in some cases. Goods can be damaged due to storms, mishandling, theft, fires and other natural causes that are beyond your control.

Can you avoid these costs?
Insurance is the best way to protect your import-export business from incurring costs related to damaged goods during shipping.

container-storage-Canada

3. Storage Fees

Shipping is a complex operation, there are changes where your goods might get stuck at a post, airport or land border from multiple days because of missing, incorrect or incomplete documents, incorrect taxes and duties, if you do not have proper permits or if customs clearance was not completed on time.

Can you avoid these costs?
Make sure you have the right documentation in place, all permits are in order, duties and taxes are paid correctly and customs clearance is sought. In case there’s a need to store goods, it can be cost effective to store goods in a bonded warehouse than storing them at the port.

4. Shipping less than container load (LCL)

Like with everything else there are cost savings when shipping in bulk as compared to shipping in smaller packages. There are two primary methods of shipping via ocean freight: full container load (FCL) and less than container load (LCL). If the good you are shipping will not fill a container then you might end up paying more for freight, that’s because you are using a section of the container, its being shared with other shipment, the goods might take longer to arrive and will also be handled more during the course of shipping.

Can you avoid these costs?
Ship in bulk and try to combine multiple packages or shipments so they fill up a container. This requires planning and it also depends on other factors like the volume and size of the goods, sometimes it is unavoidable and sometimes it’s a matter of urgency and need.

moving-goods-inside-warehouse

5. Extra Delivery Costs

Most shipping companies quote based on a ‘standard delivery’; the thing is, this may not be exactly what the importer thinks of as ‘standard’. Like for example, you might actually need the shipping company to unload the goods and lower your pallets to the floor. This requires manpower and unloading takes time. If this is not discussed and agreed upon with the shipping company in advance it can lead to additional costs that have not been factored into the original quote.

Can you avoid these costs?
Ask for clarification be clear on your requirements and think it through end to end. Get all of it in writing and have it included in the quote. That way everyone’s aware of what needs to be done and there are no surprises.

6. Customs Clearance Delays

There are times when your goods might be selected for an inspection. This is usually random and if it happens the imported is required to pay the fees associated with the exam. An Inspection can also happen if your goods originate from a certain country or geographic area that are in the watchlist, if the container is flagged for inspection, if there’s missing paperwork or someone in the supply chain has made errors in the past, or it could just be bad luck.

Can you avoid these costs?
While this doesn’t happen often, if your goods are selected for inspection randomly, you cannot avoid the costs but having the right paperwork, documentation, permits and clearances will help shorten the time and get your goods out faster.

Overseas shipping is generally complex in nature that involves multiple handlers, agencies, rules, restrictions, and uncertainties. It always helps to have a partner that does this day in and day out. A good customs broker with multiple years of experience will help you save costs and minimize uncertainties associated with overseas freight shipping.

Founded in 1989, Orbit Brokers has more than 30 years’ experience in handling international freight shipping to and from Canada. We’re just a call away to help you with you shipping needs.