Manufacturers & Distributors ARTICLE -
Are Erroneous Ocean Freight Charges Sinking Your Profit Margin?
Learning the terms of the trade can help you avoid obstacles
Target Audience: Manufacturing and Distribution Companies, M&D Industry, Manufacturing Distributors, Marketing Department Employees, Public Relations
Can you, as a manufacturer, be environmentally responsible and a good businessperson at the same time? The answer depends on whom you ask, but a growing number of experts are responding with a qualifie Ocean freight charges are a part of doing business if you buy or sell products overseas. But are you sure what you’re paying as a buyer is correct? According to Ocean Freight Refunds, which examines import charges for errors, $50 million in incorrect ocean freight charges may be waiting to be reclaimed.
Under U.S. law, importers and retailers have three years to identify and claim refunds for ocean freight billing errors, which Ocean Freight Refunds says occur in 3% to 5% of billings. An audit can identify such errors after the fact, but a little up-front attention to detail can help save your manufacturing company aggravation and money. d “yes.”
Speak the Language
To understand ocean freight charges, you first must learn the terminology involved. Some terms, such as free on board (FOB), are the same for inland and overseas shipments, while others differ. Here are commonly used ocean transport terms and the costs they include:
FOB port. Products will be delivered from the manufacturer to a terminal or warehouse at the port, not to the pier or the ship. The product sale price with FOB port charges includes the product’s cost, packaging appropriate for international transportation and the cost of inland shipping from the seller’s dock to the port. Buyers are responsible for fees related to moving the goods from the terminal to the ship.
Free alongside (FAS) vessel. This covers all charges associated with sending products from the seller’s dock to the pier, but not the actual loading of the goods onto the ship.
FOB vessel. This covers delivery from the seller to the ship. It includes the charges covered in FOB port, along with reconsignment charges, pier delivery, terminal and loading charges, and freight forwarding and consular fees, if necessary.
FOB buyer’s plant. The seller arranges — and includes in the price — all shipping from the seller’s dock to the buyer’s plant. Buyers often can control costs such as cartage from the pier, inland freight and warehousing from the port of importation better than sellers. If you’re the buyer, it may be advantageous to have a separate contract to cover shipping from the arrival port to your facility.
Cost and freight (C&F) port of importation. This includes the cost and transportation (freight) of goods. Ocean freight, surcharges, port congestion, unloading costs and other fees peculiar to shipping by sea are included.
Cost, insurance and freight (CIF) port of importation. The cost of insuring products in transit is included, along with the cost of goods and transportation to the port of importation. Freight charges under this arrangement often are quoted high, though the buyer pays only the actual costs. Sellers should make buyers aware of the margin built into the quotes.
Any of these agreements may be appropriate for your business, but you must be certain every shipment is billed under the correct contract. If, for example, you buy and ship sporting goods at one rate, and have another contract with a different shipping rate for general department store merchandise, make sure your jump ropes are listed as sporting goods if they aren’t children’s toys.
Keep Your Eyes Open
Ocean freight charges can be complex. They may involve demurrage adjustments, for instance, if cargo is unloaded more quickly or more slowly than anticipated. In your search to find the shipping route that will get your products across an ocean intact as quickly, safely and cost effectively as possible, be sure you’re not making things harder on yourself by paying more than you should.
Find out how our M&D accountants can add value to your business. Email us or call us at 1 (888) 875-9770.
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