In this blog post you will learn what is important to know to select a logistics company to move your goods out of China. I had several clients who selected unreliable logistics company based in Hong Kong, which in the end brought a lot of trouble to them. I will explain here why appointing a logistic company based in Hong Kong is not always the right choice.
Hong Kong is not China in terms of administration
Logistic is an essential part of the supply China. Transporting goods in a truck, a container, by aircraft, barge or carrier is not that complicated. Everybody can easily call a truck, to load it and to move some goods from point A to point B. Complexity of logistics rather lie in the administrative procedures related to export, documentation, taxes and VAT management, conformity and safety.
Contrary to Hong Kong, China has very strict procedures and high requirements to export goods out of the country. The most constraining one are procedures related to custom clearance, taxes, vat payment, and refund of the vat rebates because China is making part of its income on export. For this reason, they don't really joke with taxes.
I always like to mention that Hong Kong and China are not the same in term of administration and procedure. Hong Kong has a modern western like system where everything is made to facilitate procedures to increase attractivity of investment (for your information opening a company such as a logistic company in Hong Kong takes only 10 days, doesn't require any capital, not even having a physician office.
On the other side, whereas opening the same type of company in China take several month require a capital of minimum one million yuan and require you to have physical asset and a license to be able to perform export and logistics activity). What is applicable in Hong Kong is not necessarily applicable in China. Regarding the current topic for example, you have to know that export goods from Hong Kong doesn't require any license so any company can almost export any goods by itself without any problem. The point is, although Hong Kong is now returned to China by the British there is still a real border between both territories and the administration and organizational system are totally independent. A Hong Kong base company has absolutely no legitimate right on the Chinese ground and this include employing people and exporting goods.
So now how do we explain that Hong Kong logistics company are managing with logistics transportation and export procedure for goods being manufactured in China and being sent overseas ? The answer is very simple : in 95 % of the case this is by sub-contracting the operational job to a local base Chinese company who get settle in china with license. in 5% of the case the logistics company based in Hong Kong will have also a China based company to take the relay for the operation acting as a branch.
Very often when the job is sub contracted it bring some complications and difficulties and also a loss of control on the supply chain : customer id is passed to an opaque third party, goods are traveling from hand to hand (and often cartons get damaged or some quantity are diminished due to picking by employees of the third parties directly inside the cartons like if it is some gifts).
The same way you would audit a Chinese supplier for a production I recommend to pay attention to the profile of your shipping agent: make sure:
- they are really operating physically in China
- they are licensed for logistics and custom clearance
- they are not subcontracting the picking, the logistics and the custom clearance
- verify they have an insurance to cover damaged goods (especially of they sub contract)
You also have to particularly pay attention to the incoterm you sign your order with. Indeed, if you sign an order with and incoterm exw then it means that China based supplier will put at disposition the goods on the factory door and has no more obligations to do anything else. It means the buyer is in charge of performing custom clearance (potentially pay taxes and vat) by himself and ensure the transportation till the ship or the plane. Most of suppliers will provide you an invoice for accounting purpose but not for custom clearance purpose.
In the last I had an experience with a customer who was stretching price of supplier to optimize cost. In the end the supplier accepted to lower its price again contracting on exw basis. The buyer was excited and signed the order. When the shipping moment came the buyer had appointed a shipping company base in Hong Kong which was no more than a middle men subcontracting the job to a Chinese company. They requested the supplier to fill documentation for exporting the goods but the supplier refused because as he was not supposed to export and pay vat and taxes he didn't want to put his name at the custom.
Buyer was blocked because the shipping company could not be the exporter as lacking of export right while the supplier didn't want to export on his name to avoid extra cost. It took two weeks to solve the issue and finally the customer abdicated paying extra cost to export...
And you what is your experience with logistic and shipping company in China ?