What comes to your mind when you think of Amazon? Amazon is a world in itself which we cannot comprehend within a single post. It stands as the world’s largest online retailer and a state of the art cloud computing platform through which many people benefit by placing their products for the world to buy.
But how do you get the products to Amazon in the first place?
You need a basic understanding of the terms related to shipping so you can choose the right methods for your business. Once you are at the point where your manufacturer is ready to ship your goods to Amazon, you are in the perfect position to learn the content within this article.
In this post, we'll tackle some of the roadblocks that prevent us from taking action on our private label journey, namely, shipping. We'll cover some definitions for common terms, discuss the steps you need to consider, and uncover some secrets along the way.
Before you begin
It is important that you understand what some of the common terms and concepts refer to when talking about shipping and FBA. Below, we will touch on some shorthand and jargon, that is common in the industry. Let's start with the basics.
What does FBA stand for?
FBA stands for Fulfillment by Amazon. This is basically an excellent and revolutionary service which is being provided by Amazon through which the company will pack, collect and dispatch orders to their customers for your products. When working with Amazon, this is the first thing that you will need to deal with. FBA is also responsible for managing the returns of some products.
Door to Door & Port to Port
I sail around the world from port to port, every time I determine whether the shipment service is between ports or from/to another destination that involves additional transport such as trucking.
The main transit or main leg is between export country (in our case, China) and import country (US or EU). If your forwarder picks up from the factory, its called Door to Port. Port to Door is, you guessed it, from import port to final delivery. Door to Door is the entire shipment handled by the forwarder.
Multimodal or Shipping By Container
The shipping container revolutionized international trade and global economic growth. Have you ever been cruising the highways of America and noticed foreign company logos or languages on shipping containers?
These aren’t ordinary trailer trucks. If you guessed that they came from China or elsewhere, you are correct. The containers are able to be stacked on the ship, unloaded and then nested onto a truck trailer frame or train carriage frame, hence multiple modes.
Two more terms: FCL (full container load) and LCL (less than container load). The FCL is all yours and the LCL is shared with others. Sometimes an FCL is cheaper than an LCL even if it isn’t full. Sometimes an LCL volume goes by FCL because of weight. This brings us to...
Very light shipments that take up more space than their weight would indicate are subject to being charged by dimensional weight. Whether you ship by air or ocean, each mode has its own formula.
Carriers determine which is more profitable for them and charge you the greater one. That’s your billable weight.
Don’t get ornery if your RFQs (Requested Freight Quotes) come back at a different weight than you requested on light loads.
Here are some of the key freight documents you will encounter and need to know about. Take a sip of coffee. The jolt of caffeine will help keep you awake.
Don’t worry about being confused. Your freight forwarder will help you with this and take care of most of it, but it’s helpful to see these terms ahead of time to get a basic understanding.
Bill of Lading/Air Waybill, used for ocean and air freight, respectively, provides proof of ownership and contract of carriage for main transit leg.
Commercial Invoice, Customs requires this proof of sale for clearance.
Certificate of Origin, Customs uses this to identify banned items and duty payable.
Freight Forwarder Contract, The Terms & Conditions of the Freight Forwarder contract signed off.
Fumigation Certificate, Required for customs clearance on wood and natural product materials including your pallets and crates.
Wood Packaging Certificate, which is necessary for any crates that use wood as a base. This is not always required but is generally a requirement with larger shipments that us wooden pallets.
Material Safety Data Sheet (MSDS), Applies to Hazardous Goods even mundane ones.
Packing List, When shipped goods are packed into larger units, like a container or aircraft console.
Power of Attorney (POA), Signed with Contract, it allows your Freight Forwarder to deal with Customs on your behalf. And that’s a good thing.
Shipper’s Letter of Instruction (SLI), Provides transportation and documentation instructions (how and where) as well as reporting information.
This is your buy price plus customs charges and freight costs. Unless your product is included in a US free trade agreement it is subject to a duty percentage. Your tariff code will determine your import tax rate. Unlike other countries, in the US, your customs duty is assessed on the purchase value only.
Some forwarders have an in-house customs brokerage or a preferred customs broker who will calculate the duty for you.
You might feel like a real pro negotiating a better deal out of your supplier. But did they change the incoterms to lower the buy price?
You see, your supplier will probably only arrange all the freight charges if they can make up for it on a higher product price. You might end up paying all the freight charges to get the best product price from the factory.
Take into account the freight costs which will change with the Incoterms.
International Commerce Terms or Incoterms
Incoterms relate to the exporter’s liability in a transaction. They were developed by the international chamber of commerce (ICC) not to be considered as laws themselves, but as a general practice for how international trade is transacted and are the standard for all actively trading countries in the world today.
Some countries require incoterms within their regulatory standards, including the U.S. for customs clearing.
Incoterms are updated every 10 years, so we are currently working with Incoterms 2010
These are standardized freight terms that define international sales agreements. There are eleven terms to be aware of, though most Amazon sellers will use EXW, FCA, FOB, or DDP most of the time.
These terms are actually pretty easy to grasp once you understand how the basics work. The different terms relate to at which point in the shipment the seller (manufacturer/supplier) remains financially responsible before handing over responsibility to you as the buyer.
EXW (Ex Works) is one of the simplest incoterms from the standpoint of the exporter. It means that the seller is going to make their goods available at their premises. The buyer takes full responsibility and liability to load all the goods onto the truck to ship from the seller’s location, through customs, including any costs incurred during shipping, border crossings, short-term storage, and delivery to the ship or plane which will then move the goods to a port of entry in the destination country.
Once the goods have arrived in the destination country, the buyer is also responsible for working with a freight forwarder, and customs clearance to deliver to the final location. Given the amount of responsibility here, this is one of the least expensive options for moving goods but involves the buyer the most through the process.
The seller must produce specific documentation to include with the shipment in order for this method to work smoothly, including the commercial invoice (seller to buyer), a packing list showing how the goods are packaged, a Truck Bill of Lading which proves that a truck did take delivery of the goods, and a Wood Packaging Certificate.
FCA (Free Carrier At) has 2 meanings. One is where the seller takes responsibility for loading the goods onto the truck versus you as the buyer to be shipped outbound via a seller-chosen carrier. This is a more practical term in that it is not common for a shipping carrier to roam a seller’s premises to load or unload goods themselves with the seller’s forklifts. Typically there are factory workers to do the loading and unloading jobs, and so this term is recommended by the ICC over EXW for that reason.
Alternatively, FCA can mean the seller arranges shipment of the goods from their factory or warehouse to their chosen carrier’s warehouse. The seller is then responsible via the carrier, to get the goods to the exit port where you as the buyer must make arrangements by sea or air, to have the goods shipped to the destination country.
As the buyer, you must work with the freight forwarder to clear the goods through customs, and then arrange the goods to be shipped to the final destination warehouse while incurring fees along the way for customs clearance, temporary storage, and on-carriage/post-carriage (delivery and unloading to your chosen destination as the buyer).
As with EXW, FCA also requires a Commercial Invoice, a Packing List, a Truck Bill of Lading, and a Wood Packaging Certificate
FAS (Free Along Side) relates specifically to shipping by sea or waterway. The seller takes responsibility for getting the items loaded pre-carriage, through customs clearance to the outbound terminal, where they will cover all fees related to the pre-shipment.
This term is mainly used when the buyer’s goods require special handling like with large cranes or heavy machinery to load onto a ship. So it is the buyer’s responsibility to load the goods onto the ship, deal with the freight forwarding and customs clearance formalities and post-carriage delivery to the buyer’s chosen warehouse.
As with EXW and FCA, FAS requires the same transport documents: A Commercial Invoice, the Packing List, the Truck Bill of Lading, and Wood Packaging Certificate.
FOB (Free On Board) relates to ocean freight only. The seller will have the goods at their warehouse, load the goods onto the truck, that truck will deliver goods to the terminal where they will be responsible for all customs export formalities including generating ocean Bill of Lading which is required to load the goods onto the ship.
At this point, once the goods are loaded onto the ship, it is the buyer’s responsibility to pay for the freight cost to get the items to the destination country, which includes taking care of the freight forwarding customs clearance, inspection fees, temporary storage, and post-carriage to the destination warehouse.
As with all methods, FOB requires a Commercial Invoice, Packing list, a Bill of Lading (ocean or otherwise), and a Wood Packaging Certificate.
Something important to note about FOB is that even though they are not paying for the freight, the seller has taken care of the Bill of Lading document. One important factor here is that you as the buyer will not be able to retrieve your goods until the full payment has been made to the seller because, in order for you to receive the goods, the seller must relinquish the Bill of Lading to you.
Due to how easy this method is for the buyer, with the added protection for the seller, FOB is one of the most common incoterms used for international trade. It is important to note that this escrow-type of exchange (bill of lading released for goods) only applies to ocean freight shipping, not air freight or truck.
CFR (Cost and Freight) Similar to FOB, CFR is an ocean term where the seller covers the costs of transporting the goods from their warehouse to the terminal, all the export formalities.
It differs in that CFR means the seller will cover the costs of freight as well. The buyer must make sure the goods have been insured for transit, that they are cleared through customs, covering all the fees related to being delivered to their chosen destination.
The required documents are the Commercial Invoice, Packing List, Ocean Bill of Lading, and Wood Packaging Certificate if applicable.
CPT(Carriage Paid To) This is essentially the same thing as CFR except that the shipment is not by the ocean. The seller is responsible for paying for the all the fees related to getting the goods to the destination country, and the buyer must insure the goods for transit, clear the items from customs, and is then responsible for getting the goods to their chosen destination.
The required documents are the Commercial Invoice, Packing List, Bill of Lading, and Wood Packaging Certificate if applicable.
CIF (Cost Insurance and Freight) Similar to CFR, this is an ocean term where the seller takes care of all the fees related to getting the goods from their warehouse to the ship, loaded on the ship and en-route to the buyer’s chosen destination.
The added benefit of the CIF term for you as the buyer is that the seller must also cover the insurance documentation to cover the freight over the ocean. In the event something happens, that insurance will cover the goods. Once the shipment has arrived at the entry port, it is the buyer’s responsibility to clear the items from customs and pay for all the fees and formalities that are associated with that process.
It is then the buyer’s responsibility to get the items to their chosen destination country. The required documents for CIF are the Commercial Invoice, Packing List, Ocean Bill of Lading, Insurance Documents, and Wood Packaging Certificate if applicable. This is a very common term.
CIP (Carriage and Insurance Paid To) Similar to CIF, except for shipping in ways other than by sea. The seller takes care of all the fees related to getting the goods from their warehouse to the export terminal, loaded onto a plane, and shipped to the buyer’s destination country.
The seller must also cover the insurance documentation to cover the freight while in transit to the destination country. In the event something happens, that insurance will cover the goods. Once the shipment has arrived at the entry port, it is the buyer’s responsibility to clear the items from customs and pay for all the fees and formalities that are associated with that process. It is then the buyer’s responsibility to get the items to their chosen destination.
The required documents for CIP are the Commercial Invoice, Packing List, Airway Bill of Lading, Insurance Documents, and Wood Packaging Certificate if applicable.
DAT (Delivered At Terminal) The seller is responsible for getting the goods from their warehouse to the destination country’s terminal, where they will offload and make available the goods for the buyer to then cover the costs and formalities of clearing the goods through customs.
The seller pays for and produces all documentation and insurance for the shipment until this point. It is up to the buyer to then arrange transport to their chosen destination.
The required documents for DAT are the Commercial Invoice, Packing List, Bill of Lading, Insurance Documents, and Wood Packaging Certificate if applicable.
DAP (Delivered At Place) The seller takes care of everything related to getting the goods to your chosen destination as the buyer. They will cover all the costs for each step except the customs clearance costs. This is essentially a door to door delivery method which takes away a lot of the burden from the buyer when it comes to dealing with the freight.
The required documents for DAP are the Commercial Invoice, Packing List, Bill of Lading, Insurance Documents, and Wood Packaging Certificate if applicable.
DDP (Delivered Duty Paid) This is the ultimate service. The seller takes care of literally every step, every cost for you as the buyer. This is the most convenient method for the buyer, but generally the most expensive option. The required documents for DDP are the Commercial Invoice, Packing List, Bill of Lading, Insurance Documents, and Wood Packaging Certificate if applicable.
Refer to this list any time you find yourself confused by the shipping process. There are many terms, but they don’t have to be scary.
Putting it all in Perspective
We went over a lot of information in this article, which is why you should definitely bookmark this for later and share it with others who need to know this information! The last thing any of us wants is to forget something incredibly important needlessly.
While this can seem like a lot to take in, trust me when I say that if it were truly easy, everyone would be doing this. Sometimes we need barriers to entry in order to ensure our success. So look at each hurdle as another opportunity where you will say "YES" to the challenges while others will give up. The more hurdles there are, the fewer people will take action.
Be one of the people who take action!