China, often termed as “the world’s factory” cannot be separated from global trade and as of 2017, accounted for 15% of the world’s GDP, second only to the USA.
When importing Chinese products, international freight movement is required and you will definitely deal freight forwarders. Unverified statistics indicate that in the city of Shanghai alone, there are more than 10,000 freight forwarders registered. It is conceivable that the total number in China is even more astronomical.
Chinese freight forwarders have also had a bad rap due to a few of them perpetuating fraud and other illegal activities which are affecting many of the legitimate Chinese freight forwarders.
“How can I choose a qualified freight forwarder in China from such a large number?” is a question that might be on the minds of many people.
David Fan gives you some guidance through different perspectives based on many years of industry experience.
I. Introduction of China’s international freight forwarding industry
Entering the international freight forwarding industry in China is very simple and convenient. Now China has a registered capital subscription system.
Registering an international freight forwarding company does not require a one-time payment and can be paid in a fairly long period of time (such as a 50-year period). This greatly reduces the difficulty of registration, resulting in more and more new setups joining the industry.
On the one hand, the influx of new forces has brought new capital, personnel and other vital factors to the industry, which will help improve the level of competition in the entire industry, so that customers can enjoy greater benefits and reduce import and export costs. On the other hand, it is also possible to reduce the quality of service in this industry.
It’s common to see low-cost competition, malicious rushing of customers, and shoddy services. It has even produced many more extreme results, such as fraud and other high incidences.
A recent example is the fraud case of a Qingdao freight forwarder that we mentioned in the news review.
“The Qingdao freight forwarding fraud case was announced and it is worthy of serious industry introspection!
In the past two years, the international freight forwarding swindlers are crazy, especially the freight forwarding scammers in Qingdao! They are familiar with the international freight forwarding business operation process, the eagerness of the overseas cargo owners to take low freight and the mentality of the domestic freight forwarding peers to compete at low prices!
Therefore, they first lie to the owner, and then lie to the domestic counterparts, and finally after the high-cost freight fraud, they would disappear without a trace!
The goods are real, the company is also true, the bill of lading in the hands of the deceived peers is also true, but the ending is the terrible situation left to the owner of the cheaper freight and the freight forwarders who think they are taking the “big business” !
Recently, the Lianyungang Public Security Bureau successfully investigated and cracked a criminal gang that used foreign importers as the main object to implement online contract fraud in the international freight forwarding field, arrested 17 suspects and cracked 12 foreign-related contract fraud cases.
The amount recovered is equivalent to RMB 2.12 million!”
Among the many companies engaged in international freight forwarding business in China, they are broadly divided into the following categories:
1) Branch of foreign giants in China
The international freight forwarding industry has been developing in developed countries for 50-60 years, especially in Europe and America. After China’s reform and opening up, especially after joining the WTO, many giants have entered the Chinese market in a strong way, setting up their own branches in China to carry out their own business. DHL, Sinker, Dexon and other famous ones are all in China.
2) China’s state-owned enterprises
In China, the international freight forwarding industry, as other industries, was started by state-owned enterprises. Today, there are many powerful companies. Sinotrans is one of the typical representatives, with a turnover of US$9.53 billion in 2017.
3) Private enterprises
One of the biggest highlights of China’s reform and opening up is the launch of an export engine for Chinese-made products. As an important part of the export engine, the development of the international freight forwarding industry is also obvious to all. Private enterprises have also been rapidly established and developed in this industry.
The number of international freight forwarding companies is very high. The following examples can vividly illustrate: In Ningbo, China’s eastern port, if you travel by bus, pay attention to passengers’ phone calls or chat, you will most likely hear about things related to exporting containers.
Or if you go into any office building in Ningbo, often seeing the company sign on the lobby of the first floor, and the words of international freight forwarding or international logistics have the highest repetition probability.
4) Unregistered agency
The above 1, 2, and 3 can basically summarize the officially registered international freight forwarding companies in China. But there are still many companies that are not registered, that is, many individuals are also engaged in this international freight forwarding industry.
We still speak with facts. If you go to Yiwu, a small commodity wholesale center, you will find that many people who are engaged in the international freight forwarding industry do not have a registered company.
Their business cards are printed with XXXX International Logistics which may make you feel comfortable. But the fact is that they are still working in informal offices without legal registration. Don’t be fooled into thinking that these are all Chinese people doing this kind of thing. On the contrary, many foreigners in Yiwu are doing this.
Based on our own industry experience, we briefly summarize the target customers of the above four types of companies. The first category of companies are multinational and they serve international large-scale buyers, importers and wholesalers.
Most customers of the second category of companies are large state-owned enterprises in China, and are engaged in the contracting of transportation projects such as large-scale national development projects.
In short, the first and second categories of company services are mainly for large and medium-sized companies, and their business focus is not on small and medium-sized customers. Most of the latter two companies are small and medium-sized enterprises.
II. the analysis of the business model of China’s small and medium-sized international freight forwarding companies
From the above, due to the vast size of China and the huge volume of the import and export market, there are a large number of small and medium-sized international freight forwarding companies in China. We are only focusing on this segment of FCL transportation. According to the business model, the business models of small and medium-sized freight forwarding companies can be roughly divided into the following categories:
1) Mainly based on CIF goods
Such companies often accumulate a lot of high-quality resources, and their customers’ shipping business is based on FREIGHT PREPAID. Such companies can often get a very competitive sea freight price with the shipping company on a certain route or on several routes, relying on their existing fixed freight volume.
On the other hand, customers recognize them very much. They can, in turn, guide customers to the shipping companies that maximize the benefits of their customers, depending on the market situation. Such companies tend to develop into market makers for certain sub-routes. Use some technical means (such as using a unified SHIPPER identity to apply for the same route VIP price with the shipping company, etc.) to optimize resources, build their own advantages, and gain market leadership.
Once these advantages are formed, they may last for years or even decades. With this advantage, regardless of whether the customer is a direct SHIPPER and CONSIGNEE, or a middleman, his price will be very competitive.
Their risks are as follows:
a. Long-term stable customer changes. If their long-term stable customers are shrinking a lot or even suddenly going bankrupt or changing careers for various reasons, this will make the bargaining base of the existence disappear. The price can no longer maintain its previous dominant position. In the final analysis, the shipping company will give you the price according to the quantity.
b. Unfavorable changes in the cooperative shipping company. Due to its own profit targets and key markets, shipping companies will often change with the development of the world economy. An obvious example is the Iranian route in the Middle East route.
As a big economic country in the Middle East, Iran not only has a huge domestic consumption power, but also relies on its geographical advantages to provide transit services and radiate to some Central Asian countries. The line of ports such as from China to Abbas Iran has always been a battleground for various shipping companies.
At the time of prosperity, more than 10 shipping companies provided services to Iranian ports. But US sanctions have changed all of this. The shipping companies that currently operate Iranian routes are probably only Iranian shipping (IRISL LINE). If you have previously relied on the price given by the shipping company, the shipping company cannot provide (or dare not) the service due to certain factors (such as sanctions). You will have to look for other resources.
However, because you used to have a close relationship with the original shipping company, you can’t immediately get a relationship with the new shipping company. In this case, your customers will be very likely to lose.
2) Mainly based on LOCAL service
At present, from the perspective of the export situation of China, the containers that go to developed countries in Europe and America use the FREIGHT COLLECT model (that is, the corresponding FOB). European and American buyers will specify their own freight forwarder to operate the sea booking. There are two reasons that are well known:
a. Foreign freight forwarders will give those European and American importers a very competitive sea freight rate.
Why can they give a very competitive price? There are several factors, one is that they have a large fixed freight volume to negotiate with the shipping company. Another is to give the importer a low sea freight rate through some tricks. There is no profit or low profit in the middle, but the profit that should have been added as a cost to the importer is transferred to China’s SHIPPER.
b. The needs of foreign customers are not limited to CY-CY transportation.
Many foreign customers need Door to Door transportation. So they naturally trust their local freight forwarding in this regard. For example, a German customer will definitely be more inclined to let a German freight forwarder to do D2D transportation and customs clearance.
The business process of exporting containers at Chinese ports, starting from the factory pick-up to the ship loading, can generally be broken down into the following sections:
Container transportation = booking + factory to the port of departure haulage + export declaration + document confirmation. Under the terms of the FOB, bookings and documents confirmation have been done by the customer’s designated freight forwarding. If they do the haulage and export declarations, the price will be very expensive (considering what I said above).
Therefore, in order to save costs, many SHIPPERS will separate the haulage and customs declarations and use their own forwarders to operate this. Therefore, there are some freight forwarders mainly focusing on LOCAL services.
They mainly help some foreign trade companies or factories to make customs declarations. The trailer and customs fees they give to foreign trade companies and factories will be lower than the cost of those designated freight forwarders.
They negotiated with the container truck company, including the billing period, to obtain their own advantages, which is similar to the freight forwarding and shipping companies mentioned above. If there is a fixed quantity, fixed line, they will get a good trailer advantage, so as to ensure the profit of their own.
Their risk lies in
(1) The homogenization competition is fierce
That is to say, there are many companies offering similar services in the market, and in order to compete, many opponents will quote potential customers at cost price. This will inevitably bring a lot of trouble to such companies.
(2) Unable to establish an effective competitive advantage
Because the general LOCAL freight forwarding company does not have its own trucks, and before the Chinese New Year is the peak season for shipment. In this season, the dilemma of not finding enough container trucks often occurs. This will create an awkward opportunity for other opponents.
3) Directly oriented to foreign customers
According to our experience, in China’s foreign trade exports, buyers have a more favorable position than the sellers in terms of designated trade terms, and often the opinions of buyers are decisive.
That is to say, the focus of Chinese exporters is currently only on the order itself, and the subsidiary terms of the orders are often not deliberately valued. If the buyer proposes that the freight forwarder is specified by himself, the seller will often agree. Therefore, many freight forwarding companies in China have focused their business on foreign buyers.
They have established relationships with many buyers through exhibitions, emails or on-site visits. These buyers are not necessarily developed in Europe and the United States, and many of them are from developing countries such as Asia, Africa and Latin America. Such freight forwarding companies have obtained a lot of orders through direct contact with buyers, allowing buyers to designate them as freight forwarders.
Buyers can also get a discounted sea freight rate (compared to direct CIF terms). Many of these companies are located in Shenzhen Guangdong. Shenzhen, as one of China’s most developed export markets, has a large number of export orders. The international freight forwarding companies there have a broad vision and can take over the goods from the Chinese ports to the rest of the world.
Their risk lies in the risk of bad debts, because the freight charges must be collected with foreign customers, and bad debts may occur.
4) Combination of 1+2+3
The above 1, 2, and 3 are ideal situations, but in reality, more small and medium-sized companies are doing the above three businesses, and the proportion is not fixed. Sometimes this business accounts for a little more, and other times that business has a larger proportion.
Because at present, the international freight forwarding market is a highly competitive industry in China. There are too many companies influx every day, and too many companies have withdrawn, which makes many companies dare not give up any business. So often the situation is the fourth category of companies.
III. Things to note when choosing international freight forwarder in China
International freight involves knowledge and fields in all aspects of international trade, international logistics and export clearance. The employees of the company engaged in the international freight forwarding business must have basic business qualities in order to understand the needs of customers and solve customer problems. The following points should be noted when choosing an agent.
1) The employees of the forwarder must have a certain foreign language foundation (especially English).
If he wants to deal with foreign customers, he must have a basic understanding of the major ports in the world. It is necessary to understand the English expression of some service requirements in the port of destination, and also have a clear understanding of some of the main terms of Incoterms.
In the process of communicating with foreign customers, we often encounter foreign customers requesting some special circumstances. All of the above must be staffed by freight forwarding companies with a certain level of English ability to understand the needs of foreign customers.
If the coordinator of the Chinese freight forwarding company is not smooth with basic English communication, there will be great hidden dangers.
2) The business advantage of the freight forwarder must be clear.
China’s export volume has determined that China’s international freight industry has a large cake. There are dozens of routes in the market segment of container FCL, with dozens of carriers.
Therefore, for small and medium-sized international freight companies, it is impossible to have an advantage in each port of departure or on every route. If you come across a company that introduces itself with a strong advantage in China’s major ports and can provide you with high quality prices on all routes. Such a company, I suggest you to reject it directly.
So if you are looking for a Chinese freight forwarder, you should first understand where their advantages are. For example, the company said that they have their own advantages in the Middle East route. If you happen to have goods from China to UAE, you can think of this as an alternative partner.
3) The agency must be legally registered.
Formal registration is the embodiment of integrity. If you find a registered company, you can defend your rights in the event of a dispute. If you find unregistered, he has no constraints. If something goes wrong, if he doesn’t want to solve it, or even deceive, then you will fall into a very embarrassing situation. Therefore, when choosing a Chinese freight forwarder, it is necessary to repeatedly confirm whether he is a legally registered company. Let him provide relevant documents that can prove his qualifications, such as business licenses.
4) It is best to be a company that is doing LOCAL service near the port of departure.
Freight forwarding in the port of departure area generally knows more about the regulations for exporting containers at the port of departure. So if you are exporting from Shanghai, look for freight forwarding in the Yangtze River Delta region (around Shanghai and Shanghai). The combination of the above 3 points will be more secure.
IV. What does a good Chinese freight forwarder bring to you?
A good Chinese freight forwarder can bring you the following benefits.
1) The most suitable freight forwarding service
This service is based on his many years of work experience, and is based on his many years of accumulated business advantages. He is familiar with the requirements of local shipping ports in China and is more familiar with the relevant advantages or disadvantages of going to different shipping companies in the same port of destination. He will give you a few different options to choose from, so that you can choose the price/performance ratio according to the characteristics of the goods or choose high-quality transportation.
A good Chinese freight forwarder must be a company with excellent reputation. Now that the freight forwarding industry is becoming more and more international, reliable credit is a prerequisite for all cooperation. It is recommended that you not only look for cheap prices and go to companies that are low-priced vicious competition. This will incur extra costs and even be cheated.
I hope that the suggestions given in this article will help you choose the right Chinese freight forwarder.
When you choose a cooperative Chinese freight forwarding company, you should uphold the principle of “not choosing the cheapest, only the most suitable one”, so that you are on the right path.
About the Author :
David Fan is the co-founder of Zhejiang Twingsupply Chain Co.,ltd and has been in the freight forwarding industry since 2001. David has a rich experience in container shipment from China to worldwide which he shares with the industry.