February 8, 2017 by Andrew Minalto - 2 Comments

Importing, Exporting, TT, WU, MOQ, FCL, LCL ALL EXPLAINED!

Welcome Back!

Last week we covered General Business terminology and today it’s time for Importing & Shipping!

If you’re new to my blog, this is a 4 part post series in which I’ll cover the most important terms used in the online business world. Each week I cover a specific topic – last week it was General Business terminology, today it’s Importing & Shipping and in up-coming weeks I will also cover eBay & Amazon, as well as eCommerce.

Without further ado – let’s get started!

Importing – when you buy goods and ship them from another country. Quite often we don’t the use word Importing when buying goods from another European Union country because when you buy from another EU country, there is no customs procedure and we don’t have to pay VAT/import duty. But in general, when you buy from a supplier located in another country, this is called Importing.

Exporting – when you sell goods and ship them to another country. Just like with Importing, when you sell to another EU country, we usually don’t use the word Exporting as there will be no customs procedure in place due to the Free Goods Movement Act all EU countries have accepted.

Shipping – simply means sending goods from one place to another. There are various shipping methods available which we’ll cover later on in this post.

Stock – term used to describe products/items for sale.

B2B – Business to Business. This term is used to describe a transaction between two businesses. Many suppliers will state on their websites that they deal with B2B customers ONLY. This means that they won’t sell directly to end customers, in quantities of just 1 unit.

B2C – Business to Consumer. When a company sells directly to Consumers. Basically any business selling online to retail customers follows a B2C business model. This term is not as widely used as B2B as if it’s a normal online store, it’s obvious that it’s B2C. However, B2B businesses on the other hand are usually clearly “labelled” so that consumers who are looking to buy just 1 item know that this is not the place to look.

MOQ – Minimum Order Quantity. This is a very important term you use when communicating with suppliers. It states how many units you need to buy from a supplier to even get a deal. Sometimes you can negotiate MOQs, as covered in my post here.

There can be product MOQs as well as order MOQs. Product MOQ means how many units of that particular product you need to buy and order MOQ means the total order quantity you need to reach to be able to buy goods from that supplier.

Samples – this usually means 1 unit of the item you’re planning to buy from a supplier. I always recommend getting samples first from any supplier on Alibaba so you can check the quality of their product before committing to a full order. You can read more about it in my How to get FREE Product Samples article here.

Supplier – a company that sells goods to you. It could even be an individual who sells products to you but generally it’s a company.

Manufacturer – a company that produces/makes goods. These will be the companies that usually offer the best prices on websites like Alibaba. The downside of dealing with manufacturers directly is that they usually have very high MOQs and very often they don’t hold any stock at all – they manufacture products as orders come in, which means you will have to wait 20 – 40 days for your goods to be manufactured and then delivered to you.

Trading Company – very popular in China and you’ll often find them on Alibaba.com. Trading companies are just that – middle men between a factory or wholesaler and end buyer (you). Trading companies don’t usually hold any stock, what they do is source products for each order, as they come in.

The biggest advantage of trading companies is that they can often offer very low MOQs, as low as 1 unit per product. But the downside is that prices are usually higher compared to manufacturers PLUS there can be product quality consistency problems, over a longer period of time. As you don’t really know where they source products from, they can change sources to get cheaper prices from order to order so this is something you have to keep in mind when dealing with Trading Companies on Alibaba.

Wholesaler – this would be a classic type of supplier we all know – with a large warehouse full of stock. Wholesalers usually buy goods directly from manufactures and then sell them off to retailers, adding their own mark-up of course.

In the UK it is very difficult to make any profit on eBay & Amazon when you buy products from local wholesalers as their prices simply won’t be competitive. Why? Because the majority of sellers nowadays source products directly from China, cutting out any middle man, making prices very competitive. Besides that, many UK wholesalers actually sell directly on eBay/Amazon themselves, making their wholesale offers even less attractive.

There are exceptions however – there are China and even US based wholesalers who buy in massive quantities and can offer relatively good prices with low MOQs which can be very attractive to people with small budgets.

Distributor – there are multiple ways this term can be used but usually it represents an official representation of a product/brand in a specific country or region. For example – all the major electronics companies will have official distributors in most countries around the world. It doesn’t mean that those brands own those companies, no, usually it’s just a distributorship agreement with them and the company that represents that brand in that country.

Sometimes distributors just work from offices and use 3rd party warehouse facilities for stock handling. But often distributors will have their own warehouses and even B2B and B2C online shops.

Gold Supplier – a verified and paid supplier listed on Alibaba.com. As I always mention in my articles – you should only deal with Gold suppliers on Alibaba as it means that they have been verified and have paid a substantial yearly fee to be listed on Alibaba.

In almost all cases where a scam is involved on Alibaba, it’s with a FREE Supplier, not a Gold one. So you eliminate the majority of your risk when you only deal with Gold suppliers. And as these companies have to pay a yearly fee to maintain their Gold membership, the more established the Gold status is, the better. Scammers will very rarely stay on Alibaba for multiple years.

Quote (Price Quote) – when you contact suppliers, especially ones with no prices displayed on their website, you can use the term Price Quote to ask for pricing for the specific product you’re interested in. This is especially important on Alibaba where advertised prices on product listings are, in most cases, inaccurate. Most suppliers put lower prices in product listings to attract more new customers so you always want to get a price quote before you make any decisions.

Pro-forma Invoice – a document that a supplier will create for you to show products, prices, shipping and payment terms, contact details for you and the supplier. Pro-forma is NOT a binding contract so don’t be afraid to ask for a pro-forma invoice even if you’re not 100% sure you’ll be ordering anything.

It’s very important to get a pro-forma invoice before you make payment to a supplier as this way you can verify contact and payment details and have your full order in written form.

Once you make payment, the supplier will send you an Invoice – which is the legal document you would use in your accounting or for Customs Clearance purposes.

Trade Assurance – a secure payment system offered by Alibaba. Trade Assurance is not a true Escrow service, in which a 3rd party holds money until the buyer agrees to release it, but still, it offers a great deal of protection to buyers.

Basically Trade Assurance acts like a resolution centre when something goes wrong with your order – e.g. the supplier can’t deliver goods on time, goods arrive defective etc. Usually scammers won’t agree to use Trade Assurance for the transaction as it will make their task of scamming you much more difficult.

When using Trade Assurance on Alibaba, make sure to describe your transaction and products in as much detail as possible as it will be very important IF something goes wrong. Specifically mention product size, materials, functions, quality features etc., to have as strong a case as possible if things go to an open case.

Order Lead Time – how long it will take for the supplier to prepare your order for dispatch. Why is this important to ask? Because as I said earlier, when dealing with manufacturers, they usually make each order on demand, which means you want to know exactly how long it will take them to manufacture your order.

Wholesalers will usually have products in stock so there won’t be any extra delays, but trading companies on the other hand may need a longer time to source the products you need. So always make sure to ask about order lead time and have it included in the pro-forma invoice.

Payment Terms – these simply describe what payment method will be used for your order. Often suppliers will offer multiple payment methods and you can choose which one to use.

TT – telegraphic transfer. This basically means your normal bank transfer/wire transfer where you send money from your bank account to your supplier’s bank account.

Please note – when using this payment method there are NO recovery options whatsoever! When the money leaves your bank account, it’s gone forever. So make sure you use this method only with verified suppliers you’re 100% confident about.

WU – Western Union. The most popular payment method used by wholesale scammers. Just like with wire transfer, there are no recovery options when you send money via WU. Even more – WU can only be used to send money to INDIVIDUALS and not companies! This means you don’t even know who receives that money at the other end.

NEVER deal with a supplier that offers WU as the ONLY payment method. It’s a 100% clear sign that you are dealing with a scammer.

However, many legit companies will also accept WU for samples. As WU is cheaper and quicker than wire transfer, it is ok to use it to send small amounts of money to legit companies, to cover the cost of samples/sample shipping costs.

MG – Money Gram. Exactly the same as WU. Do not deal with suppliers that only accept MG as a payment method. Or WU + MG, which is a very common combination offered by the majority of scammers.

PayPal – we all know what PayPal is! It’s my preferred way of paying suppliers in China (not only) as you get good purchase protection by PayPal. Those rare cases I have witnessed when something goes wrong with an order, PayPal refunds the money without any fuss whatsoever.

Scammers know this and they don’t accept PayPal for this very reason.

Also, when you fund your PayPal payment with a credit card, even if PayPal doesn’t give you your money back, you can always initiate a charge-back case with your credit card company and get your money back that way. But in most cases, PayPal protection alone will save you from loses if something goes wrong with your order.

CC – credit card. Chinese suppliers do not generally take direct credit card payments (with some rare exceptions of well-known wholesalers who have popular online shops) but you can still use it when funding a Trade Assurance order. Or as explained earlier, to fund your PayPal transaction to get that extra protection.

L/C – Letter of Credit. This option is only available for big orders (worth tens of thousands) and it also depends on whether your bank offers this facility in the first place.

But in essence it means that your bank guarantees payment to supplier upon you receiving your goods. So the way it works is your bank issues a Letter of Credit to the supplier, they send goods to you, you receive/inspect them and if everything is fine, your bank sends the payment.

Shipping Terms – specifies what shipping method will be used for your order and what the delivery time will be. When using a courier (DHL, TNT, UPS etc.) Chinese companies will often simply state “AIR 5-7 DAYS”. This means that your order will be shipped via a courier company.

FOB – Free on Board (or Freight on Board). This basically means that the cost of delivering the goods to the nearest port is included but YOU, as the buyer, are responsible for the shipping from there and all other fees associated with getting the goods to your country/address.

EXW – also sometimes referred to as the Ex-Works price. This basically means the cost of the product and nothing else! No shipping costs or export fees in China are included in this price, never mind local port and custom fees or delivery to your door.

CIF – Cost, Insurance and Freight. In this case, the price also includes sea freight charges and insurance to deliver the goods to YOUR nearest port. But only to the port – from that point onwards, you take the shipment into your hands.

CNF – Cost & Freight (or Cost, no Insurance, Freight). Similar to CIF only this time insurance is not included.

If your supplier quoted you a CNF London price, this means that the price includes shipping of the goods via sea freight to a London port. When the goods arrive, you’ll have to organise customs clearance and delivery to your home/office/warehouse.

While the CNF price can look very attractive, keep in mind that there will be other costs involved when your goods arrive in London, such as:

  • Customs clearance fee
  • Value Added Tax
  • Import Duty
  • Port security charge
  • Fuel surcharge
  • Docking charge
  • Warehouse storage fee
  • Etc.

So the CNF price is really just the tip of the iceberg and does not show you the true, FINAL price you’ll pay for the products you’re importing.

Freight Forwarder – a company that offers various shipping methods, depending on your needs. Freight forwarders take care of all the documentation as well so all you have to do is arrange the order with your supplier and freight forwarder and then just wait for your goods to be delivered to you.

Sea Freight – shipping method when goods are delivered via boat. This is the most popular and cheapest shipping method to import goods from China. Pricing is mostly based on the VOLUME of your shipment, rather than weight, which means that this is the only shipping method you want to use for heavy items.

Sea freight won’t be suitable for small orders as while the “space on pallet” will be very small, the extra costs (port fees, documentation, un-loading etc.) will be very expensive and eat up all of the savings.

Shipping time for sea freight from China to the UK usually takes about 30 days.

FCL – Full Container Load. This means that you’re ordering/shipping ONE full container of goods. There are two types of container – 20 feet and 40 feet (standard).

Very often suppliers on Alibaba will mention how many units/items can be loaded into a 20/40 foot container so you can easily calculate shipping costs per item.

LCL – Less than Container load. This means that your order does not fill a full container. This is the most common method most of you will use. You can ship a pallet or even half pallet with this method – it does not matter. Most freight forwarders do LCL on a weekly or bi-weekly bases from China and they do this by simply combining multiple shipments from multiple customers to fill up containers.

LCL will obviously be more expensive (per cubic feet) compared to FCL but still – it’s a very affordable way to ship goods from China (and other countries).

Air Freight – shipping method where goods are sent via plane. Air freight is much more expensive than sea freight but cheaper than courier. Most freight companies will offer air freight services, including courier companies (DHL, TNT, UPS etc.)

Air freight is a good option if you’re importing small but highly valuable items in decent quantities – like mobile phones, tablets or other gadgets.

Shipping time for air freight from China to the UK usually takes about 5-10 days.

Courier – this is the quickest and easiest way to get your order from anywhere in the world BUT it is the most expensive too. Courier companies like DHL, TNT, UPS, FedEx etc. should be used only for small items that don’t take up much space/weight. Otherwise your shipping cost per item will be very high.

Shipping times for courier services are usually around 3-7 days, around the world, depending on what type of service you’re using. There’s really no point in over-paying for express service here, unless the order is VERY urgent for you (e.g. you have run out of stock on eBay/Amazon).

Door to Door – this term means that the freight forwarder will take care of the Customs Clearance procedure and deliver goods straight to your door. This service can be applied to both Air freight and Sea freight shipments.

I ALWAYS recommend going with a Door to Door shipping quote as then you know exactly how much shipping will cost. If you don’t do this, you’ll get a big surprise of extra bills/costs when your sea/air freight shipment arrives in the UK (port fees, docking fees, unloading fees, clearance fees etc. etc.).

So always use Door to Door shipping terms with a freight forwarder when importing goods via air or sea freight.

Customs Clearance – when you import goods from outside the EU, they must be declared and taxes paid before they can be released to you. This procedure is called Customs Clearance.

Usually the courier company or your freight forwarder will take care of this process – they will prepare the Customs Declaration, calculate taxes and ask you to make all necessary payments. Once that is done, documents are submitted for review to Customs and after approval, the goods are released and can be delivered to you.

Make sure you ask your supplier to send you a final invoice as you’ll need to send this to your courier company/freight forwarder for tax calculation purposes.

Import Duty – special tax applied to products imported from outside the EU. The import duty tax rate varies based on the products you import, ranging from 0% up to 12% and more. Usually it is around 3-4% but you can get the exact rate by doing a calculation on DutyCalculator.com

VAT – Value added Tax. Just like with import duty, the VAT rate varies based on the products you import but for most items it will be 20%.

There are some categories of goods that are VAT exempt and you can check this by doing a calculation on DutyCalculator.com OR by checking the VAT and Import Duty rates directly on HMRC’s website.

Ok, that’s it for today. I have tried to remember all of the most important terms used in Importing & Shipping but if I’ve missed anything, just let me know and I’ll be sure to update the article!

Next week I’ll be back with the 3rd post in this series covering eBay & Amazon terminology.

Thanks,
Andrew

2 Comments
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  1. Hi Andrew,

    I have read through your latest Blog re Importing and Exporting, which I found very informative.

    You mention the payment process of Telegraphic Transfer, which deals with the situation whereby the buyer sends funds direct to the suppliers bank account, and that this service offers NO money recovery option.

    I have recently opened negotiation with two manufacturers on Alibaba.com. When I first e-mailed the manufacturers through Alibaba, I received the following automated pop up notice with a warning triangle:

    Notice: Only orders paid to the Citibank account starting with “1029” will be eligible for order protection.

    I would be very grateful if you could explain this process to me as it looks like a TT process, but details that the order is protected.

    Thank you

    Mark

    1. Andrew Minalto

      Hi Mark,

      That is all about the Trade Assurance program, which is not simply TT payment. Read more about it here:

      http://tradeassurance.alibaba.com

      Thanks,
      Andrew

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