In previous issues, we have talked about exports with several different emphases. This issue, we are going to put these ideas into the perspective of a new exporter/shipper just getting started. In this hypothetical application, a vice president of sales is expanding business into Canada with a food supplement product of mixed fruit juices.
The Beginning: This product can be sold to health food stores and grocery stores with specialty health food sections in the US and Canada. The shipping carton dimensions are 15.5x11x13.5 and the carton typically weighs 16 lbs. The product is not heat-sensitive and is not considered “perishable” under normal environmental conditions. The initial question for exporting is, “How much does the product cost in Canada including shipping?” To answer that question, we must start with the actual weight vs carton dimensions.
Dimensional Weight: To compute shipping charges, we must compare the actual weight versus dimensions of the piece, which are rounded to 16x11x14. Multiplying these three numbers together gives a result of 2,464 cubic inches. Dividing 2,464 by 139 (current US international weight factor) gives a quotient of 17.72. Therefore, freight charges will be assessed at the dimensional weight of 18 pounds per carton for international express shipments. However, with small package ground shipping (both within the US and to Canada), the DIM factor only applies to shipments with a volume greater than 5,184 cubic inches. So this shipment would not DIM as ground, but would DIM as international express since three packages or more shipped at once would exceed 5,184 cubic inches.
Shipping Costs: The shipping cases are small enough and light enough to move samples via ground or express small package services across the border to Canada. The VP of sales obtains quotes on small package rates from small package carrier representatives and trucking rates direct from carriers and via truck brokers. She also obtains guidance from a logistics consultant to ensure her contracts, accessorials fees and shipping rates are competitive for her shipment volume. Some rates for trucking via Internet (class 60) trucking brokers turn out to be less than she was offered with the LTL carriers directly. Larger shipments (20 cartons or more) are found to be more economical as palletized and shipped via truck in North America or as ocean freight to international destinations. The logistics consultant advises the manufacturer/shipper to control shipping in order to minimize the number of transport companies they are dealing with and maximize the volume that can be applied to negotiating shipping rates. The consultant also advises her to obtain a corporate insurance rate for cargo insurance rather than utilizing the more expensive carrier rates.
Harmonized Code and Trade Agreements: The VP of sales next calls a freight forwarder for advice on export shipping costs and paperwork requirements for Canada. The forwarder identified a harmonized number for the product 2106.90.54 for fruit juice mixtures. Looking up 2106.90 in the NAFTA rules of origin, they found that as long as no juice from other than US, Canada or Mexico is more than 60%, the mixture produced in a NAFTA country will qualify for duty free entry. The shipper therefore completed a NAFTA certificate of origin stating that the product was made in the US and qualified for NAFTA.
Pricing and Payment: To compute the delivered price in Canada, the shipper needs to know the destination postal code, actual weight and sales price for the goods. The VP of sales decides to quote the price including transportation, insurance (corporate insurance rate), duty (0) and taxes (5%) for “DDP destination”. Sales commissions, base pricing, volume discounts and shipments under consignment —payment upon completed sales — are all options being considered for future sales. Payment options such as a wire transfer from the consignee upon arrival of the merchandise or payment within 30 days of receipt (net 30) will be discussed with the Canadian customer depending upon credit history.
Summary: In this article, we have walked through an example of the questions that can arise with the introduction of a new product for export into the Canadian marketplace. Actual weight vs. dimensional weight, shipping costs, harmonized classification/NAFTA and pricing/payment issues are discussed. The pricing and payment issues are more complex than we can cover in this month’s article. We will look at these issues along with shipment challenges that can occur next time. If you have any questions about the material discussed, feel free to contact me.
Tom Stanton, International Analyst, AFMS, LLC can be contacted at 503-246-3521 or Tom.stanton@afms.com.
The Beginning: This product can be sold to health food stores and grocery stores with specialty health food sections in the US and Canada. The shipping carton dimensions are 15.5x11x13.5 and the carton typically weighs 16 lbs. The product is not heat-sensitive and is not considered “perishable” under normal environmental conditions. The initial question for exporting is, “How much does the product cost in Canada including shipping?” To answer that question, we must start with the actual weight vs carton dimensions.
Dimensional Weight: To compute shipping charges, we must compare the actual weight versus dimensions of the piece, which are rounded to 16x11x14. Multiplying these three numbers together gives a result of 2,464 cubic inches. Dividing 2,464 by 139 (current US international weight factor) gives a quotient of 17.72. Therefore, freight charges will be assessed at the dimensional weight of 18 pounds per carton for international express shipments. However, with small package ground shipping (both within the US and to Canada), the DIM factor only applies to shipments with a volume greater than 5,184 cubic inches. So this shipment would not DIM as ground, but would DIM as international express since three packages or more shipped at once would exceed 5,184 cubic inches.
Shipping Costs: The shipping cases are small enough and light enough to move samples via ground or express small package services across the border to Canada. The VP of sales obtains quotes on small package rates from small package carrier representatives and trucking rates direct from carriers and via truck brokers. She also obtains guidance from a logistics consultant to ensure her contracts, accessorials fees and shipping rates are competitive for her shipment volume. Some rates for trucking via Internet (class 60) trucking brokers turn out to be less than she was offered with the LTL carriers directly. Larger shipments (20 cartons or more) are found to be more economical as palletized and shipped via truck in North America or as ocean freight to international destinations. The logistics consultant advises the manufacturer/shipper to control shipping in order to minimize the number of transport companies they are dealing with and maximize the volume that can be applied to negotiating shipping rates. The consultant also advises her to obtain a corporate insurance rate for cargo insurance rather than utilizing the more expensive carrier rates.
Harmonized Code and Trade Agreements: The VP of sales next calls a freight forwarder for advice on export shipping costs and paperwork requirements for Canada. The forwarder identified a harmonized number for the product 2106.90.54 for fruit juice mixtures. Looking up 2106.90 in the NAFTA rules of origin, they found that as long as no juice from other than US, Canada or Mexico is more than 60%, the mixture produced in a NAFTA country will qualify for duty free entry. The shipper therefore completed a NAFTA certificate of origin stating that the product was made in the US and qualified for NAFTA.
Pricing and Payment: To compute the delivered price in Canada, the shipper needs to know the destination postal code, actual weight and sales price for the goods. The VP of sales decides to quote the price including transportation, insurance (corporate insurance rate), duty (0) and taxes (5%) for “DDP destination”. Sales commissions, base pricing, volume discounts and shipments under consignment —payment upon completed sales — are all options being considered for future sales. Payment options such as a wire transfer from the consignee upon arrival of the merchandise or payment within 30 days of receipt (net 30) will be discussed with the Canadian customer depending upon credit history.
Summary: In this article, we have walked through an example of the questions that can arise with the introduction of a new product for export into the Canadian marketplace. Actual weight vs. dimensional weight, shipping costs, harmonized classification/NAFTA and pricing/payment issues are discussed. The pricing and payment issues are more complex than we can cover in this month’s article. We will look at these issues along with shipment challenges that can occur next time. If you have any questions about the material discussed, feel free to contact me.
Tom Stanton, International Analyst, AFMS, LLC can be contacted at 503-246-3521 or Tom.stanton@afms.com.
