Never Go For Volume, Go For Frequency. We desire to have the lowest minimum order requirement possible from a supplier, and then cover that minimum order with our customer orders as frequently as we can, ever shortening intervals between minimum orders. The reverse for exporting is true.
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NB: Ocean Freight is almost always charged by volume, the space you take up in the container, and on the ship.
CBM = cubic meter
LCL = less than container load
FCL = full container load
Example:
For lcl we have 2.27 cbm and 100 pounds weight. The shipments is of 100 units of merchandise. Freight is prox $250.00, $5000 shipment value, Oakland to Shanghai (link to this page provided below).
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Let’s look at full 20’ container, which holds approximately 26-28 CBM. In this case the freight is $2050.
*If you note a container can hold 10 times as much as the minimum order. The minimum is $5000 value, so ten times the volume is ten times the cost of the goods in the 20’ container. So, a 20 foot would hold $50,000 worth of goods.
LCL $250 freight for $5000 goods = 5%
FCL 2050 freight $50,000 goods = 4%
It may not seem much expressed as such, but what you often hear is “with a full container you save 20% on freight!” (5% vs 4%)
There are more charges with lcl, such as CFS charges, which are likely to jack up that $250 charge to $420, so let’s compare again:
LCL $420 freight for $5000 goods = 8.5%
FCL 2050 freight $50,000 goods = 4%
So now the overall charges are more like one-half as much THE RATE with a full container load!
But the error in thinking here is in several areas.
1. $5000 goods and $420 freight equals $5420 C&F cost.
a. This is easier to finance than $52,050 for a full container load.
b. Getting enough orders to cover $5420 in cost is faster than enough orders to cover $52,050 in cost, therefore more likely.
c. Selling through $5420 is faster, and quicker feedback to redesign of each iteration that makes for better sales and quicker turnaround on the next minimum order.
d. Problems are limited to the particular shipment in question, a low cost/value issue.
e. Currency fluctuations are managed easier when the values are lower.
If you are taking a 100% markup, then $5420 is marked up to $10,840. As mentioned above, there are 100 units in this shipment, so they sell for $108.40 each.
2. $50,000 goods and $2050 freight equals $52040 C&F cost.
$52040 is marked up to $104,080. There are ten times the units in this shipment, and they sell for $104.08 each.
Do you think, in regards to a specialty item, unique in design, that a price of $104.04 vs $108.40 will make much difference to the specialty store customer, who is looking for new?
It is extremely unlikely.
In any case, we do not have to guess, we always get enough orders to cover the suppliers minimum before we order, so we can know in advance by the orders we gain.
The extra cost is negligible, and in any event very cheap insurance against buying risky amounts of anything. An insurance ultimately your customers pay anyway.
But but but...
“The freight on 20’ container costs 80% of a 40’ container ...”
Again, for all ther reasons above, so what?
Play around with this yourself at
http://tinyurl.com/78sob7t
More on containers:
http://www.foreign-trade.com/reference/ocean.cfm
email me if you have any questions.
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