In the European Union, import means acquiring goods and services outside of the EU and placing them on its market or using in this region. Importing process is complex, so the correct estimate of costs can be challenging. Below we present what makes up the cost of importing from China.
What makes up the cost of import?
There are many reasons why entrepreneurs decide to import goods. Import can be motivated by a lack of products on the market, bridging the gap by extending the product range, too expensive manufacturing, or legal regulations. You can start importing with a low budget, but you need to calculate additional costs correctly to estimate profitability.
The cost of import is not only the goods’ price. If the price of a single unit is $5, it doesn’t mean that the final import cost is the price of this single unit multiplied by the ordered quantity. The whole cost consists of customs and tax duties, shipment, using the services of a customs agency, and many more. What makes up the cost of importing from China?
The obvious element is the goods’ price, negotiated with a supplier. Depending on the terms of sale, the more products will be manufactured for us, the lower will be their unit price. A supplier can also offer different discounts, e.g., seasonal or cash.
When negotiating the price of goods, it’s worth establishing the way of packaging and collective packaging.
Verification of a Chinese business partner
Before signing a commercial contract, we encourage you to verify your business partner. The result of such verification is a strong argument for or against cooperation. Many scammers pretend to be suppliers or manufacturers of goods on B2B platforms. To reduce the possibility of falling victim to such scams, we recommend initial verification.
Carrying out quality control is extremely important to ensure that your products are manufactured according to the order. It can be conducted at the production stage or at the time of loading.
Transport from China and insurance
Incoterms define the terms of transport and cargo insurance. There are more and less beneficial terms for an importer, which is why it’s worth negotiating a suitable Incoterms rule with a supplier. FOB and CIF are often chosen in transportation. Some Incoterms indicate the required Institute Cargo Clause. Usually, cargo is insured for 0.5%-1% of the value of goods and transport.
Transport costs account for quite a large part of the entire transaction. Factors influencing transport costs are:
- type of a product;
- the number of goods, counted, among others in volumetric weight;
- means of transport – train, sea, air, or multimodal.
When choosing a method of transport, you must consider the type of product and money at your disposal. The cheapest solution for long distances is sea freight. On the other hand, air transport has a shorter transit time but the highest cost. To illustrate, the transport of 1m3 of goods by air freight from China can reach between $4,000 and $5,000. You could deliver 12m3 of cargo by a container ship for this amount of money.
Remember that you must add the commission for the shipowner or shipping agency to the shipping costs. If you receive an offer from a freight forwarder, analyze it and ensure that you won’t be charged with additional expenses during the transport. You can compare offers from different shippers on the ShipHub platform.
Port and port-related fees
If you choose an Incoterms which charges the buyer with transport costs from the factory, fees related to the cargo delivery to the warehouse at the port of loading will be inevitable. At the port of loading and unloading, there are also costs for handling the cargo.
Duty rates and VAT when importing from China
The customs duty is the oldest tool of trade policy. Customs duty can be imposed on every product unit or value. In some cases, one must also pay an anti-dumping duty.
Duty rates for goods imported into the European Union can be found in the free-to-use TARIC system. Most often, they range from 0% to 15%. You can check many studies of individual product groups on our blog. Customs duties are determined based on the goods’ quantity, the duty rate, and transport costs to the EU.
One shouldn’t overlook their obligation to pay a value-added tax. Every load is subjected to VAT at the customs clearance, even if it’s duty-free. This tax is calculated based on the duty rate and cost of the order with shipping.
Banks often charge customers handling fees for the transfer. If you don’t own a bank account in a foreign currency, remember about the exchange rate differences and an additional currency conversion fee. Costs are also generated when using bank services, such as opening a letter of credit.
Among other elements which make up the import cost, are for example:
- obtaining a license or a concession to import particular goods (i.e., of strategic importance, such as armaments);
- creating a pattern or a design for your product;
- import and export customs clearance;
- ordering samples;
- trademark registration;
- carrying out laboratory tests;
- hiring translators for business negotiations;
- writing and signing a commercial contract;
- using the services of a customs agency;
- issuing a phytosanitary certificate and inspection activities;
- when goods have already been placed on the market, you should also consider such costs as unloading to your warehouse, storage, marketing, sales, etc.
Additionally, if an importer wants to develop cooperation with a supplier or acquire more of them, it’s worth considering a trip to the country of interest. One can establish contact with potential suppliers during trade fairs. By paying a visit to a factory, you can check how the products are manufactured and their quality. Meeting a business partner, especially in countries like China that value interpersonal relationships, brings enormous benefits. However, all these measurements also generate costs.
Make sure to also check our guide – Import from China to the EU step by step