By Munish Gupta, Founder and CEO of Supply Chain Advisory Group
Most early stage companies spend a lot of time on product development, manufacturing, marketing, advertising, and fundraising. One major pitfall that first-time companies fall into is leaving core components of their international shipping strategy to after launch. Many first-time companies think: “It’s just shipping, it’s all the same!” Which is very far from true.
One of the keys to a successful product launch is accurately optimizing all of your costs, timing, and operations. Especially if you are shipping internationally, whether importing products manufactured abroad, or sending products to other markets. Sellers must be sure to include the following aspects of international shipping in their launch strategy in order to limit unnecessary losses and help get your product to market with room to grow and scale.
International Shipping is Part of Your Bottom Line
Shipping isn’t a very glamorous topic, and it’s often misunderstood by many new product companies. But it is an integral factor in your overall product cost and customer satisfaction.
Sellers need to accurately calculate their shipping costs for the products they’re offering before they fully launch. Factors to consider while drawing up your shipping strategy include DIM weight and freight options. Plus don’t forget about all of the customs fees like duties and taxes that add up (discussed at length in this post).
Define Your DIM Weight
To accurately calculate shipping costs two factors need to be considered: product weight and final box dimensions. Dimensional weight or DIM weight comes into play when you ship large products. The basic concept is that the shipping company will charge you for the total size of the product instead of the weight of the product. A DIM weight factor is used to calculate the dimensional weight.
For example, if you are shipping a large, pre-assembled piece of furniture, you will most likely be paying DIM weight instead of the actual weight of the parcel. DIM weight can be anywhere from 2x – 10x of the actual product weight and this can lead to astronomical shipping charges and huge losses for the companies. Even a small product can accumulate a large DIM weight if it’s in a large box.
Companies need to work in advance with their shipping company to accurately calculate the DIM factor. This is the volume of a package allowed per unit of weight and it varies between each shipping carrier and contract. The higher the DIM factor that you negotiate with the shipping company, the lower shipping charges you have to pay. As an example, an item weighing two pounds, shipped in a 12in x 12in x 12in—if the DIM factor is 139, the final DIM weight will be 13lbs.
Each carrier has a default DIM factor denominator of 166. The start of your contract with a shipper is the only time you can negotiate a lower DIM factor.
Don’t Overpay on Freight
The actual product sales price also determines the shipping method used. For example, if you’re selling a $200 product, then customers won’t mind paying $20 for an air shipment. However, if you’re selling a $20 product, then you’re going to have huge cart abandonment when they realize they’ll also have to pay $20 air shipping cost. For the latter example, you’ll need to look at other, cheaper options.
Using a cheaper option also means more time in transit. Which is a factor for many customers these days. On average, air freight takes one week, while ocean freight takes one month. Consider also that air freight is on average six times more expensive than ocean freight. A standard industry rule of thumb for a new account is to ship 20% of your product by air and 80% by ocean. This will allow you to ensure you have a small amount of products in your warehouse quickly to cover any inventory gaps. Once you can better predict inventory flow, you may be able to adjust your percentages and save even more.
In most cases, companies manufactured the product in China and then ship it globally from a warehouse in China or Hong Kong. Based on experience, about 50% of the orders come from US-based customers.
Warehousing and Domestic Shipping Shouldn’t Be An Afterthought
It’s worth mentioning that warehousing and domestic shipping are factors that shouldn’t go unconsidered in your initial product launch strategy.
Even if your order volume is low to start, storage fees can add up quickly, especially if your products aren’t moving as fast as you’d expected. In the US, working with a reputable 3PL to warehouse and store your products is a great way to outsource this aspect of your strategy. Look for a 3PL with distributed fulfillment centers. From their warehouse, your products can be sent to backers quickly and with an optimal ground shipping strategy, which can lead to dramatic cost savings. The same 3PL you choose to partner with for warehousing will be able to help optimize which carrier you choose for domestic shipping. All of these fees should be factored into your overall product launch strategy.
Product Labeling and Regulatory Compliance
Even after correctly figuring out the shipping and operational logistics, companies have another thing to take care of: labeling. Different countries have different regulatory requirements and your product will get held at customs or turned away if you don’t comply. For example, in Canada everything on your product should be in both French and English. Other countries may require special safety labeling for children’s products. Electronics telecommunications products might require certifications such as FCC, Bluetooth in the US, and the CE certification in the European Union.
While it might become a nightmare for companies to take care of regulatory compliance in every individual country where they have customers, it is important to get the certification for at least US and Europe. The US and Europe have very tight standards and these may easily translate to other countries, but not all. Without the appropriate labeling and certification, the customs authorities in the destination country might not let you import the product.
Don’t Try to do Everything Yourself
Doing upfront due diligence and coming up with an accurate shipping cost, freight options, and shipping carriers is imperative. The final step is ensuring you’ve figured out the best strategy for the specific countries you’ll be in business with. Each country will have different regulations, and you’ll need to ensure you’re in compliance where you are importing.
Coordinating all of these factors might sound intimidating and completely new for most sellers, so it is better to rely on trusted experts to ensure you’re doing it correctly. Supply Chain Advisory Group is a close partner of DCL Logistics, and both companies can help with all of these factors and more. Supply Chain Advisory Group provides “end to end” international services such as regulatory compliance, customs clearance, transfer pricing, freight forwarding, and overall global supply chain management. Above all, it’s important for sellers to work with reputable supply chain partners who can meet their specific needs.
Munish Gupta is Founder and CEO of Supply Chain Advisory Group. He has managed supply chain operations at Infineon Technologies and Overstock.com. His experience spans worldwide manufacturing operations, warehousing/fulfillment operations, global logistics/transportation and inventory management.
Tags: freight, International Shipping Articles