California Apparel News

In these rough economic times, businesses are examining a number of ways to save money and work more efficiently.

The savings can be big when looking at logistics costs, which some experts estimate can account for around 9 percent of the cost of goods sold (COGS). Transportation costs account for almost half of those logistics costs. And it can be a lot more when your customers place orders late and you have to use expedited services, such as air freight, to bring those goods in on time.

Many companies shop around for air-freight rates by going to a number of different companies, trying to get the best price.

But is the lowest rate the least expensive? On the surface, it would appear to be. However, there are two reasons it may not be. Air freight: The first scenario

Let’s take a recent shipment where an importer was quoted a rate of $4.20 per kilo (2.2 pounds) by one company and $3.90 per kilo by another company. The importer believes the firm with the lower rate has a cheaper and better contract with the airlines. This isn’t the case.

How was one forwarder able to offer a lower rate? The shipment was 210 kilos. The freight charge with the first forwarder would have been $882. The importer assumed that the freight cost with the second forwarder would be less. Unfortunately, when the shipment arrived, the air waybill showed the shipment was listed as 237 kilos, so the freight charge from the second forwarder, who inflated the weight, was $924.30.

The importer was unaware that the actual weight of the shipment was 210 kilos and the weight charge paid to the airline by the second forwarder was also based on 210 kilos. The only way the importer would be aware of the discrepancy would have been to weigh the shipment at its warehouse.

In this case, the importer chose to go with the lower-rate freight forwarder and actually paid almost 5 percent more.

The same type of scheme is often used when volume weight applies. What is volume weight? Because of the limited capacity on aircraft, cargo must be charged based on dimension when the cargo is too “bulky.” This is done by converting size into weight with a formula. The formula is based on 6,000 cubic centimeters being equal to one kilo (or 366 cubic inches is equal to one kilo). So, for example, if the carton is 6,000 cubic centimeters but weighs less than one kilo, it is charged as one kilo. How does this scheme work? The forwarder increases the volume weight on its air waybill, multiplying the rate by a fictitious volume, which it does not pay to the air carrier. Why is this not caught? Very few importers have their warehouses check the actual length, width and height of the cartons to determine if the air waybills are accurate. Indeed, a small difference in one or two dimensions of a box can often increase the freight’s costs to an importer by a lot of money.

Air freight: The second scenario

What good is a low-freight rate if your goods arrive too late? Some forwarders will use airlines that have indirect or unreliable service to the destinations where you ship. While deferred service is sometimes an option if you have the time, it can have devastating results if your goods arrive late. Ocean freight

What if you normally ship your goods in ocean-going containers but can’t wait for a full container load? Well, a second option is LCL (less than container load.) LCL can be quite effective from certain origins.

The same methods of overcharging also apply to LCL ocean-freight shipments. Ocean cargo is charged by cubic meters or kilos, whichever is greater. The vast majority of cargo is actually rated by cubic meters because it is rare for a cubic meter to exceed 1,000 kilos. Why, then, do many bills of lading show only weight and not cubic meters? The answer is that in almost every case with such shipments, the cubic meters are overstated by 10 percent to 20 percent. What does that mean? Well, if forwarder “A” offers you $70 per cubic meter and forwarder “B” offers you $60 per cubic meter, but forwarder “B” exaggerates the cubic-meter measurement by 20 percent, then forwarder “B’s” freight charge will actually be almost 3 percent higher than forwarder “A.”

Other schemes involve a shipment arriving from Asia that showed the destination charges actually exceeding the prepaid-freight charges.

Here the importer is held hostage to immediately pay out these destination charges in order to get the goods off the pier. Because the goods must be delivered and they are incurring daily storage at the piers, the importer is at a grave disadvantage when trying to negotiate some amicable settlement. Quick ways to ship and save

When it is too late to ship by sea, you don’t always have to ship by air. I’m not talking about submarine service. I’m talking about a combination of air/sea service or sea/air service.

It doesn’t work from all regions, but it is something that has worked for some of our customers. Isn’t the solution then to purchase cost and freight, or CFR, and let the shipper worry about all of this? The short answer is no.

A common practice among freight forwarders competing for prepaid freight is to offer rates below cost. How can they do this and remain in business? They do so by charging various additional destination charges on a collect basis. There is BAF—a fuel charge that stands for bunker adjustment factor. There is also DDC, which is a destination-delivery charge; stripping, which is the cost of breaking the container down to an individual shipment; and terminal, the charge for unloading a container at a U.S. port or destination.

Another way to save money is to look at your boxes. Are they too large for your products? Is there too much unnecessary packing material? If you can cut the size of your boxes, you may save a lot on shipping costs.

I have done audits of companies that have been overcharged hundreds of thousands of dollars for international freight. I’ve just touched the surface of some of the ways that apparel companies can save money on their imports by taking a closer look at their shipping options. Robert Krieger is president of Krieger Worldwide in Los Angeles, an international freight forwarder and customs brokerage founded in 1965. He can be reached at rkrieger@nkinc.com.