Article #18 – Freight & Logistics

The process of freight shipping can be really complicated.  There are terms you don’t understand, companies you don’t know (but really need to trust), quantities of work you never expected, and dollar amounts that can dramatically inflate your Funding Goal.

Let’s start with a detailed overview of Freight, and in our next Article we’ll discuss Fulfillment (Self & Others).

FREIGHT & LOGISTICS

logistics

Logistics companies love pictures like this!

Freight (rather synonymously called “Logistics”) refers to the process of shipping your games en-bulk from your Manufacturer’s printing/assembly factory to the destinations around the globe that you need them delivered to (usually your distributor, your fulfillment center(s), and yourself.)  Let’s define all those scary terms, easy and hard.

Define your terms!

  • Freight – Can be used to refer to both the objects themselves (cartons full of games/etc), and the process of shipping the pallets full of them around the globe.
  • Logistics – More specifically the figuring out of how to freight (verb) your goods from Point A to Point B. A “Logistics Firm” can be hired to handle your “freight” and imports.  And no, you don’t want to do it yourself.
  • Import – The process of taking goods into a country that it was not made in. If you create in the USA and ship to a USA location, there’s no import.  If you ship from China to the USA or Germany, that’s an import.
  • Pallet – A wood or plastic platform roughly a meter square that holds cartons full of your stuff. A “pallet of goods” or simply “pallet” is more commonly used to describe 1 pallet full of cartons.  Usually stacked about 3-4ft high.forklift-pallet-carton
  • Carton – The heavy duty cardboard box your games/etc are bulk packed into before being put on a pallet. A big box game (TKA) will have 4-5 games per carton, a card game will have about 36-72 games per carton (ADAPT / ADAPT Tuckbox Expansion), and smaller items can have as many as 200+ (Halfsies Dice Sets).  A carton will be about 14x13x10inches (sized to your item), and limited to a weight of about 30-35lbs (14-15kg).  Don’t worry about sizing this, your manufacturer orders them to suit your product.
  • Shipping Lane(s) – How many places you are shipping to. If you produce in China, and want to fulfill from (and thus ship some cartons to) the EU and the USA, plus send some to your distributor, then you have 3 shipping lanes.  If you want to fulfill from inside Canada too… 4 lanes.  From within AUS? 5 lanes. 
  • Duties & VAT – In the USA there is no technical VAT, though your state may have a “use tax” that works remotely similarly, and you will pay some taxes period, but in other countries there are often Duties and/or VAT; both are basically taxes on imports. These can range from 0% to 27% of the value of the items, and varies by item type (game/tool/book/food/etc.), material (wood/paper/plastic/banana), and value (over/under a certain threshold). vat If the country/region that you’re importing to has these costs you’ll need to pay them to customs when they enter the country.  (All of the EU is 20% for Board Games.)  If you pay it this way they are paid based on your MANUFACTURING price (ie: $2.00 each x 20%); if you don’t but ship to customers directly from the USA the customer then pays based on the SALE price (ie: the $10 MSRP x 20%).  Yes, that saves YOU money, but lowers the number of sales you have (would you buy a $70 game + shipping that you’d then have to pay $14 more to take from the hands of the postman?).  VAT, honestly, doesn’t add up very high when you pay it in advance for your customers so it’s a great service you can provide your backers.  Read here for more on prepaying VAT.
  • Insuranceinsurance – When your logistics company says “Would like insurance?”, say “Yes!”. It’s very inexpensive and without it, when your boat sinks, you’re up a creek without a product.
  • Importer of Record – The business entity in the country (usually in the EU) that says to the government “Yeah, that’s our stuff, we’re paying the taxes.” They claim it if there’s an issue (which a government wants), and they pay the taxes for you (which a government wants).  You of course reimburse them for this and pay for the service.  Most fulfillment companies in the EU will do this service for you, often for free, since you’re hiring them to ship stuff; and is frankly reason enough to hire an EU based fulfillment company.
  • Fulfillment Company – The company that actually ships individual orders to individual customers/backers. Discussed in detail in the next KSAC here.
  • Customs Bond – To get more than $2,500 worth of commercial goods into the USA you need a bond. A bond is a guarantee between the govt, your freight guys, and yourself (yes 3 parties) that the government will get paid taxes and fees.  Your freight people will prepare it, you sign and pay for it.
    • Single Use Bond – If you’re only importing once in a 12 month period (ie: 1 Kickstarter) this is cheaper.
    • Continuous Use Bond – If you’re importing more than once in a 12 month period (ie: 2-5 Kickstarters), get this one. (It’s a really simple choice).
  • Shipping Terms – The ‘terms’ upon which you agree with your manufacturer and possible 3rd party freight company to handle freight shipping. Your options…
    • DDP – “Delivery Duty Paid” – This option means that your manufacturer/supplier is responsible for basically everything: freight shipping, all fees (including import duties like VAT), and is liable for the safety of the goods, until the goods reach the agreed upon destination(s). You’ll be billed and pay these fees back to them, depending on arrangement.  Short: They handle everything.
    • DDU – “Delivery Duty Unpaid” – As DDP except import fees & duties are not covered by the shipper. Short: They handle everything except import duties and VAT.
    • FOB – “Free On Board” – This option means that your manufacturer only delivers the goods to your freight forwarder (ie: the company you hired to do the freight for you.)  So the manufacturer preps the shipment at the factory, delivers to the truck or ship, and then is free of liability at that moment, at which point the hired freight company takes over. Short: Gives you more control over your costs, and is usually cheaper but a bit more work (you gotta hire a company to do the rest for you).  You’ll incur an “FOB” fee from the manufacturer, often one for each shipping lane, plus a bill from the hired logistics company.
    • EXW – “EX-Works” – This option means that your manufacturer only prepares the goods for pickup at their factory. Therefore, your hired freight service picks up the goods at the factory and then does all the rest too (import Duties can be handled in various ways).  Short: Gives you the most control, the lowest cost, but the most work (albeit not much more than FOB). 
  • Sea Freight vs. Air Freight.
    • Sea Freight – Takes about 40-45 days from Eastern Port (China, etc) to Western Port (USA-40 or Europe-45+). West Coast USA ports are about 7 days faster than East Coast (as the ships come Eastward across the Pacific and stop there before going on to other locations); inland USA (ie: Kansas) may take longer (and cost more) as they need a train after the boat.  Europe takes even longer as there are many stops Westward around the huge continent of Africa.  Sea Freight is by far, without question, the cheapest.
    • Air Freight – Takes about 7-9 days total from Manufacturer to doorstep. Port not required as they fly it to your local airport and put it in a truck from there.  You can see the advantage, but the cost is WAY higher.  Ask for a quote.
    • Ground Freight – This is always a part of each shipping lane regardless. Get it to the port, and then from the port.  It’s already included in your Sea/Air quote as required by shipping lane and distance from port.

Tips from my experience:

  • Hire a Logistics Company and use EXW (instead of FOB) when you can because freight companies quote MUCH faster and ship a BIT cheaper than my manufacturer (I use OTX). If I didn’t hire my own Logistics Company, and had my manufacturer handle freight, I’d do DDP to get the VAT taxes out of the way as early as possible as it can delay an import considerably.  (Ask your account manager if FOB is included in the price of your manufacturing quote, and if so, for how many lanes.  You’ll want to do FOB if it’s already included/paid for and can’t be recovered.)
  • On one shipment I had our importer of record pay VAT for us and that was a disaster since they paid 40+ days late delaying everything and accumulating storage fees at customs that then resulted in expensive safety testing. I could have had OTX pay it for us in advance, next time I will.  I’d suggest the same.  Get VAT out of the way ASAP! 
  • Consider this: Your manufacturer specializes in manufacturing (not shipping & imports), so let them manufacture. Your logistics team is the opposite, so let them handle as much shipping & import stuff as they can (including VAT).
  • Ship Sea Freight for most and factor that 45 day time into your estimated delivery date. You may want to Air Freight just a small special portion to yourself if the 45 day boat will make them too late for an important event (like a convention).  Talk to your manufacturer to get that shipment prepared correctly.
  • The more you ship at once the less you pay per item. I was once fortunate enough that 2 projects finished within 2 weeks of each other.  We delayed the first, and combined it with the 2nd for freight and the net cost came down by about 25% as all the set-up fees were combined into one!  I spent the savings on upgrading to Air Freight as a gift to backers and nearly netted out!

At the end of the freight shipping your goods arrive at your fulfillment centers where they can be shipped out to your customers.

Got all that?  Need a summary?

  1. Hire a Logistics Firm
  2. Pay them to do all the freight, bond, insurance, and tax work
  3. Ship EXW (or FOB if already included in the manufacturing quote)
  4. Get VAT paid ASAP
  5. Breathe easy

If you’re squared away and ready to have your stuff sitting on pallets in multiple regions including your company warehouse (yes, I mean your living room), then you’re ready for Article #19 – Fulfillment.

As always, comments and suggestions highly encouraged.

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