Now that you have secured a new customer, the order is quite big. Should you arrange by air or by sea? Should you look into loading into a container or arrange the shipment under loose cargoes?
What is your obligation for this sales order?
Actually whether to load the shipment as loose shipment or container shipment, it depends on the agreed final sales terms. The agreed trade terms would let you know your obligations for this order. For more information on the trade terms, look at our write up on What does Incoterm mean?
The total cost of arranging the shipment from your factory or warehouse to the customer’s warehouse is the same no matter which sales terms is used. The only difference is how much you are obliged to pay and the remaining cost will be under the buyer’s arrangement and cost. Do understand that the budget allocated during quotation stage might be realistic at quotation time. However if the actual shipment ready date differs greatly from the quotation date, it might be wiser to check if the allocated budget is still workable.
Which method is more cost effective?
As a general guideline, if the shipment is less than 40kg, it is best to arrange by courier. This is always recommended for samples. Why? This is the most cost effective way to send your samples. The courier companies will take care of almost everything for you. This is also by far the fastest way to send your samples. Why 40kg? Air freight is usually cheaper from 45kgs onward and usually from 40kgs, airline is able to accept it under the rate of 45kgs.
Now what if your order is bigger? It would then depend on whether your order is urgent. If the order is urgent and there is significant penalties for delays, you may have to consider air. This is provided there is sufficient budget allocated for this. Do note that air plane sizes are fixed and there are limitations on what airlines can accept as air cargoes. If cost is limited, then sea freight is the only viable option. Do note sea freight transit duration is dependent on many factors. There is a need to factor in enough lead time for delivery.
When to consider loose shipment arrangement?
If you are down to only sea freight as the viable option, how do you decide if you should arrange by loose shipment or by container shipment? If the freight is under your obligation, you would definitely want to look at the cheapest possible option. Loose shipment would be your best option. Why? Most logistics providers will aggregate out the total cost of the freight for the container and related charges like loading and port charges. They only charge you for the volume of your shipment. So you are only paying for the space your shipment utilize in the shared container. Here you have also the least headaches as you just need to send the shipment into the designated warehouse. The logistics provider will handle everything else for your buyer.
However do note that under this option, your buyer will have to pay quite a substantial amount at the destination. Why? The buyer needs to pay for the unloading and all the related charges at the destination as he would be collecting only the order. Everything would already be done by the logistics provider at the destination. When you send in as loose shipment, you collect it as loose shipment. Your buyer may have preferred logistics provider at destination due to various reasons. When this happens, it is likely some of the cost at destination is forwarded to your side at the origin. Hence, the agreed final sales terms plays an important role to avoid conflicts.
When to consider full container arrangement?
So when do you consider loading in a full container? As a general guideline, if the packed order size exceeds 10cbm, it is more cost effective to load the order into a full container. Why? The destination charges is charged by per cbm basis with a minimum cbm chargeable. So if the order is 10cbm, you can imagine how huge the bill will be for your buyer. It is not easy to get an order, would you want to lose any future orders? However if you arrange by full container, your cost on the other hand will be a lot higher than when you arrange by loose shipment. Why? Simply because now you have no one to share the costs with. You are paying for all the costs including loading and port charges on your own. Again, the agreed final sales terms plays an important role to avoid conflicts.
As mentioned before, the total cost of arranging the shipment from your factory or warehouse to the customer’s warehouse is the same no matter which sales terms is used. The only difference is how heavy the weighing scale is on your side or on the buyer’s side.