You found a China on a trade show like Canton Fair, the suppliers looked good and professional, you gave them business, sent the payment and waited to receive the products. However, one delay after another, months on, your stock and inventory is running out, but the supplier still didn’t make the delivery.
To solve this late delivery issue, firstly we need to know why the suppliers didn’t ship the products within the time limit provided in the contract.
1) Supplier is too busy, and you are not on the top of their priority list
Many buyers try to find big and established suppliers, despite their own business size and order size. They didn’t notice that big but busy suppliers often fail to catch up the deadline of delivery.
One of my clients has been buying car mats from a decent-sized supplier from East China. They buy one 20’ every month, the order size is not big, and surely not small.
The cooperation has been good. But since early 2012, the buyers can’t receive products in time; the situation went from bad to worse in recent months. The buyer become very frustrated and puzzled, why all of sudden, the supplier can’t deliver orders in time?
We did some research on the supplier, found that they received a big contract (10 million USD) from Kmart, all their production lines are occupied to produce the order from Kmart, the orders from small and medium sized buyers have to be postponed. The boss of the factory does hope to set up new workshop to increase the production capacity, but it can’t be done overnight, they need to buy land, buy equipment, recruit and train workers. It will take years.
2) With or without a contract, it makes big difference
Most buyers underestimate the power of contract. Aside from being used in lawsuit as evidence of mutual agreement in all aspects of transaction, more importantly, contract can be used as precaution. The contract set the boundary and limit so the other party won’t go beyond too far.
With a remind of a clause for penalty of delay in contract, the supplier will think twice when they delay the delivery.
3) The supplier is trading company, cannot control the production progress of factory
On trade show, many trading companies make up themselves to look like factories, without visit, you can’t tell if they are trading companies or factories. Trading companies and factories have their own advantages and disadvantages. Good trading company can manage the supply chain and production for buyer effectively and smoothly, but bad trading company could mess it up.
In one of our cases, the trading company lost control of the factory, which causes 5-month late delivery.
4) Delay caused by China customs
Before the products are loaded to the ship, suppliers need to make custom clearance at China Customs.
I am sure that many buyers are not aware that there are risks that China Customs might not release or even detain the products, which will cause late shipping.
a. Improper categorization of HS code
For most products, the suppliers can get tax refund from the government based on the HS code of the products. The tax refund rates vary from 0 to 17%. And because of that, many suppliers may use wrong HS code when conducting customs clearance, just to get higher tax rebate rate. For example, if I export door mats, these door mats are made of rubber back (70%) and carpet top (30%), if I use the HS code of rubber, the tax refund rate is 9%, if I use the HS code of carpet, then the tax refund rate is 17%. As the products are mainly made of rubber, so I should adopt the HS code of rubber when do custom clearance, however, many of the suppliers will use the HS code of carpet when making custom clearance.
If the customs find it out, they will detain the products until the supplier corrects the HS code and pays penalty. This procedure will take months to finish; the delay will cause huge loss to buyer.
b. Intelligence property rights protection
We have exported some gift products to a baseball team. On the gifts, the logo of sponsor Toyota was printed.
When we made the custom clearance through China Customs, we were requested to submit an authorization letter from the brand owner Toyota, giving us the authorization to use the logo of Toyota. We were not prepared for it, so the products were detained due to suspected intelligence property rights infringement.
We then contacted our client (who is a gift promotion company, who got the order from a Toyota dealer), our client then tried to contact the dealer, and the dealer tried to contact Toyota, so many people in the middle.
After 10 days, we got the authorization letter, we then submitted to the Customs, and then the products were released, but we have missed the vessel time.
If you are not sure that your products will infringe intelligence property rights of third party, you can inquire on the Intelligence property rights registration system of China Customs at http://www.haiguanbeian.cn/applyrecord/.
c. Mistakes on custom clearance documents.
Normally custom clearance documents are prepared by exporter, will be sent to shipping agent, and then forwarded to the brokers at customs for custom declaration.
A mistake on the document will delay the custom clearance (hence shipping, as the products won’t be released without going through customs). If there are mistakes,the suppliers will need to correct the documents, resend to shipping agent for customs clearance.