May 20, 2021
12 min read
Opinions expressed by Contractor the contributors are theirs.
Are you an entrepreneur? And you have found an amazing product that you want to sell in Mexico, but it turns out the factory is in China (or maybe the most competitive price), and you don’t know where to start. China is the factory of the world, and besides being vast, it can be overwhelming to navigate through all the details needed to be able to import .
Importing products from China isn’t complicated, but if you don’t do it right, you can lose all your money. Besides having founded Prestadero (a Fintech loan), I have founded two trading companies for over 10 years which import and export products, mainly from China. This experience allowed me to create this guide to give you some basic advice.
You don’t need to go to china
Many entrepreneurs believe that the first step in being able to import a product from China is to physically go to look for factories or go to fairs to meet with suppliers. This can be useful in some cases, but it is not absolutely necessary. Anything you can do physically, you can do for less remotely.
Do you want to make sure the factory is in good condition? Send an inspector to the factory remotely. Do you want to validate that the product has the quality you are looking for? Request a sample and have it sent by parcel (in general, many companies give you the sample and you only pay for the shipping; or if it is an expensive product, they will pay you for it when you buy large order if you end up hiring them).
INCOTERM is the international trade term, and it has substantial implications on the price (and on the limitation of the responsibilities of the buyer and the seller). This INCOTERM will tell you in a very simple way what the estimate includes.
When comparing quotes, it’s important to make sure you’re comparing pears to pears. For example, a quote of $ 10 EXW and another $ 10 CIF, they look very similar, but they are very different. The first implies that the product will be delivered to you at the original factory and that you will have to collect it and send it to the final destination at your expense (EXW or Ex Works), while the second includes the cost of transport and insurance. (Cost of insurance and freight). Normally, INCOTERMs are accompanied by the destination port or address; For example, CIF Manzanillo means that it includes freight and insurance up to the port of Manzanillo.
The most common INCOTERM when listed in China is FOB ( Free on board ). For example, FOB Ningbo, which implies that the quotation includes loading the product into a container and putting the ship on board in the port of Ningbo.
Don’t underestimate the “extra” costs to import your product
What you pay the supplier is only part of the cost. Even being such a remote country, there are times when the freight and import is more expensive than the product, so this should be taken into account. I am mentioning here some of the costs that can impact the cost of your product placed in your home or warehouse:
This is the main tax, called the General Import Tax (IGI) that you have to pay to import your product, and it will affect its cost. The complicated thing here is that this tax is a percentage of the value of the product, but it is not a fixed percentage, it depends on its tariff classification and the country of manufacture. For example, the IGI for toothbrushes made in China is 15%; electric razors, 15%; fishing rods, 10%; artificial Christmas trees, 15 percent.
You see, each type of product has a tariff classification, which will give you not only the IGI to pay, but also the import requirements and restrictions. The first thing to do is to find the tariff classification of your product (or to seek the help of a customs officer), in order to know the import requirements and the tax to be paid (a page that can help you is the next one). Although there may be other taxes such as Customs Procedures Act (DTA), ISAN (cars) or IEPS (alcoholic beverages), IGI is the main tax that impacts the cost of your product.
You will have to pay 16% VAT on the value of the goods when entering the country. You are not spared from this tax, but the good news is that this tax shouldn’t affect the cost of your product, just you should consider it in your feed / investment. In other words, if you import a product in 100 pesos, you will pay 16 pesos of VAT when it enters the country. Now suppose you sell it for 200 pesos + VAT (232 pesos). By declaring to the SAT, the VAT collected on the sale (32 pesos) you can offset the VAT paid on the purchase (16 pesos), so that your gross income is the same 100 pesos (200-100 pesos) and the VAT that you paid during the importation (16 pesos) you recover it with the VAT collected during the sale (32 pesos), paying only the “surplus” of 16 pesos to the SAT.
This cost is significant, and if the purchase volume is high, your only viable cost option would be ocean freight (they usually arrive from China to Mexico at the ports of Manzanillo or Lázaro Cárdenas). This cost can vary widely (I have seen ocean freight costs ranging from $ 1,500 to over $ 10,000 per container).
My recommendation is to try to optimize your shipments in a container, so as not to carry empty space. While you can also share space with others in a container, called LCL (Less than Container Load), I don’t recommend it, as deconsolidation costs at the port are usually more expensive than renting a container full, even if it is not 100% full. For all this operation, you can contact companies called “freight forwarders” who help you in this operation. But from the number of parts to import with your supplier, you need to quote so that it occupies the optimized space of a container (there are different sizes of containers).
This is usually not such a large cost, but it is important to take it into account. Often, this is a percentage of the value of the commodity (0.5 to 1%, for example, but it also depends on the type of commodity). Your forwarder can quote you insurance.
This is a cost that the freight forwarder can also coordinate for you, and it is the cost of transporting the container from the destination port (for example, Manzanillo) to your warehouse (for example, Mexico City). It can be by train or truck, or combined. If your merchandise arrives in Manzanillo and you want to take it to the metro area, that cost is typically between $ 1,000 and $ 2,000.
These costs may include maneuvering at the port of destination, cleaning the containers, reviewing the goods at destination, any delays (if the import takes a long time), customs agent fees … It is preferable to provide a percentage for any incidents or additional expenses. If everything is well planned, this% should not be more than about 3%.
Avoid making mistakes on import requirements
This is the point where you should be more careful, and it relates closely to the pricing section we discussed earlier. Depending on the classification of your product, there will be certain requirements that you will need to meet, and if you are unsure, better to speak to a customs officer before making payments, as this can be the most expensive. from an import or may even cause you to lose your merchandise and your money (I tell you this from experience!). Some of the most common mistakes at this point are:
Depending on the tariff section, your product will (or not) require certain labeling regulations. The most common is that it requires general information, such as country of manufacture, content, importer data, among others. However, there are products that require very specific labeling, such as textiles (label affixed with composition, model, importer, maintenance, etc.). If they are not properly labeled originally, you will have to re-label everything in Mexico (extremely expensive). And if you haven’t reported it and have customs recognition (red light, say), you may be fined more than the cost of relabelling.
If your product infringes on someone else’s intellectual property, at best you won’t be able to import it, but your merchandise could also be destroyed and you could be prosecuted. For example, do not invent a brand name without first checking whether it is registered with IMPI; do not copy the designs of products already registered or patented, among others.
In addition to the requirement for correct labeling, some products require special permits or compliance with additional official Mexican standards. Double check the pricing section of your product and all its requirements before importing. Sometimes you even need to request a specific importer register (if you or your business is importing) for “special” products, such as textiles, shoes or alcoholic beverages.
One of the concerns I’ve heard from entrepreneurs looking to import is the risk of fraud. What if I pay them and they run away with my money? What happens if they do not send me the agreed products or if they send me less quantity? Here are some final tips for dealing with this risk:
Perform due diligence on your supplier
You can use commerce pages (like Alibaba.com) where you can see information about the vendor, their transaction, the time they ran, as well as photos and reviews.
Send an inspector to the factory
You can do this remotely (for example, Bureau Veritas is a company that can provide you with all kinds of inspectors). This inspection can be done to give you general information about the factory, and also as a surprise inspection during production, or final to determine quality, etc.). It is a tool that I recommend, especially if the customer-supplier relationship is new, to validate that they are not hoaxing you.
Partial payments in advance and settlement
Generally, in China, 30% deposit and 70% are requested at the end of production. This will allow you to inspect your merchandise before paying the remaining 70%.
Use letters of credit, “escrow” accounts , or similar services, which will allow you to have the protection of your money in accordance with the established production steps
Alibaba.com has a service called “Trade Assurance” which gives you some protection when signing a contract online with the supplier, in addition to providing you with a validated supplier account to complete the transfer which will prevent you to deposit in bad or fraudulent accounts.
As you will see, there are several factors you need to consider when importing (not all of them are here). I would have loved to read these tips when I started, so here I am sharing them hoping you will find them useful. Again, I think it’s not complicated, but you have to be informed. Contact a forwarder and / or customs officer to help you if this is your first time importing. Their experience can also save you several mistakes.