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Episode 25: Sourcing Inventory From China and US, Part Two

This is the second part to our importing and shipping series.  Last episode we discussed the benefits of going with domestic manufacturer and all the challenges that comes with that. Today we discuss the process of ordering and shipping from overseas.

When you get your shipment from overseas like from China you have two options you can go FOB (Free on Board) or EWX shipping. Free on Board is delivered to the airport or port and is loaded based on priority. EWX is loaded up by the manufacturer and available for pick up. We tend to go with FOB because it’s often included in the overall price.

Deciding which type of shipping is just the beginning. We talk about the whole process and how to approach business overseas.

The topics we cover today are:

  • How to avoid unexpected charges
  • The importance of inspections
  • How to haggle for the best price
  • Mike and Grant’s missteps in the shipping process

We have decided to make this a 3 part series. So next time we will discuss how to choose the right manufacturer.

If you have any questions or anything you’d like us to discuss on the podcast please go to and fill out the contact form. Also we would really appreciate if you would leave us a review on iTunes. Thanks for listening!

Full Audio Transcript

Mike:   Hi, this is Mike.

Grant:  And this is Grant.

Mike:   And welcome to this week’s episode of the EcomCrew podcast.  This week we’re comminuting on with part two of importing.  We’re mostly going to be talking about China because that seems like the import place of choice, but we also do import from other places as well.  We’ll be talking about some of that.  Last week we talked about shipping mostly, which is interesting.  Obviously a lot of people start thinking about finding manufacturers and actually the products and all these different things, but as we mentioned, we kind of talked about shipping first just because it’s something that we didn’t really think of until it was actually time to ship and then you realize that shipping can be a pretty expensive part of the endeavor.

And yeah, now, whenever we’re looking at things from China we look at the all-in price landed to our door or landed to Amazon, depending on where we’re going to be selling it.  And that obviously gives you a much better idea of the cost.  And luckily we haven’t had a situation where we’ve run into a thing where we’re losing lots of money because of shipping because we’re always looking for at least 100% return.  So it’s stuff that’s 80% to 100% markup but it isn’t something that we ended up taking a huge risk on, with the exception of one item that had a large tax on it.  But besides that, we’ve done pretty well.

So real quick, just mentioning again, I think this is the last episode before we give away our hour of free consulting.  We might do it again next week before we close it off but if you leave a comment on this episode or the previous four episodes now, we will randomly choose a person and give away an hour of consulting if you are subscribed to our newsletter.  So please go over, subscribe to our newsletter.  We give you great stuff anyway, whether you want the free consulting or not.  Lots of good information.  And with that, let’s hit up this episode.  Grant, what do you want to start off with now after we’ve talked about shipping?

Grant:  Well, I think last time we left off, we were talking about shipping and to kind of recap, we talked about LTL and domestic shipping and why you should kind of go with a domestic supplier; even though it might not seem like it might be the cheapest route, it might actually be the most beneficial for you time.  And then we talked about going overseas and talking about getting a container load and the price of not really being what you see quoted versus what you actually end up paying, so kind of the sticker shock.

So now I think we can kind of talk about dialing it back from the container load to what realistically most people are going to do, LCL, which is going to be less-than-container-load, which is pretty much the same as LTL, which is less-than-truckload but instead of a truck you’ve got a container.  And we can kind of go from there and then kind of segue into sourcing.  That sound pretty good?

Mike:   Works for me.

Grant:  Okay.  So let’s talk about LCL and how it differs from LTL.  And really what it comes down to is that you’re moving a pallet at the end of the day and when you get it from a manufacturer in China, they’re either going to ship it to you one of two ways.  And we’re assuming we’re not talking about air cargo anymore at this point.  So you get it on a pallet and – well, actually, I should take one step back even because when a manufacturer makes your product, they’re going to give you an option that says, “Well, we can either take care of all of the shipping for you,” which would be great.  They’re going to build it into their cost and for the most part, I’ve found that a lot of manufacturers in China actually do have fairly decent shipping rates, and that’s if you want to use one of them.  I personally believe that you should use your own broker and keep your shipping in-house because it’s a little bit safer that way and you’ve got another person kind of monitoring your shipment, so to speak.  And I don’t know, Mike.  Do you agree with that sentiment or –?

Mike:   Yeah.  Like 1,000%.  Yeah, you’re dealing with someone here, stateside, that’s focused on that.  This is like their thing [inaudible 04:59].  I mean obviously a manufacturer’s business is not shipping.  I actually found that doing it that way is a little bit cheaper.  I mean most of these guys in China are looking to mark up anything that they can and I’d just rater have someone that’s specializing in it.  And I’m consolidating all of my shipments with one company now and developing a relationship with them, any by doing lots of shipments, they seem to care about me more and as I give more and more business to them, I hope to get better rates and have someone that I can pull a favor with if I need something much quicker or any of those types of things.  So I definitely think that using your own shipper’s the best.

Grant:  Mm-hmm.  Yup, I’m in the same boat.  And you have the options of using a stateside broker or an international broker and really, the big difference is that – and I’ve used both – if you use somebody based out of America, you’re probably going to be paying more and on the other hand, you are hopefully going to get a better level of service in terms of having them explain to you everything, whereas if you use a Chinese broker, generally they will charge quite a bit less, but on the other hand, if anything happens, good luck.  They’re not really looking out for you.  And I’ll kind of walk over two of those examples later.

But, so going back when you get your products made, you’ve got the option of having your manufacturer kind of take care of it for you, which, again, is not really what we recommend, or you’ve got to take care of it.  So when you take care of it, you’ve got two options that are going to be the most common.  And that’s going to be FOB, which means free on board.  It’s a term from the old ages of when the Dutch trading companies or like the Hudson Bay trading, all those kind of like old-school naval traders.  It literally means for you package to go over the first rails on the side of the boat.  So it’s free on board.  What free on board or FOB means is that the manufacturer will leave you package or your pallet at the ports, the airport or the dock.

Mike:   The cargo port.

Grant:  Yeah, exactly.  And then at that point, it’s out of their hands and it’s up to you.  So that’s where your broker comes in.  The other one is Ex Works or EXW, and what that means is that you’ve got to pick it up a t your manufacturer’s warehouse or wherever.  They will make it, they will hopefully palletize it for you instead of just kicking it out the door or something like that.  Generally, they’ll load it for you and all that kind of stuff.  We haven’t really – well, at least I haven’t.  I don’t know about you, Mike.  Have you encountered a manufacturer that just like tells you to do everything for it?

Mike:   So it depends on if we’re doing a full container or not.  If it’s a partial container, LCL, we’ve been doing FOB.  And we always get FOB pricing anyway, but if it’s a full container, the shipper will drop the container off at their door and it’s loaded there because it doesn’t go on a pallet; it’s just floor stacked and inside the container.  So that just depends on the situation for us, but we always try to get FOB pricing and have it delivered to the port if it’s LCL.

Grant:  Mm-hmm.  And most people generally, in China especially, try to get FOB and really, if your need is shipping for international, you should always try to get FOB.  EXW’s a little bit more advanced.  I’ve done probably half of my shipments EXW and it’s always been a pain in the butt, and the reason is that you’ve got to pay duties before it gets exported out, and in China, there’s a lot of duties that get paid.  So when the manufacturer is shipping on FOB terms, then they pay the duty and that’s all kind of built in.  So one of the thing that some manufacturer’s will try to game you on is that they will say, “Okay, I can get you let’s say a $5 t-shirt for example.”  Yeah, let’s just say it’s a t-shirt.  That’s kind of expensive for a t-shirt but we’re just going to say it’s $5.  And another guy will say, “Hey, hey, hey.  I can get that to you for $3.”  And you’re like, “Wow.  $3.  That’s awesome.  And you realize the other guy’s quoting you on EXW and the other guy’s quoting you FOB.  And the EXW guy’s in like the middle of nowhere.  I mean he is like 2,000 miles inland of China and he’s got a little hut somewhere that they’ve got to truck it out.

And you might think, “Well, everything is cheaper in China.”  Well, fuel costs the same and labor might be a little bit cheaper, but if it’s going to cost some guy 2,000 miles to drive that out, you’re still going to end up paying like $500 to truck that one pallet out to the dock and then you’re going to pay your duty on it.  So sometimes you’re not really winning.  So FOB matters a lot and you definitely want to make sure you’re negotiating on FOB terms instead of EXW and a lot of times, some guy will kind of slip that in there and be like, “Oh, this is EXW.”  So you want to be really clear right off the bat whether it’s FOB terms.  And I know with you, Mike, you said that you do mostly FOB but did your guys ever start quoting off EXW or was it always FOB?

Mike:   No.  It’s always FOB.  I mean I guess you could say it’s like a modified EXW or whatever because the container’s being dropped there but it’s FOB pricing so they’re handling any duties or any other BS.  I mean they’re taking care of all that.  We make it easy by dropping the container there again, so it’s not getting loaded a second time.  Like otherwise, it’s on pallets and it ends up having to be taken off the pallets and put into a container at the port and we’re trying to avoid that step.

Grant:  Mm-hmm.  So you have mentioned kind of like horror stories before so I’ll kind of go over one of my horror stories of like something that completely did not go the way that I expected.  So I had a container that was shipped to me and it was EXW.  So I had it loaded up with a container at the manufacturer and I told them to palletize it up and send it over.  And they said, “Okay, yeah.  Sure.”  And so when I got it over here – and I was also using a Chinese broker on this one and I said, “Hey, make sure that you send this as a container instead of LCL.”  And they were like, “Well, you know, we can quote you on a LCL instead.”  And I said, “Why would I do that?  I’ve got 16 pallet positions,” and in a 20-foot container, you can generally hold about 20, 22 pallets depending on how big they are.  So with 16 pallets, I’m definitely wanting to get a container because I don’t want my orders all over the place and who knows what’s going to happen once it get split up?  I don’t want some guy with fungal rot sharing the space next to me in the container so I just got the whole thing.

So anyhow, I end up getting the container over here and the local shipper, they’re like, “Okay, are you ready to get this container delivered to your place?”  I’m like, “Wait a minute.  I don’t really want a container delivered.  I put it on pallets inside and I expect it to be trucked over and put down on a lift gate and then I can bring it into the warehouse.”  And they said, “Oh, it’s floor stacked.”  And I go, “Oh my God.  Floor stacked.”  So it was already on a truck and so it was the guy on the truck that was trying to call me to deliver it.  So I had to take it back to a warehouse somewhere and so they charged me for the trucking fee, they had to charge me to unload it, to re-palletize it, and then put it back on the truck and then take it out to me and then with all these fees and everything.  So it ended up adding about 30% to my cost and it took about – it was that $2,000 container that I mentioned previously and it added about $800 to it so I think my total order for that container in terms of goods was about $12,000.  So it went from $12,000 to another $2,000 for the shipment plus another $1,000 because of this one “little” screw up.  So you just kind of have –

Mike:   About 20% on top of your order there.

Grant:  Yeah.  Exactly.  So it ended up kind of hurting quite a bit and it’s something I’ll learn never to do again.  And I don’t know.  What your horror story now, Mike?

Mike:   Yeah, we’ve been pretty fortunate especially since we moved warehouses.  We’re in a much better location so they can drop containers here and we purposefully have stuff floor stacked.  I mean first off, you’re going to end up with more space in there.  We’re using the whole container so we’re making sure that goods don’t get damaged.  I mean I think the biggest horror stories I have I think have been on like a more recent shipment.  We just got a six-pallet order come in from China.  It’s our first time ordering from this manufacturer so we didn’t get a whole container load and the stuff was just worn by the time it gets here.  I mean I don’t know what these guys are doing with it but it’s getting kind of slammed around and palletized, re-palletized.  I don’t know exactly who’s doing what to it along the way, but like a lot of the stuff was pretty crushed.  I mean like the boxes – you know, we have all customer boxes made and stuff and I’d say we probably lost somewhere between 5% and 10% of our inventory on the shipment to just being crushed.  We can still sell it and probably will still throw it up for sale but it just doesn’t look good, which we might throw those items up on eBay or something and just kind of mention the box was crushed a little bit but it’s all brand new.

But that’s really been the worst thing that’s happened to us as far as an actual shipping thing.  I mean, again, we’ve been pretty lucky and now that we’ve been consolidating stuff in our own containers, the pencil shipment that we’re about to do for instance, we’re getting two containers total and we kind of learned our lesson: those are delicate.  We had I’d say probably about 3% to 5% of our pencils on our first order, people were complaining about the leads being broken inside and I’m pretty convinced that’s from them being jostled around in shipping.  And so this time we found out exactly how many pencils fit in a container and that’s the order we placed.  And that way, they only get handled one time.  They’re going to get from the manufacturer into the container.  We’re going to have them inspected obviously like before we schedule shipment and then we’ll also have someone there – an inspector – watching them get loaded because we want them to be loaded gently and make sure that the whole container is actually there.  and I expect by the time it shows up at our doorstep that everything will be in perfect condition.

So yeah, I mean I know just from talking to you, Grant, and seeing some of the inspection reports that you’ve had, that we’ve had it just luckier and I’m waiting for the meteor to fall out of the sky and hit me on the head.  But yeah, the biggest things that we’ve had we kind of talked about on the last episode.  For me, the biggest horror stories that we had (if we’re talking about horror stories) have been the unexpected either shipping charges and/or unexpected duty charges that we just don’t let ourselves get in that position anymore.  We’re always asking those questions upfront, even if it takes us an extra week or two to get the information before we place our order.  It’s just proved out to be the questions that are worth asking upfront.  So that’s really all that’s happened to us.  I mean I know you’ve had much worse.  I mean you’ve had stuff show up – like I mean I know one time you had half of those cutting boards just like cracked in half and it was like, “How the heck did they even do this?”  We’ve been lucky.

Grant:  Yeah.  That was the fun one from Brazil and they actually had a 96-inch by 48-inch pallet that was actually crated and it was actually a wood crafting company out of Brazil in the Sao Paolo area and they built their own crate for it and that pallet at the bottom was split in half and the crate was crushed on top.  I mean it looked like they just like dropped a container on top of this sucker.  And it takes a lot of force to break horizontally-stacked wood.

Mike:   Yeah, it wasn’t marble.  I mean it was wood.

Grant:  Yeah.  It’d be like if somebody dropped a stack of paper and like I cracked the paper.  Like, “What?  You did what?  Is that possible?”  So yeah, I don’t know.  It’s just things happens and I know we’re talking about like a biggest scale over here in terms of container shipping and most people are going to be doing LCL and you might kind of wonder, “Should I really get it inspected?”  And the very first order I did I still got that inspected and I think was doing around a $3,000 to $4,000 order which fit on one pallet, and at the end of the day, I kind of did the math and I just said to myself –  well, I didn’t go with one of the very high-level inspection agencies.  I just got a local company in China and I just found them off Alibaba and they were about $120 for a man day.  And what a man day means – it’s kind of a funny term but I’ve only heard it in the inspection world.  I don’t know about you, Mike.  Have you ever heard of man day anywhere else?

Mike:   Yeah.  I mean I think it’s like man hour, man day.  I’ve used that term before here in the U.S. just kind of for labor and stuff but it’s usually like a labor-related term.

Grant:  Okay.  Well, it’s the first time I’ve ever heard about it anyways, and I was like, “How long is a man day?  Like do they work as long as I do?  Is it 14 hours or like –?”  No, it’s only 8 hours and a man day means that they’ve got one guy over there (or girl) just doing any one thing, like checking all of your product or going through.  And for what it’s worth, I paid $120 and got a really, really good value out of it.  This one was for like clothing and whatnot.  They actually weren’t able to go through every piece of clothing, but I actually had them go through about 30%, which is probably overkill when I think about it now because you probably only need about a 5% to 10% to really be able to figure out if the quality has some issues.  But they went through about 30% of all my product and took a smattering of pictures and everything and I was pretty impressed by that and I kind of realized like these people really do know what they’re doing and there’s a lot of like things that they look for that you don’t even think about.

I was very impressed and Asia Inspection, I was even more impressed.  I mean you’re kind of paying a lot for them but I felt like I got a very good value and I think –

Mike:   I think they’re $309 a man day, right?  Is that the right number?

Grant:  I think it depends on what you’re doing, but yeah I think that might –

Mike:   For like the product inspection.  Post-production product inspection.

Grant:  Okay.  Yeah.

Mike:   I think it’s $309.  Which, to me, seems like a really good deal.  I mean that includes them getting someone out there, lodging and everything if you have somewhere out there for two days.  I mean it includes all the hotel and transportation and everything and I don’t believe they charge you for the transportation time; I think it’s eight hours of them actually on-site, which is pretty impressive considering some of these factories are not necessarily near where they’re sending people from.

Grant:  Yeah.  And like Mike said, Mike hasn’t really had a lot of issues, “I’m just lucky,” but I had issues with both of my first factories and the inspectors pointed out there was like a 20% defect rate and I paid $120 to figure out that I had $600 dollars in bad product.  So I told them, “Hey, you guys have got to get this fixed,” and to their credit, the manufacturers, without really batting an eye, just said, “Okay, yeah.  Sure.”  And the thinking that I almost got from that was they’re so used to either having an inspector or somebody saying, “Hey, this is bad,” that they just fix it without really like messing around or trying to argue with you.  And maybe I’m lucky in that regard but –- and

Mike:   I actually think it’s the opposite.  I think they’re trying to get away with anything they can.  Like I think a lot of people just don’t do inspections.  I don’t know.  Maybe I’m wrong about that.  It’s just I’ve heard a lot of bad – and I’ll talk about my inspection stories as well when you’re done chatting about that here, but I don’t know.  Maybe it’s the pessimist in me.  I just think that quality control in China’s not what it is here and stuff comes off the line and they’re like, “Well, if we can get away with sending this and getting paid for it, we’re going to try.”  I think that’s kind of the mentality.

Grant:  Yeah.  Well, no, that’s what I was going to really go for.  I was going to say that they know that once you get an inspection, they’re going to have to like fix it, but otherwise, if you don’t get an inspection, then they’re just going to cut every single corner that they can knowing that they can do it.  So it’s one of those where you kind of wonder, “Should I keep getting an inspection after the first time?” and to me, the answer’s yes because the fact that at least my manufacturers were so just ready to fix it once I told them the problem, it makes me think that unless I keep on it, like they’re just going to keep having that.  And I’ve read like three books on Chinese manufacturing and outsourcing and every last expert keeps saying that the biggest problem with China’s that the first one, two, or three orders are usually the greatest and then after that, the quality starts going down.  Whereas in America, you say, “Hey, these guys really make me a lot of money.  I should keep doing good business with them,” in China, they’re like, “Well, we’ve got them hooked now.  Now we give them the crap stuff.”

Mike:   Yeah, I’ve heard that same thing.  I mean I’m in a lot of masterminds and I’m obviously in the ECF forums and this is a common theme.  So definitely anybody listening, beware and also don’t feel like you’re being slighted or you’re special.  It seems to be the way that it is.

Grant:  Yup.  And if you look at just the big companies like Lumber Liquidators, I mean it happens to them too.  Like I don’t think any one of them ever decided that they were going to get a bunch of bamboo with formaldehyde that was going to like poison kids and whatnot, but it just happened.  And I bet they probably tested it when it first came out independently, and at some point, they’re like, “Well, we just trust them to keep testing it,” and that goes along with another thing: you should never, never, ever trust your manufacturer to test, and there’re a lot of reasons for that.

Mike:   Yup.  And just kind of a pro tip here – I mean this might be something that you’re already doing, Grant, or maybe it’s obvious but – when I first started bringing stuff in from China, I didn’t have an inspector lined up obviously and they didn’t have a shipper lined up.  It was like just always kind of operate off the cuff with a lot of stuff and figured, “I’ve got a zillion things going on with my life.  I’ll worry about that when the times comes,” and obviously, when the thing was ready, then I found an inspector and I found shippers.  But what I’ve actually found now in my like SOP here, standard operating procedure, is to let the manufacturer know before I even place the order, like before I even pay the pro forma invoice, put the deposit down, that I’m going to be doing an inspection.

And then like as soon as we put the deposit down, I actually get the inspector in touch with the manufacturer right away.  So like, “Here’s who we’re going to be using for our inspection company.  If you have any questions, you can contact them.  And then here’s who we’re going to be using for shipping.”  And what I’ve found now is that if you tell them that upfront, it seems like the quality is better.  We’ve had less problems.  Like I look back at order where I didn’t let the company know that we were going to be doing an inspection until it was time to actually do the shipment and they were like, “Oh, you’re going to do an inspection.  Okay.”  And you can kind of almost sense like, “Oh, crap.  Maybe they’re going to like notice these problems,” versus I tell them upfront that quality is incredibly important to us, which it is.  I mean we’re looking to get a really high quality product, five-star product consistently and we tell them upfront that Asia Inspection’s coming out there for X number of man days and to please prepare for that as a part of our shipment in coordinating everything and we’ve just found that we’ve had way less problems because of that.  So it’s something that I highly recommend.

And Asia Inspection does a lot of other inspection services as well.  We haven’t used them all, but they also so like a factory audit inspection, so before you even place your order, if you’re concerned that the factory might not be legitimate or it’s like some shack in the back of the wall and they’re not going to be able to produce a good product, you can send Asia Inspection out there and they’ll basically do a report on the factory for you.  You can do not only a post-production inspection of the product, but you can also have a loading inspection, where, if you’re getting a full container (which is what we’re doing for most of our shipments now), even with someone that we’ve worked with, we spend the extra $300, we have someone stand there and just watch the container get loaded and the padlock be put on the container.  It’s like anything else.  If you’ve ever bought travel insurance, which I don’t do because I can self-insure a $1,000 plane ticket, but I can’t  really self-insure a $100,000 order or a quarter-million-dollar order.  If that goes sideways, we’re pretty screwed.  Like I mean we don’t have that kind of capital to just be throwing around.  So for $300, it’s a very small percentage of the order and I have peace of mind that what’s in the container it’s buckets of bolts and that what’s in the container is a high-quality product that’s been inspected.  And I think that letting them know upfront is a very prudent like SOP.  Do you do it that way, Grant, or is that something that you recommend?  What do you think?

Grant:  Oh yeah.  I swear to God I was the one that beat that into you.  But –

Mike:   Maybe.  I mean you’re definitely the one that beat in me the cargo loading thing and getting an inspection at all for sure.  But I had never really done anything in Asia and you buy something in the U.S. and this isn’t SOP at all.  You don’t order something from a manufacturer and have an inspector go out there and take a look at it.  So it’s not something you would ever do in the United States.  And I was like, “Okay, fine.  I’ll go get an inspection.  What the hell?”  And even with what I was saying when you tell them upfront, I’ve still get to get an inspection that’s just like five stars, glowing, everything’s perfect.  That doesn’t happen like ever.  It seems like even defective stuff they still try to get it on your order.  But at least I do believe that they tell the workers like, “Hey, spend an extra like 30 seconds on each one of these are you’re sewing it because they’re actually going to come out here and inspect this stuff and we don’t want to have any returned on us or have to throw them away.”  So I do think that that’s important.

But the inspection reports that they do for the amount of money they do charge, which I think is really reasonable, are incredibly comprehensive.  I mean it’s a 30-something page report with pictures that they’re taking onsite.  It’s not like they’re cutting corners.  I mean they’re out there onsite, they put like little labels and stickers and arrows and like all kinds of things that show you specifically little dings, scuffs, imperfections, whatever.  and I think it’s definitely really prudent and yeah, I definitely appreciate you beating it into my head, Grant, because I think what probably the reality is and how I seem like to always operate, the first time I would’ve gotten an inspection would’ve been the first time after a $100,000 shows up that was like a disaster and I’m like, “Crap, we probably should start doing inspections moving forward,” if I was able to not go out of business for losing a $100,000 order.  So yeah, I mean I think that if what I’m saying hasn’t gotten through to you and Grant hasn’t gotten through to your head, then just don’t import from Asia because if you’re not going to get an inspection, it’s just too dangerous.

Grant:  Yeah.  And one of the things that I kind of want to take a step back and talk about too is just the mentality going in.  And I’ve traveled a lot in my lifetime, not just for business but just straight traveled, and Mike’s traveled too, and it’s a very interesting thing.  When I walk into a department store in America, like a Macy’s, and I find a shirt that I like, I don’t go to the register and go, “Hey, you’ve got it for $40 but could I have it for $20?”  The cashier would just look at you like you’re an alien, like, “Are you serious?”  You don’t go to Macy’s to negotiate, but somehow when a lot of Americans go overseas, or just anybody really, I’m not going to pick on Americans here, but a lot of people go overseas to a place like Thailand or Vietnam or just any country that you might think to be a second world or third world country and suddenly you go there and you look at a shirt and it’s like $7 and you really like it and you go, “Hey, can I have it for $3?”  And a lot of that is this expectation that you’re supposed to haggle and it’s going to be just rough and tumble.  You know, and a lot of people just get really, really into it.

At the end of the day they’re like, “Well, how about $2.60 or how about $2.50?”  And at some point, you’re just splitting hairs because in America, you would’ve paid $40 for that shirt that you really liked and now you’re arguing over like 50 cents and making some guy’s life miserable.  And I’m not saying this in some kind of way to say that, “Hey, you should just take whatever price you can get,” but at the end of the day, you’ve got to keep the big picture in mind over here, which is that you’re over in Asia or you’ve over wherever you’re importing from so that you can cut your margins down.  But like if you’re trying to save pennies and ignoring these big quarters, you’re kind of looking at it the wrong way.  So that’s why me and Mike are very, I think the politically correct way to say it would be thrifty instead of cheap.  But we’re very efficient and thrifty people and we don’t like paying for anything more than we absolutely have to either but the problem is I realize like if we don’t get inspections or if we don’t get insurance on cargo, I’m the idiot.  I’m not the one that’s being smart by trying to save a little bit of money here and there.  I’m just a complete idiot if I lose this container or it gets hit by like a tidal wave or whatever and it goes lost overboard.  Or if it disappears out of the back of a truck and I didn’t pay for insurance or whatever, I’m the idiot.

And I don’t like paying for more than I need to but at the end of the day, there’s a cost of doing business and if you don’t pay the correct cost, it will come back to bite you.  And it’s not 100%, but it’s really just like speeding.  You could speed 100 miles per hour all the time.  Sure, you get somewhere faster.  You might call everybody in the 60MPH zone a chump, but once you finally get caught, it really depends like how bad that penalty’s going to be.  So anyhow, I’ll shoot it over to Mike at this point.  That’s just kind of my food for thought over here.

Mike:   Yeah.  I mean I couldn’t agree more.  But you brought up a really important part about negotiation.  It’s incredible like how much you can get off the initial price.  If you pay the initial price that someone’s given you on a quote, you’re nuts.  It’s taken a while to realize like how much you can get down.  It’s pretty incredible.  So yeah, it’s definitely really prudent to get the price down and to negotiate and you might be able to get 30%, 40%, 50% off an original quote.  I’ll give you a really good example.  Actually it’s something that’s happening right now.  We’re working on developing some baby clothing.  We’ll be talking about that a lot on this podcast in the next six months as we’re developing this new brand.  And we got a price that I thought was really good from China and we placed the order and we’ve been in the process of getting these initial few products in.

We’ve been talking to people in Guatemala and over in India.  We’re looking at other manufacturing.  And we’d tell them a price in China that we got and they’d be like, “Well, we can beat that if you want to order from us,” and they told us that price and then the other company was like, “Well, we’ll beat those two prices.”  And then when we went back to our supplier in China, they were like asking when we were trying to place our next order and we were just candid with them and said, “Look, we’re probably going to move on to someone else because we just can’t afford your pricing.”  And they’re like, “What did you get from these other companies?” and we showed them the quote and they were like, “Well, we’ll beat that.”  It was just like, “Oh my gosh!”  We already got the original quote down by like 30%.  We thought we were getting a good price and it seemed like a good price but it just kept on – you know, there’s even more room to go if you really push them to have some more leverage.

And I was really surprised.  It reminded me of like back in the day when we were negotiating LTL trucking rates in the U.S. with like UPS Freight and then we realized like six months or a year later how much there was to save on trucking rates and a lot of that can be the same with these manufacturers.  So yeah, there’s definitely room to negotiate and, as Grant said, it isn’t just like walking into Macy’s and the price is the price.

Grant:  Yeah, so going to China and talking about the negotiation like Mike was saying about getting a discount, in my experience – and me and Mike might differ on this – normally when I negotiate, I try to go and make a win/win situation where I tell the manufacturer, “Hey, listen.  So you’ve shown me your deal over here or your pricing.  What would it take for me to get 10% or 15% or 20% off that?”  And that usually opens up the dialogue of, “Well, I’m expecting a discount here and how much will it take?”  So they know that I’m not just saying, “Hey, I’m not just going to try to slash you down on the price and not tell you how much I’m going to order.”  I just say, “Hey, I’m lobbing it to your side.  20% off, how much do you need me to order?”  And you normally don’t even hear anything back that says, “Oh, we don’t do that at all.”

But in my experience, most of the people that are getting the pricing only go down about 10% to 15% or so and they usually stop right there.  So it makes me think that generally the pricing that you get, especially if you go off a place like Alibaba, is pretty competitive and I think they know that you can go around quoting a whole bunch of people.  And I’ve often done the other route where most of the time when I get a quote, I won’t really follow up for a good month just because I kind of pingthem a few times and kind of keep them on the hook saying, “I’m interested but I’m not really sure about the pricing,” and it’s really like how I negotiate for cars.  I never walk into a dealership and buy a car.  I always walk out because when you’re walking out, that’s when they give you the best price.  So I walked out plenty of times on manufacturers in China and a lot of them just let me walk out, so I often felt like they are generally very, very close to their low price point when you talk to them.  What’s been your experience, Mike?  Have you always been able to get like a much better rate just shopping around?

Mike:   Yup.  We really have.  You mentioned Alibaba.  I think you’re probably right.  I think that Alibaba, that ecosystem is just so easy to go from manufacturer to manufacturer and get lots of quotes.  I think the people know better than to give you a higher quote.  But I’ve found that the best manufacturers don’t hang out on Alibaba.  I mean we actually don’t work with any manufacturers anymore that we have found on Alibaba.  I find that the best manufacturers, or I should say the better manufacturers, are hanging out at places like the Canton Fair or the Hong Kong Fair or one of these other types of fairs and that the best manufacturers aren’t like even asked to go to those fairs.  I know like the best manufacturers that we’re actually getting ready to place an order with, I mean they’re a massive manufacturer and they don’t bother going to any of these fairs.  They don’t need that kind of business.  They’re just a premier manufacturer over in China.

So in the Canton Fair ecosystem or any of these trade fair ecosystems, I think it’s a little bit different.  I think it seems like the negotiation tactic is more in play, and that just seems to be like an Asian culture thing.  I mean my wife is Asian, obviously Grant’s Asian.  I know kind of some of that culture and it seems like negotiation like you were mentioning earlier, Grant, is just kind of built into how they do things there.  If you think about like going to an Asian market, everything’s negotiable.  Like you’re going to go buy a fish at the Asian market or scorpions or snakes or something like we saw over there, you’re expected to negotiate with them.  I don’t know, maybe it’s just random luck of the draw for us that we’ve had to negotiate and they haven’t really given us the best price.  Maybe they see an American walking in and think they can stick it to us.  I don’t know.  But we’ve definitely been negotiating quote a bit and like I said, even when I thought that we had a great price, it seemed like there was still lots of room to go with this one particular manufacturer.

Grant:  Mm-hmm.  Yup, that is interesting.  So yeah, it makes me wonder if me just having that Asian last name when I approach these guys automatically just gets me that like, “We’re just not going to like mess with this guy.”  And while we’re talking about like racial paradigms and whatnot, like just in the local area in Seattle, I mean we have a huge tech culture over here and we naturally just have like a lot of Southern Asians, like Indians and Chinese and whatnot and I personally know from guys that work at the dealership – and again, I’m not trying to like put one broad stroke type of deal here, but just saying what I hear just –

Mike:   “I’m not stereotyping but I am.”

Grant:  Yeah, pretty much.  Yeah.  If your last name is pretty much anything that’s like Chinese or Indian, the guys just don’t mess around doing the whole bubble routine or bubble spiel; they try to get you a pretty good price.  And they know what they’re still going to get to haggle the crap out of but they either go one of two ways.  They say, “This is the best damn price, period, and this is it.  Like I already know you’re going to haggle me to death, so here’s the best price.  If you find it anywhere else, you won’t.  Like just trust me on this.”  And I generally don’t think that works because when most people haggle, they want to be able to cut it down to say that they’ve won that kind of victory.  So what you’re saying, Mike, in Asian culture, it’s definitely true.  They expect that people will come in to try to haggle so they give them a little bit of leeway so that you can win on your haggle.  So you really shouldn’t pay the full-on price that somebody gives you.  Like you should always get a little bit of a discount because it’s kind of built in to the culture system there, but I think when they know that you mean business, I think they probably get you pretty close to that real walk-out-the-door price.

Mike:   Yup, makes sense.  So we’re kind of running late on this episode here.  Is there a part three in our future or do you think we’ve covered China and importing as much as we possibly can at this point, Grant?

Grant:  I think there might be a part three.  I mean we talked a lot about the shipping, we talked about how to talk to the manufacturers and I think we can talk a little bit about selecting the manufacturers too, I suppose, and how you can really determine a good one from a bad one.

Mike:   Yeah, that sounds cool.  Okay.  Excellent.  Yeah, so we’ll hit that off next week.  This’ll be a three-part series.  We did another three-part series on email marketing as well.  You should definitely check that out if you’re looking into more in-depth podcasts on specifics like we’ve been talking about here and things that we’ve done wrong and right in email marketing.  That’s definitely a good series as well.  So yeah, we’ll do part three of importing from China and other places next week and until then, everybody, definitely appreciate you listening to the podcast.  As always, if you’ve got a chance, head over to leave us a review on iTunes.  Hopefully it’ll be a five-star review, but give us opinions.  We love to hear those things as well.  We read those up on the podcast on the air every now and then.  Can’t thank you guys enough for your support over there.  It really helps get the show noticed.  So yeah, until next week, have a good one and we will talk to you then.

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