Importing goods can be a lucrative business venture, offering access to a wider range of products and potential cost savings. However for a successful importation business (i mean profitable), every form of costs from payments of products to shipping must be efficiently managed
A good importer must ensure that every form of payment he or she is to make is negotiated properly and drastically reduced in every possible way because it influcences in the landing cost of the product.
In this article, we will explore costs employed while navigating importation as a business as well as varius smart strategies which can be used to managed cost for profitability
Understanding Importation Costs
Importation costs includes every form of payments (costs) been made in the movement of goods from the suppliers to the seller, this includes product cost (dependent on rate of foriegn currency, volume and distance of the seller to the shippig address), local and international shipping (dependent on the weight and volume of goods), logistics cost from shipping office(airport/seaport) to company address (sellers infomation) as well as advertisement cost, miscellanous such as recharge card used in calling and data etc.
Various Types of costs employed in Goods Importation
There are various types of costs employed in the importation of goods which we are going to break down below
a. product cost: this is the cost of goods been bought from the seller, it involves an accumulation of (the volume of goods multiplied by the price of each), conversion of foreign currency at the rate in your own country, the local logisitcs cost from the seller to your shipping address (in some cases this might be free shipping) with taxes employed by the goods
b. shipping fares: this includes the various cost of shipping goods from one place to the other (in this case it involves moving goods from the seller/supplier or factory to the customer. The fare incurred is dependent on the weight and volume of goods (this simply means the larger the goods, the higher the fare to be incurred). For example to ship 1kg of goods, the price is fixed
The shipping fare in this case can be broken down into two stages ( local and international), the local shipping is either from the seller to the shipping address or the shipping location to the customer address and the international shipping fare is the cost incurred while the goods beyond borders of countries
c. Custom Regulation Tariff or Governemental Due: This is a payment made to the government in regards to the movement of each respective goods moved across the border of countries, this dues are paid in regards to the type of goods. If a goods such as healthcare or food is imported, other dues such as the
d. Miscellanous cost: this are costs such as rechrage card, data used in to chat and video call suppliers
The total of this costs are what influences in th final landing cost, the other type of costs incurred can be
e. Advertisement cost: this is the cost incurred in the running promotion of goods, this might be the costs of facebook adverts, google ads, jiingles and banners
5 major factors that influences Importation cost
The costs involved in the importation of goods and services are not fixed, they change from time to time. This can be attributed to a variety of factors such as
- Foreign Exchnage
- Weight of goods
- Address/location
- Type of goods
- Shipping Information
Foreign Exchange: Depending on the country you are importing from, foreign exchange is a crucial factor to consider. Importing from China into a country like Nigeria for example, you have to use your national currency (naira) to buy the chinese yuan (rmb) at a black market rate (120naira = 1 yuan) usually not the official rate (67naira = 1yuan)
This is the rate currently as at July 2023 which depends on how much of the chinese yuan (rmb) which you want to buy. If i buy about 1000yuan, the rate could go down to 117-118naira per yuan (based on negotiation). if i buy to keep, the rate could crash downwards in the next few hours or the next day because it fluctuates based on market forces, this applies to dollars for the United State, pounds for the United Kingdom, Dirhams (AED) for the United Arab Emirates.
Weight of Goods: One major ingredients that determine the landing cost in Importation (this is the accumulation of costs incured while moving products across borders of a country/importation). The cost for moving a 1 kg of goods is different from that 5kg of same goods
Therefore its important that before importing any goods, the weight of goods must be examined, analysed if its worthy to be imported
Address and Location: The address of your seller to your shipping address plays a important factor in the cost attributed to importation. If the distance for one of the product you imported is 12km and the other is 2km, the cost for that of the 2km will be cheaper to that of the 12km
It is important you choose sellers within same city/its surrounding as your shipping address, a google search will help you identify surrounding regions and areas
Type of goods: In moving goods from one place to another, the type of goods is very important. For example moving of food, healthcare or medicinal product across country require certification which cost money (this is a cost incurred by the association responsible for food, healthcare in that country example of this include NAFDAC, NDLEA, FDA etc)
Shipping Information: there are two to three basic modes of shipping involved in the importation of goods, its either through air, sea or a mix of both.
While using air as a means of transport, its important you avoid moving goods which are bulky because the freight charges is expensive compared to using sea (this involves cargo ships moving goods in tonnes been calculated in cbm)
Tips and Techniques on Managing Importation Costs
To learn how to how to manage importation costs, you must have understand importation as a business which includes the various methods on how to manage importation costs.
Thorough Research and Negotiation skill are Vital: Before diving into the importation process, thorough preparation such as researching suppliers and prices as the first step to compare various suppliers, their reliability, and the prices they offer. Don’t settle for the cheapest option without considering quality and reliability.
Evaluating the quality of the products is crucial. Substandard goods can lead to costly issues, such as returns, replacements, and dissatisfied customers. Ensure you are getting what you pay for by requesting samples and conducting quality checks. Negotiating terms and agreements with suppliers can also impact costs. Be open to discussing favorable payment and delivery terms, bulk discounts, and long-term partnerships.
Transportation and Shipping: Choosing the right shipping method is vital to manage importation costs effectively. Airfreight is fast but expensive, while sea freight is more cost-efficient but slower. Consider the urgency of your shipments and find the best balance between speed and cost.
Working with freight forwarders and customs brokers can simplify the shipping process, especially for first-time importers. These professionals are experienced in handling customs clearance and documentation, reducing the risk of delays and costly mistakes.
Comment below if you need help with frieght forwarders for your shipments
Customs Duties and Taxes: Navigating customs duties and taxes is a critical aspect of managing importation costs. Different countries have various tariffs and taxes on specific goods. Ensure you are aware of these regulations to avoid unexpected expenses.
Making use of free trade agreements can be advantageous in reducing or eliminating import duties. Research and take advantage of any relevant agreements between your country and the exporting country.
Managing Currency Fluctuations: Currency fluctuations can significantly impact import costs. To mitigate the risks, you can employ the strategy of top organisation (which involves registering your business as a corporate entity which can buy foreign exchange at a very good price)
For example, as a Nigerian buying dollar at 850 naira to 1 usd is different from corporate individuals with access to Form Q (bank and government directive) who buys dollar at 460naira. The difference is very significant which also offer competition among different suppliers, the other is enforcing importation of goods which solves a problem or highly important in high demand by both male and female (examples are food, security, perfumes for home/offices and human beings etc
Handling Insurance and Risks: Proper insurance coverage is crucial to safeguard against potential losses during transportation and handling. Cargo insurance and marine insurance can protect your goods from damage, theft, or loss while in transit.
Mitigating risks in the supply chain is equally important. Identify potential risks and develop contingency plans to minimize their impact on your operations and finances.
Warehousing and Distribution: Effective warehousing and distribution practices play a significant role in managing importation costs for big importers (especially those into cargo).
Find cost-effective storage solutions that align with the volume and frequency of your imports, which could be outsourcing warehousing and distribution if it proves more economical. Optimizing inventory management can prevent overstocking and minimize storage costs. Utilize data and analytics to make informed decisions about inventory levels and reorder points.
Cost-Reduction Techniques: Streamlining the importation process is key to reducing expenses. Identify any bottlenecks or inefficiencies in the supply chain and address them promptly. Automation and digitization can enhance efficiency and reduce administrative costs.
Consolidating shipments and orders can lead to significant cost savings. Combining multiple small shipments into larger ones can result in better shipping rates and lower handling fees.
Outsourcing vs. In-house Management: Deciding whether to outsource importation management or handle it in-house requires careful consideration. Weigh the pros and cons of each approach, taking into account factors like expertise, resources, and cost-effectiveness.
Tracking and Analytics: Data-driven decision-making is crucial in importation cost management. Utilize tracking and analytics tools to monitor key performance metrics. Measure expenses, lead times, and supplier performance to identify areas for improvement.
Continuous Improvement Strategies: Importation costs are not static; they can change over time. Continuously assess your processes and costs, and be open to making changes and upgrades where necessary. Regularly review your supply chain and identify areas for optimization.
Navigating Importation Costs includes smart strategies which importers can utilise in managing cost, this requires a well-thought-out approach and a keen eye for detail. Following each tips mentionmed above, importers can achieve financial efficiency and a competitive edge in the market.
What smart cost management skill would you employ as an importer today, Kindly comment below.
Do you have challenges or inquires while navigating your way in importation business, feel free to comment below. We will reach out to you as soon as possible
