Chang-Hong Whitney05.03.06
Optimize Your Sourcing Operations With China’s Logistical Solutions
Chang-Hong Whitney
Chang-Hong Whitney |
Shenzhen, as the one of the first cities to adopt the open-door policy in the 1980s, has enjoyed healthy growth on the manufacturing front. Its high concentration of contract manufacturing also stimulated an annual 15% growth in the logistics industry as foreign companies expand their manufacturing capabilities in China while increasing distribution of products made in China around the world.
Traditionally, companies that manufacture products in China would ship materials into China through the Chinese customs clearance process. The materials typically were stored at a customs-controlled bonded warehouse (for goods to be imported) while the importer completed the importation process.
When the Chinese factory was ready to ship the finished goods, the company would process the products through export clearance. The exported products would be stored in an Export Supervision Warehouse (for goods that have been exported) while waiting for an available flight or container ship. After the products were shipped back to the home office, they were then dispatched around the world—some even coming back to China for sales in that region.
The Logistical Problem
While the above traditional import/export processes seem to be straightforward, they do not provide the flexibility that many companies need as their product line evolves and the market demand in other countries shifts. Products or materials, once imported or exported, cannot reverse direction easily without suffering through various customs inspections and approvals. The shipping charges, along with internal administrative costs in warehousing, storage and dispatching, consumed a great deal of company resources.
For companies that manufacture products in China, especially those needing to quickly alter production based on worldwide demands, the production materials for China are part of the overall production inventory. The best approach is to store them at a location for a short period, until they are needed for production.
Should the material no longer be needed, it can be shipped back to its home country or to other plants immediately. Given the complicated importation process, it seems to be preferable that the materials are stored beyond the border, duty-free, until importation is imminent.
Traditionally, the customs-owned bonded warehouse provides a facility where companies can store goods and materials without officially importing them into China. Once an order from Chinese customers is obtained or the Chinese manufacturer calls for certain materials, these goods and materials will be imported into the country—duty and value-added tax (VAT) paid. If the needs do not materialize, the goods and materials can be shipped back to the home country without incurring any import expenses.
For companies that source from China, their needs are to be able to store different products for consolidation for future shipping. For those who have customers around the world, the scenario of shipping directly from the Chinese factory to the customers, without having the products take home-country tours, seems to be a lot more efficient.
The export supervision warehouse allows goods that have completed export clearance to be stored in the warehouse for future shipment or consolidation.
Some Newer Solutions
To strengthen China’s position in the international trade arena, simplify import/export process and further facilitate the increasing demand in international logistics, Chinese Customs opened the logistics market to commercial companies, which can operate commercial bonded warehouses and export supervision warehouses to service multiple clients. These warehouses provide warehousing, inventory, consolidation, dispatching, shipping and import/export services.
Logistics parks also have been set up to house both types of warehouses operated by different companies. The newest logistics park is Feng Gang Logistics Park outside Shenzhen, which opened in December 2005.
Such commercial warehouses, which are under strict customs control and are required to provide regular reports to customs on inventory and shipping status, provide one-stop shopping opportunities for medical device companies that wish to expand outsourcing operations to include logistical and international shipping operations.
Some warehouses have established computerized reporting systems and linked them with customs’ systems for automatic reporting and clearance. Leading providers, such as Hutchson Logistics, have automated their systems and enabled on-line access by clients to check shipment status and retrieve shipment documents.
To stimulate exports and reduce the unfair tax burden on Chinese exporters in the international market, the Chinese government long ago established a tax refund policy that allows Chinese manufacturers to reclaim the duties and VAT that they paid when importing materials to produce the goods for export. However, the tax refund process has been cumbersome.
Goods have to be physically shipped across the Chinese border before the proper paperwork can be issued by border control to the factories. The long inland shipping time and complicated document reviews and paperwork trial by various agencies typically take at least four to six months before Chinese exporters see their refund.
To simplify the process and accelerate the refund process to exporters, Chinese Customs issued a new policy at end of 2004—“tax refund at warehouse entry.” Under this policy, approved warehouses that have customs agents on-site can process export paperwork for goods delivered to the warehouse gates. Goods no longer have to travel out of China to be considered “exported.”
Factories that deliver the shipments to these warehouses can receive the necessary documentation at the delivery gate and process their tax refund at tax agencies right away, accelerating the refund process.
Shenzhen was approved to trial run this new policy in August 2005. At this time, 12 warehouses in Shenzhen are participating in this program.
So far, this newer policy was warmly received by the manufacturers, which see reduced transaction time and faster refund process. The policy is beneficial to foreign buyers and freight forwarders who can consolidate goods near their factories in Guangdong and distribute around the world through Yantian Sea Port, Shenzhen Airport or Hong Kong Airport.
For medical device companies, especially finished-goods manufacturers, these warehouse options and logistical providers provide convenience for companies to store materials, manufacture and inventory finished goods in China as well as distribute the products around the world.
With computerized inventory and reporting systems, US companies can have access to the movement of their shipments and expand their sourcing operations to include warehouse and logistical services. Because many warehouses have a customs office on-site and staff familiar with the import/export process, they can truly offer streamlined service and become the warehouse and shipping departments of the manufacturing company.