#7: How To Manage International Logistics As A One-Person Business

Hello and welcome to another episode of the lazy entrepreneur. I am Sam Priestley and this is my wife, Emma.  Today we’re going to be talking about how to manage international logistics as a one person business. Hopefully it will be interesting and is something I get asked a lot by people, and I think are intimidated by it and it doesn’t take that wrong to research and pick out most of the steps and this should give you an idea about how the whole thing works. What I am really talking about here is  a product based business where it is made in one country and is sold in at least one other country. There are many types of businesses that fall into this category and generally fall into the same thing where someone makes it, someone else transports it to its destination, someone then stores it and then someone fulfills it and delivers it to the final customer. Now each of those duties can be done by the same person. 

How logistics can all be managed by one person [01:07]

Let’s say you’re a multinational business and you have your own factory and distribution centers around the world than you can do it all yourself. But in reality what almost every business does including people at Apple will be taken on by different people and different businesses. Specialty business who focus on each of these things. Things will get split a little bit further so I am going to talk about the different roles that we have. So the first role is the factory, the person who makes it. And we have an inspection team who will go in and view the products and make sure they are good enough for the final payment and shipment. And you have a freight forwarder to manage the delivery of the stock from the origin country to the destination. 

E: That is the one I can never understand. 

S: So hopefully by the end of this you’ll have a bit of a better idea. And if you have any questions, jumpin to ask. 

E: Why thank you

S: So there’s another role which is tied up in a freight forwarder and customs broker. They are the one who negotiate your products through customs and duty in both the leaving country and the destination country. Normally your freight forwarder will also do your customs broking, but now they’re in separate role especially if you’re using an intl freight forwarder but dealing with conflicting countries which we’ll talk about in a bit. And once you’re in the destination company, you’ll have a warehouse where it’s kept and it will often require some prep for the products 

E: So like packaging, labeling. 

S: Yeah, also a bunch of things that take on multiple products and you’re putting it into a gift box, they might be coming from different countries in the factories, they’ll get to a central point and then get packaged together to get sent to the final customer, or it could be well we’ll talk about that a bit more in a bit. And then finally you’ve got the final fulfillment to the customer. Customer could be a person such as you sold on Amazon and then they received it. They could also be a business. Say you sold a pallet full of something to someone or a creative gin to a bar. 

Sam demystifies coordination with factories [03:52]

Alright let’s dive a little bit more into these things. And I’ll talk a little bit about common questions people have and your different approaches to them. Let’s talk about a factory. Now the common thought is that you’re dealing with a different country from the one you live in. If it’s in the same country you live in, it might be fairly easy for you to go to visit the factory, or to do a tour for potential factories to try and find the one that is right for you, but generally that is not the case either because they are a long way apart even if they are in the same country, or if they are in a completely different country, it could be prohibitively expensive to get there. And what we often find there with these sort of small starter businesses is it is cheaper to produce your first lot of products with your factory than it is to fly out there and speak to them. So for instance you could produce 500 products something as an initial start of 2 or 3 thousand pounds. That’s kind of what it might cost you to actually start looking around and trying out different factories. And what you’ll find, especially if you’re dealing with in India or China is actually going out and listening to them isn’t particularly useful anyway because if they are dodgy they will put on a show for you and might even take you to a factory that isn’t theirs, so it is quite common that investors will go out to China and India or places like that, they’ll meet their rep that they’ve been talking to and the rep isn’t actually associated with the factory and is more like a salesperson and he will take you to the most beautiful looking factory that he is linked to and then might actually outsource your stuff to another factory.

Things to be wary of when seeking out an international factory [05:32] 

And then the other reason is that there’s often bigg language barriers. When you’re going to rural industrial parts of China where there really isn’t any english speakers and you’ll be reliant on whoever your contact is, and often these factories, they’ll have a front person who you can communicate with in English but their English will be very bad and you’ll get further by talking to them via skype messaging or whatsapp or something like that, then you would actually speaking face to face because they can go back and google translate things. And also getting used to communicating with people like that will serve you well as you go forward 

Why getting used to communicating via skype or whatsapp will serve you well as a one-person entrepreneur [06:09]

Because translators aren’t going to fly out there every few months to speak to them. You’ll be mainly communicating through technology. Well how do you find a factory? There are lots of ways and I don’t want to talk about it too much but you could use Alibaba or google and contact them. Generally what I like to do is contact a few different places and find ones who talk about pricing, getting onto pricing first because that is often the thing, pricing and minimum order because some places might have 100,000 units minimum order which would raise the price enormously, and that is not a risk I want to take. I do not want 100,000 units, I want 500 units. ANd also talking about price, because sometimes they want you to be committed and spend money on prototype only to tell you the final price. You probably won’t get a final price but you will get a general range which you can then refer back to later at the end negotiations. Generally what I do is ask for samples. There are normally multiple levels of samples. 

The multiple levels of product samples [07:28] 

The first level will be getting just their kind of stock products. Which often places will send you for free. Or just at the cost of shipping. Be wary, some places will charge you loads for this, saying it is 100 pounds to send you one t-shirt. It is up to you what you think is worth it, but a lot of places will just send you stuff out for free. If places do want to charge me a lot for their base product, what I will do instead is get them to send me a prototype of the product that I want. You want to see that they’re not just taking someone else. You want your customization. You want your branding, your colors, fonts, etc. So if it is prohibitively expensive just to get their stock items, it probably won’t be that much more to get them to create your own personalized version. Whereas places that will send you the stuff out for free, when it is just from their stock, will charge you for the prototype. And eventually you want to do the prototypes before placing the big order. So that is sort of like that, you’ll probably go for a few rounds and it can get a little bit expensive. Because bare in mind you will be shipping, sending by airfreight, whatever the prototypes you’re getting to you. Then you’ll ask for changes and they’ll send you another one and it can take a long time, but it is worth sticking with and is something you should factor into your cost. And every time you spend 50 pounds to get the product over to you, that is a lot cheaper than it would be to sit over there and work through it. 

E: WHat is the average amount of time people should expect to go through finding a factory, prototyping, to then agreeing a price and then putting your order in. Where you talking 6 months? 

S: Yeah, probably, a little bit less than that. Probably about three months to get your prototyping done and then probably another 3 months to actually make it. If you factor in three months, you might do better than that. People talk about getting it all done in a month but realistically that is not going to happen. 

E: Well when you’re starting a brand new business relationship with a factory, it might happen in the next product range for someone that you’re used to working with. 

S: Yeah, or if you’re just jumping on a trendy bandwagon, like you want a fidget spinner and all you want is just your logo on it, you could probably do that straight away, you might not even need prototypes. But there you are relying on speed to market rather than customization and rather creating something actually unique and a good product. 

Alright so let’s talk a little bit about the other issue that people have with factories which is how do you pay them, dealing with somewhere you’ve never been, doing it with people in China or Pakistan or the Philippines or some country you’ve never been to before, you don’t know much about their culture, and there’s loads of different ways, some of the suppliers I work with I just pay them once it is all ready. 

How do you pay factories? [10:48] 

But, you know there are people who I have worked with for a long time. Most new relationships you start off with will require some sort of upfront payment. Some places will ask for 100%, which I would probably never agree to, but generally somewhere between 30 and 50% upfront. Followed by sort of 50% to see you take control in the stock.

E: Yep, that sounds good. 

S: There are ways you can make it a little bit safer, you can pay through esgo [?] services where you don’t receive the money until you’re both happy. So stuff like alibaba’s Alipay, paypal also has stuff. Just be aware that they take quite high commission, so you’ll have to pay extra in order to have the factory allow you to use these items. And generally I don’t bother because normally my first order is fairly small and then slowly scale up and by the time I am sending 30,000 pounds for an order we’ve been working together for so long and it is in there interest to play fair. 

The role of inspection in creating a quality product [12:02] 

Next I want to talk about inspection, and it kind of ties in a little bit with the kind of when you pay because, especially if you are starting a new relationship, you probably want to have some sort of quality control done before you accept receipt of the goods from the factory. There are a few different ways or terms for how you accept the goods from the factory. You don’t really need to know what they mean, and you can kind of google them, and generally you either accept them at the factory or onboard a ship so the two most people talk about are freight and board which is when they’ll deliver it to a ship or x-works when you pick it up from the factory. I’ll almost always use exwork, but it doesn’t really matter, just make sure you get quotes for it because what is quite common is you will do freight and board and will have agreed on the price for the item and then they will have charged you a huge shipping cost to get it from the factory to the ship, which is generally why I don’t do it because I know I can get it cheaper through my freight forwarder than what they will charge me. But that is something that you need to think about ahead of time. Almost always, especially when you’re ordering large amounts, you will want to sort out the shipping yourself, because there is a third type of term which is when they deliver it directly to your house or warehouse which is fine for prototypes but generally it will be a lot cheaper if you organize it yourself. So, x-works, the other thing I like about it is before you actually accept the goods you can send an inspector to the factory to check them and do some quality control. What they’ll normally do is they’ll go in and they’ll take ones at random and they’ll run through a checklist of checks for quality. And what you want to do is before the factory starts work on the products, you’ll have negotiated some sort of terms as to what sort of default rate you’re happy with. And what will happen if they fail to meet it. So, they will, inspectors will go in if everything is good, you’ll then pay the rest of the money and they’ll ship the products out. If they fail the inspection, then they’ll have to make good and bring the default rate up to the level you’re happy with before you pay them the final bit of money.  What you’ll sometimes fine and generally as you start working with people and they get better in knowing what your needs are is your default rate will drop to a low enough rate that it actually becomes cheaper not doing any inspection at all and just to take the default rate and ship it out. But I think inspection is very important especially when starting with a new supplier. That is the case whether it is a factory in China or a distillery in just around the corner from where you live. So for instance we went and did an inspection on our first batch of gin that we ordered and we found that there was a real problem with the labelling and them putting the labels in the bottle and the way they were packing them into the boxes, which is something we were then able to sort out for the next round, but if we just then sent straight to the warehouse or the customer than we might never have known it or it would have taken us a lot longer before we got the feedback from the customers that osmethings wrong

E: And it affects your brand image. 

S: RIght. You can do a much more intense inspection if you are doing a really high quality product, the factory might still be within your defect rate that you’re happy with but you might never want those defect ones to reach your customers at all, so the inspectors can go in, check every single product and throw out the ones you don’t want your customers to have. If you’re doing a high quality brand that is probably something you want to do. If there is a high price, you might spend 10-30 p an item to do a thorough inspection of each one. 

What might you do differently with factories when you have a very high quality item? [15:59]

S: Okay let’s move on to a freight forwarder. This is a company that specializes in moving a product around internationally. It is usually big names, and they are good at doing smaller quantities via air freight, and then there will be other bigger companies that you’ve never heard, for whom you’d need a freight forwarder with to work through. Especially if you’re doing anything by ship, let’s say you’re sending a container load, a 20 ft container of products via ship. That would work out very very cheap per item but you need a freight forwarder to negotiate for you. There’s all types of freight forwarders you can get, you can get even get someone in your destination country who will be more expensive but easier to deal with, or someone in the origin country. If you’re producing in China, someone in China will sort all of this out for you. Really there are probably people in both countries, so if you go to someone say you’re shipping to the UK, they’ll have a partner freight forwarder in China who they’ll work with. So that is generally if you’re going from one country to another. What I do is slightly a step more abstract than that, so I go to a freight forwarder broker for all of my kind of international needs. So when the factory produces 4,000 table tennis bats, that might be split between six or seven different countries, so the freight forwarder will go and pick up all the stuff and.. Rephrase: I will organize it all in one city, so I will say we’ll send this amount to this country, and the broker will then go and get freight forwarders or freight companies in each of those countries who can then organize it and get it through, and then they’ll sort it all out from there. 

E: lots of logistics. 

S: Yeah, and so I just use a company called FlexPort for that. I’ll go to the dashboard and sort it all out and then they’ll organize it all for you. It is a bit more expensive, it is cheaper to work with the smaller freight forwarder in each country, but as you expand and get more international then it becomes quite a bit of work working with all these companies, and then also finding a freight forwarder you’re happy to work with. And they can also get more complicated in terms of their pricing. So what I say is don’t be afraid to look like an idiot and asking loads of questions. What I do is after we’ve talked all about it and they’ve given me a price list, I’ll go through it and calculate exactly how much it’ll be and then I’ll go confirm the price list, which will include 101 different items and you need to add them all together and work out how much it is going to be for whatever and it can get quite easy to miss things. So don’t be afraid to confirm exactly how much it is going to be. But generally, freight forwarders, international freight is very complicated but it is very easy to outsource. So I, especially at the start, didn’t really know anything about it. But you’re just paying someone to do it for you.

Sam discusses freight forwarding at length [19:51] 

E: How did you select your freight forwarding company initially, did you do research, are there reviews online? 

S: Yes, there are, but it is a very old fashioned sort of business, so it is very much a terrible website, speaking to people in person, talking on the phone, when I first started, what I did is I posted on a forum, I can’t remember what it was, maybe UK small business forum or something like that, and I asked if someone could organize this. At the time I wanted them to send it to an Amazon FBA warehouse, and this was before Amazon was well known. So I needed someone who could support from China and then prep it such a way that it’d be accepted by Amazon because they have very strict delivery requirements, and then we prepped Amazon. Eventually we moved to flexport, they’re kind of just the best known international one, they’re a google backed startup who received a bunch of money and they basically brought the web to freight forwarding. So now it is all just like an online dashboard where you put everything in, and you don’t need to talk to anyone on the phone and negotiate. You just get your price, yes or no. There is, so freight forwarding, the other side of freight forwarding is custom brokerage, which is often, I’m going to kind of put them two together, so someone like flexport or freight forwarder would be able to sort it all out for you. And the really nice thing about this is that each country has a very different requirement for what it takes to get your stuff in there. What licenses you need, how they need to submit the reports or whatever. Having a good freight forwarder will do all of that for you and just tell you what you need to do. Is that what happened. So India is the most bureaucratic place I’ve ever dealt with, and getting your stuff into there was something I am going to talk about in a second. So if anything goes wrong, having a good freight forwarder, they can sort it all out for you. 

An anecdote of a freight forwarder successfully managing difficult logistics in India [22:46]

The way I normally do it is I don’t bother doing much research into the countries, I’ll just say send my freight forwarder a request saying can you send this number of stock to this country. And they’ll give me a quote. So normally they just give me a quote and then they tell me what I need to do and it is all very straightforward. In the US, they’ll say oh, you need an import form or you need this thing or that thing, here are your choices here is how much it costs. With the UK I needed to send an email to a government agency to get an importation number. But the freight forwarder tells you all that. With India, they said India is a hugely bureaucratic thing, so before we give you any quotes, let’s sort all this out. We need a, b, c, d, e, f… there are many documents we needed. Even then, we did all of that and even then when it arrived in India, there were issues. So we thought we had everything, it arrived in India and the first problem we had, there were a bunch of problems, the first one was that we needed to have stuff stamped with our company stamped. And we hadn’t we just signed it, but what do we do now? Who has a company stamp? We don’t. ANd our freight forwarder told us about this and we eventually got some friends out in India to make a stamp for us and stamp the documents and eventually sold it. There are a few things like that where there are issues in India or moving across state lines in India that we weren’t able to fix if we were trying to navigate it ourselves which is good, and stuff does happen like your stuff can get stuck in customs and be inspected by customs agencies or whatever, and your freight forwarder is good at dealing with all that. So I’ll say just kind of outsource all this and make sure you build in the cost of all this to your business, and then yeah. I think nowadays it is getting easier to find freight forwarders. But when I started it was very very old school and we actually went around to a few like freight forwarders and houses and stuff. The only other thing to our freight forwarding is generally you have two choices which is sea freight or air freight. Sea freight is very cheap but it takes a long time. So say we ship from China to the UK, or China to USA. We’re talking 6 to 8 weeks and it often gets delayed by a few weeks and there will be a storm somewhere in your ship or you’ll get them lost to the sea. It just takes a long time and you’re paying pennies so if you see the cost breakdown of shipping by sea, let’s say our quote might be $1,500 for a shipping container. Of that, the actual sea freight will be like $400 and the rest will be like the paper work at this point, taking it off the point, the final delivery to this place. The actual on the ship is very cheap. The other way to go is air, which takes only a few days which is how I do pretty much everything nowadays. It is a bit more expensive. But it means that your logistics and cash flow is much easier to manage, and generally I prefer simplicity. But with something like flexport, they will give you a quote for both and then you can weigh out, is it worth spending 30% more to send it by plane but have it there in a week as opposed to be sitting in it for 2 months waiting for it to arrive. Alright, the next step is warehousing, actually keeping it and getting it into something you can do yourself, you can keep it in your garage or whatever. 

Understanding warehousing [27:04]

This is something you can use like Amazon FBA, which is Amazon’s network, where you’ll store it in their warehouse and then whenever someone orders something on Amazon, they’ll deliver it. Or you can go to a completely third party company for. For instance, a lot of people doing the FBA nowadays, including me. It is a very popular fulfillment service. What they do have is very high long term storage fees if you keep your stock in there for six months or more. So what people will sometimes do is they’ll store their bulk in another warehouse which is very cheap for storage costs, and when they’re ready to store it to Amazon, they’ll just send smaller amounts. If you’re doing, so with our gin for instance, we’ll do a lot of wholesale, which isn’t  very good for Amazon. So we’ll take an order in person, say via email, for any number of bottles of gin, and then I can just go onto our warehouses onto our online thing, and then they’ll go send it out in boxes. Super easy, and if I have something very specific, let’s say we’re delivering to something like Mars’s Mob for instance who require all the number printed on all the boxes, then I can get the warehouse to do that. But Amazon FBA wouldn’t do any customization and they charge you a per item delivery rather than the lot as a whole. 

E: Yeah, it is B2C rather than B2B. 

S: The other reason to have a third party warehouse that is not linked to fulfillment is for prep. We talked a little bit earlier about if you have stuff coming from different factories and countries, you can have a central location where they are packed together, you get something like subscription boxes, you get them from all different places and have them packed into one box and sent as a whole. A classic example of this is with bottles. With Gin as an example, in order for them to take our bottles in an Amazon warehouse, they need to be packed in individual boxes with airpacks, which are inflatable things around them. But they take up a lot of space, so it works out a lot cheaper to actually produce it near us in the UK, but if we produced it in China, it would be cheaper to store the bottles on a pallet and then send that to the UK warehouse and then have the warehouse prep them in individual boxes and then send them to Amazon. 

E: And one of the requirements is you have to be able to drop the box from a certain height without them smashing.

S: From two meters on all four sides. 

E: It’s quite specific. 

S: It’s quite specific and in order to package it in that way and ship it internationally would be a real pain. Another reason to prep is for stuff like when we first start on Amazon, they require certain labels for different types of stuff. It is kind of important and also they might have different hazmat and requirements depending on your product, or electricity requirements that your customers might need and if you make a mistake and you have waited six weeks for it to arrive by ship in China, what are you going to do about it. The easiest thing is to find a prep service to go in and then change everything for you. Also if you have a really high value item, then having another quality control service at this point is also quite useful. So originally when we started doing table tennis bats and we weren’t too sure about the people we were working with, we would have our prep service go through and do a quality control on the items, so for instance the cases, they would go through each one, they would bend it, look for scuff marks, all that kind of stuff, now that we’ve evened out a lot of our issues, with stuff like that, now the factories good enough at producing stuff that we want to our requirements that we no longer need that, and can save money at that point. 

E: So you had inspection at the factory as well as at the warehouse. 

S: So we had full quality control at the warehouse in the destination country and that is because a lot of damage happens during the transit. So, because they are chucking it around and all this stuff, so stuff does happen and break and so we wanted our inspection to happen as close as possible to the final customer. 

Discussing the final fulfillment and delivery to the customer [32:19]

If you’re storing it in your garage, you can go to the post office, put it in a box and send it off to your customer. What you will find is that it would be very expensive. Because big fulfillment centers have very good deals with delivery companies that means they get it a lot cheaper than you, and in fact places like Amazon FBA, if you are selling on Amazon, subsidize it even further so it ends up being very cheap for you to deliver parcels. 

E: And then working at packaging is quite complicated and can be quite complicated in small numbers if you’re starting up. 

S: Yeah, because they’ll just put it in an Amazon box and deliver it like that. Whereas you might need to buy delivery boxes if you are doing it yourself, and then you are getting a lot of boxes and could get a cheaper unit. 

E: Something we found when we started out with gin and were packaging some of the first batch ourselves, is that not all of the packaging we purchased first time round was good enough quality. It took us a while to get the right box, the right package, etc. etc. 

S: Yes indeed. So depending on your type of business, I have talked about Amazon FBA quite a bit because they’re basically the best on the market. For our table tennis bats we actually used Amazon FBA for everything. That is for sales on everything, for ebay, for our own website, for one of our sales in person. We’ll put it through that. And there are ways to automate that. 

The role of automation in sales [34:03] 

So you can link up say ebay or your website to Amazon and then whenever an order comes in it will automatically put through to the warehouse without any work on your half. I wrote a blog post recently that you can check out about that. And for other types of businesses, as we already said, we have different fulfillment options for different types of customers. So for gin, for one thing on Amazon, we use Amazon FBA, and that is because not only does it work out a little bit cheaper, given that Amazon FBA has subsidized rates for sales on their own website, but also it makes you earn more on Prime, and the Amazon algorithm means that you’ll appear higher up on search results if you’re using them. So AMazon will punish you if you’re not using them for sales on their service. But for sales on our website or wholesale sales, we will use a different fulfillment center, one that particularly suits our needs a lot better. And that is kind of it. So let’s quickly run through the different points. 

In summary [35:18] 

So someone makes it, you find the factory, you negotiate with them how they’re going to, what they payment terms are, what the minimum orders are, what the price per quantity is. You make sure that you have some way to inspect or quality control. And then you go for it. You don’t worry too much about having to visit them because you probably have it cheaper to order that first lot. And then if it doesn’t work out, it doesn’t work out, it is costing less than a flight. If you fly over there and it doesn’t work out it still costs you the flight. Secondly you need someone else to transport it to the destination country. If you are only dealing with one country you are probably best look for a small freight forwarder who will be very affordable and work with them direlt.y If you are shipping to lots of different countries than a bigger broker like we use Flex Port works well. Then in the final country you need someone to store it, if you’re just reselling on Amazon than Amazon FBA is a no brainer. If you are doing no sale or a lot of other types of orders, than you can find a different way to do that. Or if you are dealing with large quantities and you are worried about the storage fees at Amazon, than a third party warehouse to store stuff for you could work well. And finally you need someone to deliver it to the final customer. Again, if you are using AMazon, Amazon FBA is good or there are a whole host of other fulfillment options. You can read lots of options on the website, but if you’re kind of at a loss or just starting out, I recommend Amazon FBA because it is easier and simple. And slowly as you start building up your business, you can cut costs and one of the ways you can do that is finding a new fulfillment provider and warehouse. 

E: How do you deal with losing stock at any point during the process, and stock that isn’t fit for sale, so would you recommend baking in some percentage to allow for that, particularly when you’re starting out, or is that something you just have to wait and see as you go. 

S: It depends on what point you lose the item. 

E: It could be several points. 

S: With Flex Port, they can bake insurance into it if anything is lost during that process, they’ll reimburse you and that’s kind of baked into it. With other freight forwarders you get the choice of getting insurance or not and it is your turn to price it out and see if it is worth it. 

E: Have you done that?

S: Yea, and we decided not to get insurance because the cost of losing one shipment, we didn’t think the risk was that high or the premium for insurance was worth it. If it gets lost on the way to an amazon fba warehouse, then amazon will pay you the retail value of whatever you’re sending in. So if they receive say six cases of 10 they should have 60 items but if they only have 54, they will pay you the retail value of those six items. So in that case you make quite a lot of money if they lose your items. I try to aim for between one and two percent defect or return rate, and that should be baked into your margins. If you’re hitting five percent returns or defect rates, yeah, you need to either, some industries that is fine like clothing has high return rates but that really needs to be built into your margins. 

Okay, great, I hope you find that useful and as always if you have further questions you can email me at hello@sampriestley.com or you can go to sampriestley.com where I have quite a detailed blog post on various different parts of this sort of process.