Hidden Costs In Canadian Ocean Importing
Whether you are a first time importer, or a well-seasoned company, the current shipping crisis has started a cascade effect in escalating costs. These extra fees are being absorbed throughout the supply chain, but the mode feeling the heaviest burden is Ocean Transportation. Traditionally, ocean transport and shipping lines are the most dependable, cost effective means of moving large quantities of goods throughout the world. The rise of economies in Asia has been built on manufacturing and delivering goods for an insatiable North American market. The shipping lines and supply chains already under strain due to volume and lack of infrastructure capable of handling the rising demand have started to buckle under the extra weight of a global pandemic (not to mention certain boats getting stuck in certain canals). This has caused stakeholders from steamship lines, logistics companies, and carriers to significantly raise rates and to create new auxiliary charges. The party responsible for those additional transport costs depends entirely on the Incoterm® that were decided upon at time of creating the purchase order.
What are Incoterms® ?
The Incoterm® rules are an internationally recognized standard and are used worldwide in international and domestic contracts for the sale of goods. First published in 1936, Incoterm® rules provide internationally accepted definitions and rules of interpretation for most common commercial terms of sale. It is the terms of sale that will clearly state the party who is responsible for the cargo at every step of its journey.
Incoterms® With Full Containers (FCL) And Less Than Container Loads (LCL)
During this time of uncertainty ensuring the use of an Incoterm® that leaves responsibility with the Seller as long as possible can be in the best interest of Canadian importers.
For example, if the Incoterm® that is decided upon falls under Group C, E, F for a full container load (FCL), then any charges related to delivering the cargo to the consignee AND return of the empty container are the responsibility of the buyer (importer). These charges can include fees relating to:
- Port appointment reservation
- Port congestion
- Port storage
- Handling (if there is a freight forwarder involved)
- Drayage (local delivery to destination and empty container return)
- Steamship detention/demurrage at destination port. Empty containers return to the location chosen by the steamship line
- Due to congestion there can be delays in returning the empty container
- Steamship lines will NOT waive any demurrage incurred due to the chosen empty return location being unable to accept any further containers
- Carriers that have been contracted for the drayage will also charge a Chassis rental fee for every day the empty container is unable to be returned as this ties up that chassis from accepting new drayage orders
- Block stow charges are applicable when a container is on the port buried under other containers and inaccessible
Less than Container Load (LCL) shipments would still be subject to the above charges, but they would be shared with all the shipments in the container. These shipments always have a freight forwarder involved as part of the consolidation process and would include the charges with their handling invoice. Additional fees would also be owing to the bonded warehouse that your LCL container is delivered to for destuffing. This is also the location that the Customs Clearance will most likely take place. Dock Fees start at a minimum of $45.00 CAD and go up depending on the weight of the shipment. Some warehouses will calculate on Cubic Meters (CBM) of space and not net weight. These fees can be included in the handling fees that your Freight Forwarder has invoiced to you, but always read the fine print to make sure this is not another charge that needs to be paid before the shipment is able to be picked up from the warehouse.
A key to arranging the ocean import of a shipment is to be fully informed of all the different points that the responsibility of the cargo can be transferred to the importer (Buyer) and to ensure that the Incoterm® that is used is done knowing the inherent risks. An Incoterm® that leaves responsibility with the vendor (Seller) longer may cost more upfront than a term that transfers earlier, but if there are delivery issues that incur additional charges those fees stay with the responsible party.
It is vital to understand that any additional fees relating to the customs clearance will always remain with the Importer of Record, which can include demurrage fees with the steamship line (FCL) or storage at the warehouse (LCL).
Customs Exams Also Play A Factor
As an importer you need to be aware that any shipment that comes in can be subject to exam by CBSA. Containers are selected for exams through algorithms that CBSA has put in place to help identify risks and keep Canadians safe.
While the majority of examinations are random, there are factors that can increase your container's chance of being flagged for a CBSA exam that can add to the probability such as:
- Importing regulated products
- Importing for a Country of origin/export that is carefully watched
- Purchases from exporters that are carefully watched
Also, if you are a first time ocean importer, a newly incorporated business, or using a new supplier your chances of having (at minimum) a dockside exam is quite high.
How Much Does A Customs Exam Cost?
In terms of costs, customs exams on FCL can range from $500 for a dockside exam to $3,000 to $7,000 for a container to be fully destuffed at a special exam facility.
Now if the same situation happens and your shipment that has been flagged by customs is a LCL, the exam itself would not happen until the container has been checked into the bonded warehouse, unloaded, and your shipment has been confirmed as “arrived” to CBSA. So all that is remaining for CBSA to complete is the visual inspection, which can result in exam fees under $500 CAD. Unless there is an inspection issue, which is a whole other set of considerations.
There is nothing to prevent CBSA from detaining a shipment for an exam at any point once it has entered Canada. This means there is still the possibility that the container that your LCL shipment is consigned to will be flagged for the full container to be moved for destuff and inspection. In these instances, the $3,000 to $7,000 CAD for CBSA exam fees would be divided amongst all importers in the examined container generally by the cubic meters (CBM).
As you can see, there is more to ocean importing than meets the eye, and the shipping crisis is aggravating the situation. Be sure to understand the terms of sale or Incoterms® and what you may or may not be responsible for. Also prepare for customs examination costs that could play a role in your overall landed costs.