Getting Answers

For many westerners doing business in China, one of the most frustrating feelings is the sense that no matter how many times you ask, you’re not getting a straight answer. Sometimes the answers you get bring more confusion than clarity. We recently dealt with just such a situation for a client.

Our client’s freight forwarder in his home country contacted us to figure out why his customer’s goods were had been held in China customs for the last 8 months. With 10K USD already paid (customer’s own money) to pay a fine and secure the release of the goods from customs, it still was not clear what caused this situation and how it could of been prevented.

Our customer’s product is one that can be considered both as a dangerous and non-dangerous good, depending on how they are classified and assembled. Shipping these particular goods requires the supplier to have a certain certification in order to be loaded. These documents include non-dangerous goods and dangerous goods certificates. It is an unfortunate story of miscommunication, grey area shipping practices and lack of responsibility. In addition to fake and misrepresentative documents from a supplier, there are three Chinese forwarding companies to add to the confusion. We will call them Forwarder #1, #2, and #3.

It all started when COSCO, a Fortune 500 company and Chinese State Owned Enterprise (SOE), received a booking from Forwarder #3 as “furniture”. A week later as the container of “furniture” reached the port it was accompanied by a MSDS (Material Safety Data Sheet) for our client’s actual product, potentially dangerous goods. Raising only mild suspicion, as both are non-dangerous goods, a CE for non-dangerous goods was requested. Forwarder #3 sent three sets of CE documents for non-dangerous goods, which all turned out to be fake or no longer relevant and were rejected by COSCO.

Upon further investigation, COSCO found that there was an additional similar product in the container, which the Forwarder #3 mislabeled on the B/L (Bill of Lading). COSCO then classified the goods as “dangerous goods” and advised Forwarder #3 to notify the customer that the shipping fee would double due to this classification. Once this fee increase was agreed, the shipment would have been allowed to continue on its merry way. Forwarder #3 failed to notify Forwarder #2, which in turn never notified Forwarder #1, who was the original forwarder hired by our client’s local forwarder to deal with the logistics on the China end of things.

Since COSCO received an unacceptable CE from Forwarder #3, the situation was reported to the head office in Shanghai, which then held the shipment and the local customs department imposed an additional fine. COSCO refused to move the goods until the fine was dealt with.

For the next six months, email chains denying responsibility and passing blame to others was about all that was accomplished. Meanwhile the goods sat. All three forwarders claimed it was not their fault and the supplier had classified the goods incorrectly. The customer contended that the Forwarder #1, the company initially hired, was responsible for verifying such issues and the supplier claimed the old standby “this is how things are always done” even though the container had several different types of products. All three forwarders and the supplier gave a variety of excuses of why it was not their fault. As these emails produced zero results, our customer paid the fine themselves to get the goods moving.

When our customer’s local forwarder contacted us, it was clear to him that no answers would be found if we were not able to get all the parties together and discuss. We were able to arrange a meeting with representatives from all of the freight forwarders and COSCO.

In the meeting, COSCO shed the most light to the situation. COSCO revealed that supplier had been black listed from COSCO shipping as they have misclassified their products repeatedly. COSCO also showed that Forwarder #3 simply ignored their request about shipping the goods as dangerous goods, most likely because they thought they would be blamed and held liable for the fine. When Forwarder #1 was pressed by our client’s forwarder to find out answers, they claimed it was the supplier’s fault for the misclassification. The supplier returned in kind with the claiming that the forwarder’s misclassification of “furniture” is where the problem began.

We were most surprised at how many freight forwarders were involved on the Chinese side. Forwarder #1 has a continuous relationship with our client’s local freight forwarder and was originally hired to facilitate the shipment leaving China. Forwarder #1 hired the less expensive Forwarder #2 to handle the paperwork and manage the project. Forwarder #2 hired Forwarder #3, a co-loader that basically brokers space on ships on COSCO’s vessels, to take possession of the goods.

Basically, it ended up as an international game of telephone, when the directive was handed down from COSCO, the message got stuck going back to the original customer who would have gladly paid the extra shipping fee to not have his product sitting on a dock for 8 months. Because these freight forwarders are a dime a dozen in China and are each just taking a small slice of the profit pie, the idea of responsibility to the customer became nonexistent.

To sum up:

  • All of these forwarders were so frightened of being blamed for what had happened, they just closed their eyes hoping the problem would go away.
  • Make sure that you do not treat logistics as simply paying a cashier.
  • Build a relationship with a freight forwarder and keep in communication with them.
  • The cheapest forwarder is likely to be someone who will parcel your order out to someone else as soon as possible.
  • When working with technical items that may be subject to multiple classifications, it is best to verify all the certificates and documents before placing any orders. As seen above, the supplier claimed that it had always shipped this way, but this does not mean it was legal.
  • Emails rarely solve complex issues; sitting down face to face with a mid-level manager will ALWAYS produce a quicker and more satisfactory result.

Article by Matt Kowalak

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