It is important to choose the right international shipping strategy for your business. The shipping strategy should depend on your budget, margins, product size and weight, shipping destinations, and specific product needs. Choosing the right mode of transportation requires understanding your needs and those of your client, along with the capabilities you have in-house or may require (See Logistics, how to get my product from origin to destination).
For small shipments and quick delivery, many well-known global shippers also have MSME resources. To see more, visit the UPS and FedEx websites.
How do I estimate and evaluate shipping costs?
Shipping is a service and demand depends on several factors, including price, speed, reliability, and security. Below are common criteria required in order to estimate shipping costs:
- Shipping point of origin and destination
- Delivery times
- Shipping insurance (optional)
- Duties and taxes
What types of transportation can I consider?
There are four main shipping methods for goods that are usually paired together in various combinations, referred to as “intermodal transportation.” These include:
- Ocean freight: Maritime transport is the way the largest volume of goods is shipped around the world. There are many options for ocean freight, including booking a container on a regular shipping line or chartering a vessel for a specific type of freight. The cost of ocean freight is usually based on the good, how much it weighs, and its volume. Besides the cost of the freight, traders need to be aware of potential port charges, terminal charges, or adjustment factors such as for fuel or currency, as these can increase costs. In addition to these types of charges, shippers also need to be aware of potential “demurrage” charges. These can be charged when a ship is held in port for longer than loading and unloading, or if ocean containers are not returned in the required amount of time. From origin to destination, the length of time required can vary depending on the distance, with estimates ranging from 20-45 days. In 2021, some of the largest container shipping companies in the world included A.P. Moller-Maersk, COSCO (China Ocean Shipping Company), CMA-CGM, Hapag-Lloyd, and MSC (Mediterranean Supply Company).
- Road transportation (trucking): This is a very flexible mode of transportation. Shipping containers can be directly offloaded onto trucks, which can then bring the cargo to its destination, roads permitting. In terms of time required, trucking can compete with air freight for short- and medium-distance hauls and is significantly less expensive. However, trucking can become more expensive on longer distances and laws may prohibit freight trucks from crossing borders. Countries also have different regulations in terms of size and weight that may make trucking difficult or impossible.
- Rail transport: Transport by train can be a very efficient means of moving cargo, with generally low costs and specialized railcars that facilitate packing depending on the type of good. Standard shipping containers can also be moved directly between ship, truck, and rail. However, rail freight can be very slow and there are increased risks of transportation-related damage to goods because of shocks during movement and coupling/decoupling of the railcars. Most importantly, they only serve destinations with rail infrastructure.
- Air freight: The shipment of goods by aircraft is the fastest, but also the most expensive, form of transportation. Air freight can make sense for small or perishable shipments. Shipments are also generally more traceable and can be delivered more directly to the final destination. However, shippers need to be aware that the higher cost of air shipping can also lead to additional costs in terms of import duty and VAT, since these are charged based on the cost of the good plus shipping. They must also know that there are additional restrictions on the types of cargo that can be transported via air freight.
What else should I keep in mind?
- Transhipment and consolidation: These are two terms frequently used when it comes to transportation. They refer to moving cargo through third-party transit locations before arriving at the final destination and to combining shipments from different parties into a single load, respectively. Both options can reduce costs, but they can also increase the delivery time and risk of damage. Additionally, some types of trade finance like letters of credit may prohibit transshipment because of the increased damage risk.
- Documentation: Keeping good records and meeting documentation requirements for shipments is important for tracking and awareness of the contents of shipments. These documents include bills of lading (see Bills of Lading), invoices, packing lists, certificates of origin (See Rules of Origin), and insurance certificates (see Trade Insurance).
- Freight forwarders and trading houses: These resources can simplify international shipping, especially for smaller traders. Freight forwarders can take care of the entire logistics process (see Logistics, how to get my product from origin to destination). Trading houses are specialized businesses that will take a product, look for a potential foreign market, and take care of the entire trade process for that product, from marketing to logistics to foreign sales. Trading houses can be especially beneficial for smaller businesses with fewer resources to devote to international trade.
Where can I learn more?
The International Trade Centre’s (ITC) SME Academy features an online course on Introduction to International Transport and Logistics.