Shipping and Forwarding Cost of Garments:
The shipping and forwarding cost is the cost incurred during the transportation of the goods from the place of the production to the place of the sale. Goods produced are normally transported by road through container when the destination is not so far or else by sea or air. Shipping and forwarding cost are crucial for garments costing, especially in international trade, as they directly impact the landed cost of products.
In general, the cost of sending products through the sea is very less (where the cost is based on the area occupied in volume) than the airway transport (where it is based on weight). But the time for the transport makes the huge difference between air and sea mode. The shipping cost varies according to the means of transport, distance to be covered and forwarder used by the garment producers. Â Forwarders are the people who perform the work of transporting the goods from the place of production to the place of sale and they charge for their work.
Process Flow Chart of Shipping and Forwarding in Garment Export Business:
Receipt of shipment package from the packing department
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Transportation of the goods from factory to port
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Unloading of the goods from the vehicle in the shipment yard
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Loading goods in the container and loading in the ship/vessel
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Payment of duties and documentation costs to government and port authorities based on INCO terms accepted
List of Charges of Shipping and Forwarding Cost of Garments:
The following are the charges to be paid for a sea shipment,
1. ICD (Inland Container Depot) charges: It is the place where the manufactured goods are loaded into the containers, near the place of production. The manufacturer, when the goods are ready for shipment, handovers the goods to ICD, the cost of loading in container and storage charges comes under this ICD charges.
2. Container charges: In general, for ocean freight, the container charges depend upon the space occupied by the goods in the container. The containers are available in three different sizes, namely
- 20 feet (‘) container – capacity of 28 cubic meters
- 40 feet (‘) container – capacity of 58 cubic meters
- 40 high cube container – capacity of 68 cubic meters. If a supplier loads the full container, the rate of the container is fixed.
If the goods occupy only a part of the container, then the amount of space (in cubic meters) occupied by the goods are calculated and paid to the forwarder.
3. Terminal handling charges: It comes under the shipment cost. Among this terminal cost, 5% of service charges will be included. A 5% draw-back charge also needs to be provided for the forwarder.
4. Agency charges: Any charges paid to the port or third-party agencies for handling the goods.
5. Shipping bill: Shipping bill is the bill filled and processed for government authorization for export and duty draw back.
In the case of international shipment, the cost of the shipment increases based on the terms of payment of the freight for the ship or air can either be borne by the producer – who sends the products or the buyer – who receives the product. The terms followed in the transportation are dependent on the International Commercial Terms (INCO). It is the terms or set of rules that define the bearer of transport expenses.
Factors Influencing in Shipping and Forwarding Cost of Garments:
The different factors which have a direct influence on the cost of the shipping are,
(a) Mode of shipment: Whether by air, sea, road or by a combination of those
(b) INCO terms: International Commercial terms are evolved to fulfill certain rights and obligations imposed by a trade contract on the buyer and seller. INCO terms will dictate the responsibility of the seller and the responsibility of the buyer. For example,
- FOB = Free on board: It is the responsibility of the manufacturer to accept the expenses till the goods reaches the national port. The rest of the expenses will be taken care of by the buyer.
- CIF = Cost insurance and freight:Â Manufacturer needs to pay the expenses including the goods insurance, transport cost and relevant expenses.
- Hence, the INCO terms are one of the important factors which limit the expenses and have a potential influence on the total garment cost.
(c) Volume or size of the order: The space occupied by the order or the weight of the order will influence the cost of the freight directly.
(d) Type of assortment
(e) Destination country
(f) Government rules and regulations
Example:
The following example will detail the cost calculation methods involved in the shipping and forwarding sections of the garment industry.
***The packing instruction of a night dress set order was provided as follows, for the order quantity of 27,500 pieces, the product should be packed in such a way that each carton box contains 5 pouches of 10 garments per pouch and the size of the carton box is 120 cm × 90 cm × 80cm. The normal freight charge for a 20′ container is 25,000 Taka. Documentation charges are 2,500 Taka, transportation charges are 13,000 Taka, the port charge is 15,000 Taka, the customs charge is 10,000 Taka, Agent commission is 1 % of the calculated cost and other service charge is 5,000 Taka. Calculate the shipping and forwarding cost of the single garment.
Solution:
a) Freight charge
The total order quantity – 27,500 garments
Each carton box contains 5 pouches and 10 pieces of garments per pouch.
Hence total garments in a box = 50
The number of pouches required for the order quantity = 27,500/10
= 2,750 pouches
Each box contains 5 pouches.
So, the number of boxes are = 2750/5
= 550 boxes to cover the order
Size of the single box = 120 cm × 90 cm × 80 cm
= 8,64,000 cm3 = 0.864 m3
The total area of the 550 boxes = 0.864 × 550 = 475.2 m3
The normal freight charge for 20′ container = 25,000 Taka
Area of the 20′ container = 28 cu.m.
Hence, the cost of a cubic meter = 25000/28
= 892.86 Taka/m3
If 1 meter cube space cost 892.86 Taka, the cost of 475.2 m3
= 475.2 × 892.86
= 4,24,287.072 Taka
= 3,535.7256 USDÂ Â Â Â Â Â Â Â Â Â Â [1 USD = 120 Taka]
b) Overhead costs
Other administrative overhead costs are,
- Documentation charges 2,500 Taka
- Transportation charges 13,000 Taka
- Port charges 15,000 Taka
- Custom charges 10,000 Taka
- Other service charges 5,000 Taka
Total overhead charges = 45,500 Taka = 379.17 USD Â Â [1 USD = 120 Taka]
c) Total cost
Total cost = Freight cost + Overheads
= 4,24,287.072 + 45,500
= 4,69,787.072
= 3,914.89 USDÂ Â [1 USD = 120 Taka]
Agent commission = 1 % of the total value
Hence, The total cost = 4,69,787.072 + {4,69,787.072 x (1/100)}
= 4,74,484.943 Taka
The total shipment cost = 4,74,484.943 Taka
= 3,954.04 USDÂ Â Â Â Â Â [1 USD = 120 Taka]
The shipment cost of a single garment = 4,74,484.943/27,500
= 17.25 Taka
= 0.144 USDÂ Â Â Â Â Â Â Â Â Â [1 USD = 120 Taka]
References:
- Handbook of Textile and Apparel Costing by Rathinamoorthy, Surjit and Vishnu Vardhini
- Apparel Merchandising by R. Rathinamoorthy and R. Surjit
- Garments Merchandising by M.A. Kashem
- Practice of Garments Merchandising and Management by Engr. Md. Faruq Hosen
Editor of Fashion2Apparel. She is a fashion designer and ex-lecturer in Fashion Designing. She wants to spread fashion knowledge throughout the world.
