China's new logistics tax highlights need for understanding Total Landed Cost.
If you source your products in China, they just got a little more expensive. Maybe.
On August 1, the Chinese government imposed a new value-added tax, or VAT, of six percent on logistics services, and 11 percent on domestic transportation. Some Chinese manufacturers can claim tax credits offsetting the VAT, and although the VAT is not applicable to all international shipping, the tax is being added on to some air and cargo shipments out of China.
In addition, some carriers are imposing their own .75 percent fee for handling the VAT. In the months to come, further clarifications and specifics are expected from China, and the U.S. Government and transportation organizations such as the Hong Kong Assn. of Freight Forwarding and Logistics are pressing for more transparency.
China’s new VAT is just the latest example of how important it is to fully understand your supply chain, and properly value your products that flow through it. By looking at Total Landed Cost (TLC), you factor in all the costs associated with getting a product to its final destination, be it a retail shelf or a B2B customer. If you source in China, in addition to manufacturing or acquisition costs, you need to consider transportation costs, consolidation, receiving, storage, and inventory carrying costs, plus taxes like the VAT, at every stop along the way. What is the trade-off between shipping ocean vs. air, or the impact of carrying costs?
You also need to consider the risk associated with any given channel, whether it be natural disaster, price volatility, or even social unrest. Performing a Total Landed Cost analysis gives you a more accurate assessment of the cost, and profitability, of any given item, category, or business division.
TOTALogistix uses high-tech proprietary technology to provide enhanced analytics and supply chain visibility, allowing risk, disruptions, fuel price swings and other variables to be factored into the landed cost equation in real time. Is it better to manufacture in China, in Mexico, or both? Are you better served by one national, or several regional DCs?
The lowest cost option is not always the best option. Understanding your Total Landed Cost can give you a key competitive advantage. Let the folks at TLX show you a little TLC.