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PROTECTING YOUR SUPPLY BASE

Most companies do not regard their supply base as intellectual property but they do so at their peril. Protecting your intellectual property is essential in this day and age as it provides a company or individual with a competitive advantage over other players in the industry.  Exposing your supply base to your customers can have dramatic consequences – the worst of which is the danger of your customer going directly to your supplier.

Australian retailers are well placed to deal directly with offshore manufacturers and indeed most of them have some direct supply in their product offerings. If you are currently supplying the larger retail chains with product you source from overseas you will have noticed an increased pressure to provide that product on an FOB basis rather than the traditional free into store approach. One of the dangers of agreeing to provide product on an FOB basis is the potential exposure of your supplier information to your customer – who could then quite realistically become your competitor.

Normally, when shipping goods from, say, China to Australia a bill of lading is cut with the consignor and consignee details listed on the bill. In normal circumstances the consignor would be the offshore manufacturer and the consignee would be the name of the entity that is to take delivery of the product. In the above FOB scenario the consignor would be your supplier and the consignee would be your customer. So it is easy to see that in this case your supply base is exposed. However, Magellan Logistics can help you with protecting your supplier information by manipulating the documentation to provide you with comfort that your valuable IP is being hidden.

The export documentation will be produced as normal and used for clearing the goods through the offshore Customs authority. However, once export formalities have been completed Magellan Logistics will raise a separate house bill of lading to indicate that you are the consignor and your customer is the consignee. Further, the invoice accompanying the shipment will be the FOB invoice raised by you on your customer. This documentation will be used to clear the goods through Customs in Australia. In this way, your supplier information is hidden from your customer and should go some way towards providing you with peace of mind.

As this is an extremely commercially sensitive area of concern we suggest that a Standard Operating Procedure (SOP) should be developed to ensure that all stake holders are fully aware of their obligations at each step of the way.

If you would like to discuss this issue further please contact Jeff Kershaw on 0418 543 994 or at jeff@maglog.com.au

AS ALWAYS – MAGELLAN LOGISTICS IS HERE TO HELP

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PRODUCTION ASSIST COSTS (“Assists”) Explained

What are Production Assist Costs?

Production Assist Costs relate to tangible and intangible assistance provided to a foreign supplier by an Australian buyer of imported goods. If this assistance is provided free of charge or at a reduced cost then the cost of this assistance (to the extent it is not already included in the price) needs to be included in the value declared to Customs upon importation. The production assist costs that fall within this description are commonly referred to as “Assists”.

Categories of Assists

a) materials, components or other goods that form part of the imported goods;

b) materials consumed in the production of the imported goods;

c) tools, dies, moulds or other machinery or equipment utilised in the production of the imported goods;

d) art work, design work, development work and engineering work (including models, plans and sketches) – the design of which has been undertaken outside Australia;

e) inputs in the production of the goods referred to in (a) to (d) above;

f) overseas transportation and packing costs relating to (a) to (e) above;

g) foreign customs duties, sales tax, or other duties or taxes on production tooling, work goods or subsidiary goods;

h) repairs or modifications to the materials, components, subsidiary goods, tools, dies, moulds, and other goods referred to above.

An example of a transaction involving “Assists” would be an Australian white goods wholesaler providing Australian standard electrical cords and plugs to a Chinese manufacturer for incorporation into Australian imported white goods. If the cords and plugs are provided free of charge to the manufacturer then the value of the cords and plugs would need to be added to the suppliers invoice price to arrive at an acceptable Customs Value.

It should be noted that it is irrelevant whether duty is being paid on the imported product as the importer has an obligation to report accurately to Customs and, as such, any under-valuation would fall within the ambit of the Infringement Notice Scheme.

As always, Magellan Logistics stands ready to assist with determining whether your business is exposed due to non-compliance with the above requirements. If you would like more information on this subject or simply wish to clarify any of the foregoing detail please contact Jeff Kershaw at jeff@maglog.com.au or by telephone on 0418 543 994.

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TRANSFER PRICING explained……

Have you done the due diligence required to ensure compliance?

 

Transfer pricing is the setting of the price for goods and services sold between controlled (or related) legal entities within an enterprise. For example, if a subsidiary company sells goods to a parent company, the price set for those goods is the transfer price. Transfer pricing does not apply to importers and exporters that deal with unrelated buyers and sellers.

It is a fact of life that multinational companies, from all sectors and in every part of the world, face difficulties with respect to the valuation of goods. These difficulties arise because transactions between related parties are subject to both customs and fiscal examinations and are thereby bound by differing rules and contradictory interests.

There are two reasons for this problem:

Firstly, tax and customs administrations, even within one country and sometimes within the same government department, have different approaches: tax administration focuses on intra-group sales’ prices that may be perceived as higher than they should be; whereas customs authorities control imported goods for which prices may be perceived as lower than the market price. While both administrations seek to achieve the same goal (which is arm’s length pricing) revenue interests in the transaction still remain at odds with each other. An arm’s length transaction is one in which the buyers and sellers of a product act independently and have no relationship to each other. The concept of an arm’s length transaction is to ensure that both parties in the deal are acting in their own self interest and are not subject to any pressure or duress from the other party.

Secondly, tax and customs administrations often set rules independently for the same transaction/good. Tax authorities seek conformity with the Organisation for Economic Co-operation and Development (OECD) Transfer Pricing Guidelines which have been largely codified in many countries. This set of rules provides guidance on the application of the arm’s length principle for the valuation of cross-border transactions between associated enterprises, whereas customs authorities conform to Article VII of the General Agreement on Tariffs and Trade (GATT) Valuation Code – currently the World Trade Organization (WTO) Valuation Agreement.

This dichotomy, present in both developed and developing countries, creates a climate of uncertainty and complexity compounded by economic globalisation. It also leads to increases in compliance and implementation costs, absence of flexibility in the conduct of business operations, and creates a significant risk of penalties. Indeed, even when a company complies with both the OECD guidelines/principles and the World Trade Organization (WTO) Valuation Agreement, there is no guarantee that there will not be a dispute between two countries or two administrations in the same country on the determination of the arm’s length price. This means that valuation conflicts can arise not only prior to but also after an audit.

Given that intercompany transactions account for more than 60% of global trade in terms of value, the divergence of customs and transfer pricing valuation presents an obstacle to the liberalisation of trade and inhibits international development for companies of all sizes.

Magellan Logistics can provide advice on this complex subject. So if you are involved in cross-border trade with a related company and have reservations about the legality of your arrangements you should contact Jeff Kershaw at Jeff@maglog.com.au or by telephone on 0418 543 994.

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Department of Agriculture announces increased quarantine fees and charges over Christmas and New Year Period

(Below information provided by CBFCA – Customs Brokers and Forwarders Council of Australia Inc.)

Further to NNF 2014/169 Quarantine Fees and Charges Guidelines (the Guidelines) the Customs Brokers and Forwarders Council of Australia Inc. (CBFCA) has been advised that the Department of Agriculture (the Department) will apply specific  increased fees and charges over the Christmas/ New Year period.

Members should note in  particular  the overtime charges, and the prescribed times that are considered as overtime in Section 8.5 of the Guidelines.

It should be noted that overtime rates will  be applied for any transactions that are performed during the period 27 December to 31 December of each year.  This period is considered as a Departmental holiday.

As  service starts outside of ordinary hours, it is considered as non continuous overtime, with a minimum number of hours to be charged.

Therefore any inspections, or AIMS entries required to be processed during this period will attract the normal fee for service, plus overtime of $288.00 per service provided.

In addition on other issues the Department has  also confirmed that in accordance with Section 8.6 of the Guidelines , reprints of directions involving a change to the direction will incur a $40.00 per quarter hour unit fee from the 25th of November 2014.  Where a reprint of a direction occurs during the Departmental holiday period, the fee will be $40.00 plus $288.00.

Reprints of directions where no changes have occurred are considered as part of the initial payment, and will therefore not incur any additional costs.

Where an inspection is booked with the Department, and subsequently  cancelled with 24 hours notice or more, there will be no fees payable.  However where less than 24 hours notice is given, a fee of a 15 minute service fee unit will be charged for manned depots, and 30 minute service fee for unmanned depots.  Please refer to Section 8.7.8 of the Guidelines .

As bookings are made as AM or PM only, the cancellation must occur more than 24 hours before the corresponding AM or PM slot, for no fees to be charged.

Members should clearly note and understand the implications of this provision  implemented for the Departmental holiday period, as if less than 24 hours notice is provided, the cancellation will also attract $288.00 in overtime fees.

Further information

Refer to below Quarantine Fees and Charges Guidelines link or download attachment.

www.agriculture.gov.au/biosecurity/import/general-info/fees-charges-import/quarantine-fees-and-charging-guidelines

CBFCA – National

Download Quarantine Fees and Guidelines November 2014

For more information please contact the Magellan Logistics customs team on 1300 651 888.

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Chinese New Year 2015

What does the celebration represent and how might this national holiday impact your shipments?

Chinese New Year (CNY), also known as the Lunar New Year or the Spring Festival, is the most important of the traditional Chinese holidays.

CNY is based on the Chinese calendar and usually begins on a different date each year. It is based on the moon’s orbit around the earth.  The festival traditionally begins on the first day of the first month in the Chinese calendar and ends on the 15th of the month. Each CNY is symbolized and named after one of 12 particular animals (Rat, Ox, Tiger, Rabbit, Dragon, Snake, Horse, Goat, Monkey, Rooster, Dog and Pig) and consists of a 12 year cycle. 2015 is the year of the Goat.

The holiday for CNY is officially recognized by the government as 7 days, with typical CNY celebrations lasting for 15 days. In 2015, holidays start on 19th February until 25th February.

Within China, regional customs and traditions concerning the celebration of the CNY vary widely. People will pour out their money to buy presents, decorations, material, food, and clothing. It is also the tradition that every family thoroughly cleans the house to sweep away any ill-fortune in the hope to make way for incoming good luck. Windows and doors will be decorated with red colour paper cut-outs and poems with popular themes of “happiness”, “wealth”, and “longevity”. On the Eve of CNY, supper is a feast spent with family. Food will include pork, duck, chicken and sweet delicacies. The family will end the night with firecrackers. Early the next morning, children will greet their parents by wishing them a healthy and happy new year, and receive money in red paper envelopes. The CNY tradition is a great way to reconcile by forgetting all grudges, and sincerely wishing peace and happiness for everyone.

Effect on your imports / exports during Chinese New Year

As is the same every year, CNY has a massive impact on sea freight and transportation to and from Australia. During the holiday, most areas of government, construction and factories shut down, while ports and customs usually operate with a skeleton staff focusing on perishable priority items that are time-sensitive only, such as fresh produce.

Manufacturing plants across China typically shut down and tens of millions of workers make long trips back to their home towns from the industrial cities where their jobs are based. It has a huge impact on all global supply chains originating from China and it’s not always back to business as usual, before and after the 15 day celebration. The celebrations are also expected to affect port operations in terms of loading, barging schedules and possibly product availability. It can have a considerable effect on your supply chain during the celebration and should be planned for.

When the New Year approaches, factories kick into high-gear in an attempt to ship as many orders as possible before officially shutting down for the holiday.  Major retailers tend to plan ahead to accommodate for the manufacturing shutdown in China during the CNY. Planning and coordination are key to ensuring your supply chain continues to run smoothly during this period and you have enough merchandise for your customers. Importers and exporters will also need to make changes to their production and shipping schedules to ensure they have enough goods to get them through the downtime caused by the factory closures. Stocks are also at times kept in storage until factories are up and running again. China’s entire transportation system is practically at capacity during this time, and it is common for issues with container and truck availability when shipping goods close for CNY.

The shipping lines often introduce GRI (general rate increase) in January for peak demand before CNY, and space becomes tight as all suppliers struggle to ship their cargo before the holidays, as well as considering blank sailing programs with shipping lines.

The container shipping lines servicing the North East Asia-Australia trade lanes are moving to cut back on capacity and skipping a series of sailings. This Blank Sailing Program with shipping lines from all 9 consortiums, participate in managing the available space in the off peak period to combat the over-supply of tonnage in the shipping trade. Particularly during the two weeks of CNY, in preparation of volume lulls following the start of the holiday on February 19th, 2015, capacity will be cut by 35 – 42% which will mean less available space on the berth. Trade will be slow due to factories closing over the CNY Period and the traditional off peak period commences. Port capacity is limited and congestion is increased weeks before and after CNY that can lead to delays at the ports limiting the availability of goods in the supply chain. In China and its mainland ports, the celebrations are also expected to affect port operations in terms of loading, barging schedules, etc

chinese-new-year-2015

Timeframes to consider & planning

Shipments must be at port at least 10-14 days before Chinese New Year to ensure shipment before the break starts. Shipments must also be booked at least two weeks in advance because space quickly fills up. If you ship a large amount around that time, then congestion will likely bump at least one of your shipments to a later ship date, often a week after CNY if you do not manage your shipments in time. Most ports open again for normal shipping about one week after CNY. Filling containers and preparing customs declaration documents well in advance of the holiday are advisable steps to take. Ports will have major congestion the week leading up to and after the New Year as factories gear up for the shut down and return to work.

In summary, when planning for peak season, be sure to have a buffer for CNY – Two or three weeks for bookings and then another week for ETA in case of delays.

This annual celebration should be a part of your yearly supply chain planning.

Here are the dates of Chinese New Year for the next 6 years for your reference:

chinese-new-year-6-year-dates

We hope this article provides insights on how Chinese New Year may affect your shipping and the necessary steps to take to prevent facing supply chain and shipping delays at this time of the year.

For more information please contact your Magellan account representative, email info@maglog.com.au or our customs team on 1300 651 888.

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Australia Korea FTA in effect 12 December 2014

Trade and Investment Minister Andrew Robb has announced that Australia’s Free Trade Agreement with South Korea will enter into force on 12 December 2014.

The Korea-Australia Free Trade Agreement (KAFTA) was signed in Seoul, South Korea, on 8 April 2014 and KAFTA will enter into force when both Korea and Australia have completed their domestic legal procedures.1

Below is an outline of top imports from Korea into Australia in 2012-2013.2  For Magellan customers, this agreement may also affect those importing textiles or other similar products from Korea.

There are a range of products that will have reduced duty rates under this agreement, and to get access to these lower rates, suppliers will have to provide importers a KAFTA certificate.

Four steps to using KAFTA

Step 1: WHAT goods am I exporting or importing? (tariff classification)

Step 2: HOW are these goods treated under KAFTA? (tariff treatment)

Step 3: WHERE are my goods produced? (rules of origin)

Step 4: CERTIFY your goods with a Certificate of Origin

For further information on what items will have reduced rates and the detail behind the KAFTA stepped process above please refer to this media release and/or speak to your friendly Magellan Logistics Customs Broker who can provide more detail on 1300 651 888.

To read more about Free Trade Agreements and how they help Australian exporters, read our recent blog

 

Sources:

1 Customs Brokers & Forwarders Council of Australia Inc. – CBFCA

.2 Department of Foreign Affairs and Trade http://www.dfat.gov.au/fta/kafta/

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IMPORTANT NOTICE: Changes and Delays in Shipping from USA

usa-magellan-news

Thanksgiving update

Last Thursday 27th November was Thanksgiving in America which is usually followed by a holiday for many companies on the following Friday.

The traditional holiday began in the American colonies almost 400 years ago as a feast of thanks to celebrate the successful Autumn Harvest. Moving cargo is quite difficult at this time as many suppliers are closed until Monday December 1st. Bear in mind that some deliveries may be delayed to due this holiday break.

West Coast Delays

Currently the U.S West Coast Ports (Long Beach/Los Angeles) are suffering severe delays stemming from a shortage of trucking equipment, called Chassis. This problem alongside the outstanding labour negotiations were causing trucks standing in mile long queues as stacks of unmoved containers wait for pick up at the complex that handles 40% of U.S. containerised cargo. The Port of New York and New Jersey are also affected but not as severe.
We will continue to monitor the situation and keep you advised as a West Coast Port Congestion Surcharge is likely to be implemented.

Bunker Adjustment Factor (BAF) changes

Changes to Bunker Adjustment Factor (BAF) will be made ex US ports to Australia effective December 15, 2014. The change will be to cover the cost of lowering the cap on Sulphur Oxide emissions to 0.1%. This requires a switch to cleaner more expensive marine gas oil therefore the existing BAF will be decreased and a new Low Sulphur Fuel Surcharge will be applied as follows:

NEW BAF EFFECTIVE DECEMBER 15, 2014

SIZE TYPE LEVEL (USD)
20′ ALL TYPES $794.00
40′ ALL TYPES $1588.00
40’HC ALL TYPES $1588.00

NEWLY IMPLEMENTED LOW SULPHUR SURCHARGE EFFECTIVE DECEMBER 15, 2014

SIZE TYPE LEVEL (USD)
20′ ALL TYPES $47.00
40′ ALL TYPES $94.00
40’HC ALL TYPES $94.00

For more information please contact our customer service team on 1300 651 888.

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News Alert: Allowing more time for your exports due to China pre-export inspections & buyer consolidations.

 

calendar-magellan

Increasing the ratio of Customs Inspections for Export Cargo in China.

The export cargo inspections ratio from Customs in China, and in particular at Xiamen and Huangpu have been increasing during this year for export shipments to all international ports. When cargo is held for pre-export inspection, this affects the export clearance process, to the extent that shipments may not meet the intended booked vessel. We have noted that pre-export inspections by Chinese Customs can take up to 3 days. It is a random process that is done within the complete control and direction of Chinese Customs.

We recommend a further allowance when delivering export cargo to the receival depots and wharf terminals of 3-4 days before the closing date for FCL & LCL shipments.

Single Buyer Consolidations from various suppliers in different provinces

In the case of buyer consolidations (BCN) that may involve various suppliers from different Chinese provinces, we need to allow longer transits for the domestic transfer to the receival depot. We recommend instructions are given to your suppliers to allow at least 4 days prior to vessel close-off to cover any delays, to ensure adequate time to stuff the container and lodge it at the wharf terminals for export.

For more information please contact your account manager or the customs team on 1300 651 888.

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Collision of vessel Xin Chi Wan v.140s in Hong Kong

update-magellan

M.V. Xin Chi Wan v.140s was involved in a collision with MV Bani Bhum at the Ma Wan anchorage off Hong Kong on 3rd Nov., whilst both vessels sustained damages, there was not any reported damages to the containers. The operators of the vessel have now advised the following contingency plans:-

The MV Xin Chi Wan will be taken to a local shipyard for assessments and repairs to damages on the hull.

  • All containers on board were removed from the vessel on the 9th November.
  • All containers originally booked on Xin Chi Wan v.0140s will be loaded on the MV. Xin Qing Dao v.0166s ETD HK 13th  Nov.
  • Xin Chi Wan v.0142s will be phasing back to the ACE service as per the original southbound schedule of Xin Qing Dao v.0166s after repairs are completed. The revised schedule of Xin Chi Wan v.0142s ETD Shekou 18th Nov ETD HKG 17th Nov.

Should you need further information, please do not hesitate to contact our Customer Service team on 1300 651 888.

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Prepare for import duty reductions now – effective 1st January 2015

5-percent-duty-rate-magellan-logistics

Further to our previous blog, this is a reminder that the duty reduction date is rapidly approaching us: 1st January 2015.

In essence, legislation was passed for a reduction to 5% in the general rate of Customs duty applicable to a range of  products, which in particular includes  garments, some home-wares and other made up textile articles that are imported into Australia from 1st January 2015.

If any goods that you import currently attracts a 10% rate of duty, that rate may now be reduced to 5%. Should you need clarification if your imported goods are subject to the duty reduction, please contact one of Magellan Logistics’ Customs Brokers on 1300 651 888.

If you have shipments planned to arrive towards the end of December 2014, and they are cleared before the 1st January 2015, then the current duty rate of 10% will apply.

Rather than delaying shipments until arrival after 1st January to gain benefit from the lower duty rates, we can assist by arranging to have your shipments held for a few extra days either in storage or “under bond”  (moved to a Customs approved warehouse/depot). The duty rate reduction will be applicable to any Customs declarations made on or after 1st January 2015, rather than on the date the shipment actually arrives in Australia.

Before making this commitment, we can assist in a costing exercise in weighing up the added storage, demurrage  & handling costs compared to the duty savings.

As this period will also impact over the traditional holiday close-downs for much of industry, storage is usually always at a premium across Australian ports. So if you intend to hold any of your shipments in storage for a short period to take advantage of the duty reductions, we suggest you let us know your plans as soon as possible, so we can make appropriate planning decisions in your best interests.

Please call 1300 351 888, email info@maglog.com.au, or contact one of our Customs Brokers or your Account Manager directly to further discuss the plans for this upcoming duty rate reduction.

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