Although freight rates from China to North America may be at rock-bottom levels, China’s new 6 percent value-added tax on logistics services isn’t just creating a new cost for some shippers. It’s also creating a major quandary.
That’s certainly the case for Voxx International and its recently acquired Klipsch unit, which imports top-end audio speakers from China. Most Voxx brands are shipped from Chinese factories on an f.o.b. (free on board) basis, which means suppliers are responsible for the logistics and cost of getting their products to the port of export, where Voxx takes ownership. But Klipsch has always taken ownership of the speakers produced in Chinese plants on an ex-works (ex-factory) basis, at the Chinese factory, and is responsible for the logistics and cost of shipping the product to the port of embarkation. As a result, it has to pay the new 6 percent VAT on the logistics cost.
“So you incur about $1,200 per FEU in eight different charges including trucking and handling just to get it to the vessel,” said Pat Moffett, vice president of global logistics for Voxx. “Now we are getting a new 6 percent tax on top of all these charges.”
He said Voxx eventually will have to convert all its Klipsch shipments to f.o.b. at the ship because “there are too many charges going on in China, including the 6 percent tax on the exports before it gets to the ship.”
Changing Klipsch shipments to an f.o.b. basis means the Chinese supplier will take over the logistics of getting the speakers to the port of embarkation for the U.S., but that also means the suppliers will demand a price increase. “The ex-works may have made sense seven years ago, but now all those charges, plus any detention fees at the dock, go onto Klipsch’s bill. We should get out while the getting is good and pay the price increase to the supplier,” Moffett said. “The corporation has to decide on whether to switch over as we blend Klipsch’s system into ours. We don’t want to change over while we’re going through the transition.”