Doing Business with China

Documentation is an important part of the freight forwarding service. The most complex occurs with ocean shipping which involves liner transport and charter transport. Typical documents include:

Booking note

This is the document filed by the freight forwarder on behalf of the shipper for reservation of shipping space with the carrier. Before issuing the booking note, the freight forwarder has to examine carefully the shipper's contract and letter of credit stipulations for compliance with the shipping terms therein.

Shipping order

This is the document issued by the carrier or its shipping agent to the shipper, often represented by the freight forwarder, confirming the agreement for the shipping service. Upon the issuance of the shipping order, a transportation contract is established between the carrier and the shipper. The freight forwarder will be able to clear the goods with the customs on the strength of the shipping order.

Mate's receipt

After the goods are loaded on a vessel, for example, the chief mate of the carrier will issue the mate's receipt to the shipper represented by the freight forwarder to confirm receipt of the goods on board. The chief mate reserves the right to withhold this document if he finds discrepancies over the quantity and packages of the goods.

Tally report

A tallyman is a third party notary who can be hired by either the carrier or the freight forwarder to ascertain the quantity of goods actually loaded on board.

Bill of lading

Bill of lading is the most important shipping document issued by the carrier. It serves as the official receipt of goods on board substituting for the mate's receipt. More significantly it is regarded as a document of title to the goods.

Dangerous cargo list

If the goods are classified as dangerous cargoes, a separate dangerous cargo list must be tendered by the freight forwarder to the carrier. Loading and unloading a dangerous cargo have to be placed under strict supervision by the port superintendent to ensure conformity with the Port Dangerous Cargo Regulations .

Inspection certificates

Depending on the specialty nature of the goods and the sales contract requirements, the freight forwarder will help the shipper to obtain various types of inspection certificates such as quality certificates, sanitary certificates and quarantine certificates.

In addition, the weight list, packing list, GSP (General System of Preference) certificate and origin certificate are among the many further documents required to satisfy different modes of transport, contract stipulations and government regulations.

Large numbers of Chinese companies have neither strategic plans for freight forwarding arrangements nor maintain regular relations with a freight forwarder. Most of the foreign trading companies maintain their own freight forwarding department. To some firms, freight forwarding is a service readily available by a phone call, and can be shopped around for in case of need. Some focus on low-cost providers and particularly those who are creative enough to be able to help bypass the bureaucracies of inspection and customs administrations .

The market entry barrier is noticeably low for local firms in the freight forwarding sector, which explains why the average gross profit for handling one container has dropped below US$50 from US$200 previously. Only 70 per cent of the freight forwarders are able to earn a profit. The competitiveness of the freight forwarding business hinges heavily on the scale of operations. Most successful forwarders are those that are able to establish wholly owned, full-service operations with their own truck fleet , warehouses, container depot and connections with the various government agencies concerned .

Since transportation, particularly freight forwarding, is considered to be in the service sector, the Chinese government is cautious about opening this market to complete foreign competition. The concern is that many Chinese carriers and forwarders are likely to suffer because they lack the modern equipment and information technology that would allow them to keep up with foreign competitors . With entry into the World Trade Organization (WTO), China's liberalization process for foreign participation in various modes of transportation, warehousing, packing services and freight forwarding is finalized on a predictable timetable, albeit more slowly than in most other business sectors. In summary, the following specific commitments have been made:

• China shall allow private freight forwarding entities to provide services and information for pre-shipment inspection commencing from the day of WTO entry.

• China shall allow foreign firms to enter into joint ventures with Chinese firms in liner shipping and tramp shipping. The equity share of the foreign firm shall not exceed 49 per cent. The chairman of the board and the general manager must be appointed by the Chinese party;

• While China imposes no restriction on the air transport services rendered by foreign firms, foreign firms are not permitted to operate independently in ocean- going freight forwarding, customs clearance and container depots in China unless they enter into joint ventures with a Chinese local counterpart , and the entire equity share of the foreign party shall not exceed 49 per cent;

• For highway transport, China permits majority equity ownership by foreign firms one year after its WTO entry and solely owned foreign entities are to be permitted three years after WTO entry;

• For railway transport, China will permit majority equity ownership by foreign firms three years after its WTO entry and solely owned foreign firms are to be permitted six years after WTO entry;

• For warehousing and other logistic services, China allows 49 per cent of the equity ownership by foreign firms. Majority ownership is permitted one year after WTO entry, and solely owned foreign entities are permitted three years after WTO entry;

• Freight forwarding firms who intend to set up joint ventures in China must show a minimum three- years' experience in this field and their equity share shall not exceed 50 per cent. One year after its WTO entry, China will permit the majority equity share to be held by the foreign party. Four years after its WTO entry, solely owned foreign operation shall be permitted in China;

• The registered capital of a freight forwarding joint venture shall be a minimum US$1 million. Within four years of China's WTO entry, national treatment shall apply. The term of such a joint venture is limited to 20 years;

• A joint venture freight forwarding firm which has operated in China for over one year is permitted to open subsidiaries. For each subsidiary set up, the registered capital of the firm shall be increased by US$120,000. Two years after China's entry to WTO, national treatment shall be applied to the registered capital requirement;

• A foreign freight forwarding firm that has entered into a joint venture for over five years in China is permitted to enter into a second joint venture with a Chinese partner. Two years after China's entry into WTO, this requirement shall be reduced to two years.