Imported Equipment Costs Beyond the Factory Price

An overseas quote and a local quote are hard to compare. With an imported machine the factory price is only the start: freight, insurance, port charges, customs, delivery, installation and service all follow, and somebody pays for each.

To put the two on the same footing, list every cost from the supplier’s loading dock to normal production, then mark who pays it under the contract terms. Incoterms decide which party pays for which transport legs. They don’t make any cost disappear, and they say nothing about installation, compliance, spares or service.

What Incoterms decide

Incoterms are standard trade terms published by the International Chamber of Commerce (ICC). A rule in your contract, such as EXW, FOB, CIF, DAP or DDP, says which party arranges and pays for which legs of transport and where the risk of loss passes from seller to buyer. See the ICC Incoterms rules page for the rules themselves.

In general terms:

• EXW (Ex Works): the seller makes the goods available at its own premises, and the buyer handles almost everything from there.
• FOB (Free on Board): the seller delivers the goods onto the vessel at the named port of shipment. It applies to sea and inland waterway transport only.
• CIF (Cost, Insurance and Freight): the seller pays carriage and minimum insurance to the destination port, but risk passes when the goods are on board at origin. Also sea and inland waterway only.
• DAP (Delivered at Place): the seller delivers to the named destination, ready for unloading. The buyer handles import clearance and duties.
• DDP (Delivered Duty Paid): the seller also clears the goods for import and pays duties and taxes.

These are summaries. Details differ by rule and by edition, so confirm them against the current rules and your contract. A seller who quotes DDP has priced the extra legs into the invoice and may add a margin on top.

The cost list

Costs that move with the Incoterms rule:

1. Export crating and packing. Wooden cases or sea-worthy wrapping for the machine.
2. Origin inland freight and export handling. Trucking to the port, export clearance and loading.
3. Main carriage. Sea or air freight.
4. Cargo insurance. Cover against loss or damage in transit. Check who holds the risk at each point.
5. Destination terminal and port charges. Handling, storage and documentation at the arrival port.
6. Customs brokerage. The fee for preparing and filing the import entry.
7. Import duties and taxes. These depend on the importing country, the tariff classification and the origin of the goods. Confirm the applicable rates with a licensed customs broker or the customs authority.
8. Destination inland delivery. Port to your site.

Costs that no Incoterms rule removes:

9. Unloading and rigging at your site.
10. Installation and commissioning by the supplier’s engineers. Travel, visas, accommodation, daily allowances, and waiting time if the site is not ready when they arrive.
11. Local electrical and safety compliance. Supply voltage and frequency, local electrical and machine-safety requirements, and any modifications or certification.
12. Spare parts stock sized for long lead times.
13. Remote support across time zones. A fault at 9 a.m. at your plant may arrive at the supplier at night.
14. Currency and payment terms. Deposit timing, exchange-rate movement between order and final payment, and bank charges.
15. Warranty logistics. Who pays to ship a failed part, and how long the part takes to arrive.

Buyers tend to price the second group late. The True Installed Cost of Packaging Automation covers site preparation, line integration and ramp-up, which apply whether or not the machine crossed a border.

Tariff classification

Duty depends on how customs classifies the machine under the Harmonized System (HS). Packaging machinery is commonly examined under two subheadings: HS 8422.30, machinery for filling, closing, sealing, capsuling or labelling containers, and for aerating beverages (UN Statistics Division, 842230), and HS 8422.40, other packing or wrapping machinery (UN Statistics Division, 842240).

Those descriptions are from HS 2012. Later editions may differ, and national tariffs add further digits. The classification of a specific machine, including a multi-function line, must be confirmed by a customs broker or the customs authority. A wrong code can change the duty and hold the shipment at the border.

A worked example

Worked example. Replace the $6,000 duty and tax line with the broker’s assessment; do not treat that dollar amount as a tariff rate.

Take a machine with a factory price of $80,000, bought on FOB terms and shipped by sea. This extends the $80,000 machine from the installed-cost article, but it excludes the site preparation and line integration costs listed there.

The first group is $80,000 + $1,500 + $2,000 + $4,500 + $600 + $900 + $500 + $6,000 + $1,200 = $97,200. The second group is $1,500 + $4,500 + $5,000 + $1,000 + $3,000 + $4,000 + $800 + $1,500 + $1,000 = $22,300. And $97,200 + $22,300 = $119,500.

The same total under three terms

The overall cost stays $119,500. What changes is who invoices it. This ignores any margin the seller adds for taking on logistics, which can make a delivered price higher than the sum of its parts.

Under EXW the buyer separately pays $119,500 - $80,000 = $39,500. Under FOB, $119,500 - $83,500 = $36,000. Under DDP, $119,500 - $97,200 = $22,300. Compare the bottom line, not the seller’s invoice.

DDP cuts the buyer’s work and gives a single price, but the buyer then relies on the seller’s choices of carrier, insurance and classification. EXW gives the buyer control and more tasks. Neither is cheaper by definition.

For the same reason, quotes on different trade terms can’t be compared by price alone. Put them on one basis first, as described in Comparing Packaging Machinery Quotes on a Like-for-Like Basis.

Supply continuity

An imported machine can be fine on day one and a problem in month eight, so settle a few things before you sign.

Ask for the lead time on sealing jaws, belts, knives, bearings and similar wear parts, by air and by sea. Stock the ones that are cheap to hold and costly to wait for; agree that list with the supplier and revisit it after the first year.

Ask for manuals, electrical and pneumatic diagrams and parts lists in a language your technicians read, with editable files. And find out whether a local technician, distributor or independent engineer can service the machine, what they charge, and what the warranty says if they do.

Longer lead times raise the cost of downtime, so run hours matter more; see How Equipment Utilization Changes Automation Payback.

When the conclusion changes

If the supplier has a local subsidiary or distributor who quotes delivered, installed and commissioned, many lines collapse into one price. Compare that price with the full landed list above. If you already hold an import account and a broker relationship, brokerage and port lines may be lower than assumed. If a machine ships by air because of an urgent start date, carriage will cost more than sea freight. If the volume is low or uncertain, contract packing may avoid importing a line at all. The Trade and Supply Chains index has more on these choices.

Keep reading

• The True Installed Cost of Packaging Automation: the site, integration and ramp-up costs that apply to any machine.
• Automation Payback, ROI and TCO: What Each Metric Tells You: how to turn a total cost into a payback figure.
• How Equipment Utilization Changes Automation Payback: how run hours change what fast parts supply is worth.

Assumptions and limits

• Replace the duty and tax figure with the broker’s assessment; it is not a tariff rate. Replace the other dollar amounts with quotes and freight invoices.
• Incoterms descriptions are general. Check the current rules and your contract.
• The model ignores financing, the time value of money, tax treatment of the purchase, and residual value.
• Currency movements are represented by a fixed allowance, not a forecast.
• Rules on classification, duty, product safety and electrical certification differ by country. Confirm them locally.
• Use this for comparing options, not as financial, legal, customs, safety or engineering advice.

Sources

• International Chamber of Commerce, Incoterms rules
• UN Statistics Division, HS 2012 classification 842230
• UN Statistics Division, HS 2012 classification 842240