Who is sourcing entire boats in China?

In analyzing some of the trade commerce trends in China, including the advancement of better quality standards, a new sector of the sourcing market will be geared toward higher-end and more complex products. The manufacturing of recreational boats is but one of these areas for growth that can be adapted to the USA manufacturing and sales business model. This week we will explore some of the challenges faced by integrating an overseas manufacturing model for boats, analysis of costs and margins, Chinese boating industry progress and a leading Shenzhen manufacturer interview and commentary.

Sourcejuice recently had the opportunity to interview the Chairman Director of HSB, Shi Jun, to discuss the factory’s capabilities, industry involvement and recent trends in the market. Shenzhen HiSpeed Boats Tech. & Development (HSB) is one of the leading boat manufacturing companies in Shenzhen. The company was established over 50 years ago as a state-owned business building ships for the Chinese government. In 1999 the focus changed to the commercial market, converting to a private company.

SOURCEJUICE: What are the types of marine vessels manufactured at this facility and who are your typical customers?
Shi Jun: HSB specializes in the complete construction of speed boats, sailboats, yachts and semi-military marine vessels. Some of the primary customers are the Chinese Coast Guard, Customs, China Marine Safety Administration (MSA) and recreational boating entheuisists. Most of our customers are from the Chinese domestic market, but through the use of a trading company or entity with an export license, our marine vessels can be exported anywhere in the world.

SOURCEJUICE: What problems might you foresee in exporting boats?
Shi Jun: Unlike some of the typical Chinese exports, marine vessels are a highly complex product. Consider mechanical, hydralic and electric components, taking into account quality assurance, servicing, maintenance, parts, etc after the customer takes possession.

SOURCEJUICE: If a marine manufacturer was evaluating HSB as a potential supplier, what sets HSB apart from other companies in China?
Shi Jun: We have an established standing in the industry, over 50 years of experience and are head of the Marine Chamber of Commerce here in Shenzhen. HSB leverages its own and joint engineering initiatives with cooperations from Dalian Marine University to stay on the cutting edge. HSB was the first and possibly only manufacturer in China to utilize such high-end materials such as Kevlar and carbon fiber for hull construction. These materials are used on boats traveling at upwards of 70 knots per hour. We are also working with the Shenzhen governement on a yachting and cruise plan for citizens here in Shenzhen to enjoy.

SOURCEJUICE: Do you know of any marine companies already manufacturing in China?
Shi Jun: Brunswick

SOURCEJUICE: What is the comparison in cost from a boat manufactured in the USA vs. China?
Shi Jun: This depends entirely on the type, motor, size, and trim of the boat, however the cost savings can be between 3 and 5 times the cost. It’s an incredible number.

SOURCEJUICE: Which is the most expensive part of the manufacturing process?
Shi Jun: On super-yachts the material and on recreational boats, the labor.

Challenges
Much of the cost associated with the construction of recreational boats is in the labor and raw materials during assembly. Many manufacturers will fabricate the fiberglass hulls state-side and then import all the components, from overseas suppliers, piecing them together in a USA warehouse for later distribution.

There are many challenges to manufacturing an entire boat in China for direct importation into the USA:
•QA testing of the boats prior to distribution
•Service and maintenance
•Weight, size and packaging of boats relative to logistics
•Parts replacement for defective equipment prior to sales

Cost Benefits
Here is the breakdown for cost savings with China domestic manufacturing:
•Assembly cost
•Raw material cost
•Electronics, wires and parts cost

You will of course have some new costs that will affect your landed cost:
•Customs Import Duties
•Logistics Cost

boat shipping.jpg

Shipping Boats
This seems like one of the largest obstacles in exporting boats from China. The place is over 10,000 miles away, right? How many companies could there possibly be that can handle shipping boats, yachts, etc across the world? Apparently, there are more than a few! Those in boat sales already know that foreign buyers that have boats shipped back to their home country is a common practice.

Yacht Path Intl - serving 3 continents, they have even developed their own “time-tested cradling system to transport yachts up to 250 metric
tons.”

Complete Freight - these guys look like they can do it all: huge ships dismantled and shipped in pieces, speed boats mounted on top of containers, American Cup sailboat racing, etc. Check out some of the pictures near the end of the article.

According to AutoShippers there are several ways to ship a boat or yacht worldwide:

Flat Rack Shipping

The flat rack shipping method utilizes 40ft containers without sides or top. The container is loaded by crane into a cradle at the shipping facility.

Roll on, Roll off Shipping

This method is the most common form of logistics for boats and is suitable for marine vessels on trailers. Boats are towed into the ship and stowed below deck. Upon arrival, the boat is towed from within the ship to the port facility.

Container Shipping for Boats
Marine vessels that are small enough can be loaded into a standard 20ft or 40ft shipping container and transported the same as any other container.

It is important to note that these companies are specialized in the care and preparation of shipping boats on a large scale. The same techniques can likely be used with your current forwarding and logistics company.

During my research for this article I did come across some great boats:

Changzhou F.R.P. Shipyard

Changzhou F.R.P. Shipyard

Picture 2.png
Changzhou F.R.P. Shipyard

… and some incredible ways of shipping them:
CompleteFreight.com

CompleteFreight.com

Here are some great links which are relative to sourcing entire boats in China.
•InfoMarine Online - complete list of ship building and repair yards in China.
•Yacht Forums - Some discussions about ship builders in Asia.

What are some of the USA import costs for boats?
Here is the section of the Harmonized Tariff Schedule of the United States for the importation of boats of different types.

The Harmonized Tariff Schedule for Boating can be found in its entirety here.

It seems that either for mass production and sales in the USA or the extremely rich custom design, producing boats in China is an applicable options. So who is doing it already? We want to know.

For more information on importing boats from China or HSB, contact us.

dylan@sourcejuice.com // Dylan Blankenship

October 12, 2008 | Filed Under Quality Control, Sourcing Trends | Leave a Comment

Why decorating a new home in China is the same as importing from China!

If you ever bought a new home in China then you know that most are sold bare - absolutely empty with concrete walls and floors. There is no insulation, no flooring, no paint, no pipes, no appliances, essentially nothing. This is the normal standard in China and there is a huge home decorating and remodeling industry that has been created by the need of homeowners wanting to decorate their homes before moving in because they don’t want to move into an empty shell.

So where it gets interesting is when you spend a considerable amount of time doing your design of how the home should look to what types of materials - here below is just a short list of the things you must consider.

Kitchen - You will have to consider everything from the floor to the cabinets and appliances and even the wiring for the electricity and the sockets in the walls. Vents, counter tops, faucets, pipes, and the list goes on.
Rooms - You will have to consider everything from the floor to the ceilings and walls to where you can plug your computer or lights into. Lighting, decorative fixtures, paint, and the list goes on.
Main Areas - You will have to consider everything from the floor to the ceilings and paint to electrical outlets and insulation to, if you desire, under the floor heating systems.
Outside Areas - You will have to consider everything from what is available (like electrical outlets, lighting) to what is on the ground.
Bathrooms - You will have to consider everything from the floor to the wash bin to the tub or shower and all the materials involved as well as the plumbing to how hot water will get into the bathrooms.
Storage Areas - Just like the above, you will need to consider everything.
Walls to Doors - Putting up extra walls for a storage area to picking out doors for every room to the front door made of steel (in China the main door to the home is considered critical and often times it can be a metal door with another metal cage like protecting door before it).
Wiring and Plumbing - It is even critical to ensure you think about this for the entire house and where it will be put and how it will be insulated and accessed for repair in the future.

Now, think about doing this for the first time and not having anybody other than a friend or a relative help you do all of this - designing the home, identifying the materials, and outlining all the rules and guidelines to ensure the home decorating company gives you the home you wanted in a few months after construction is all complete. Sounds difficult? Yes it is and that is only the beginning. If you really want your home, in China (and possibly many other places in the world), to look like what you designed and have the materials you wanted while being developed the way you outlined in the rules and guidelines with proper care and attention – you have two options.

You have to personally monitor all of this and hope you have enough knowledge (and if you do then that’s great) to know, monitor, and audit the decorating company you hired so as to make sure they are absolutely following the design you gave them, buying and using the materials you requested, and following the rules and guidelines you outlined. Most likely you will not have the time since it is a full time job and most likely you will not have the knowledge since you don’t own such a decorating company. Let’s be honest – can you even begin to imagine what is truly necessary here? If it’s not your full time job then let’s just say the answer is absolutely no.
Hire someone who knows this and can be trusted! In China, trust is an important asset as it is in any other country. Finding a trusted project manager or quality manager to be fully aware of your needs and desires and work each day with the decorating company is critical if you want your home to be what you designed with the materials you picked following the rules and guidelines you outlined. Many Chinese families have found, after a few months or a few years, when problems start showing up in their homes that they should have used such a person or company. The problems span all over the place - flooring starts coming up and out, tiles are breaking apart, pipes are causing condensation and creating molds, kitchen cabinets are breaking or no longer working, paint is cracking, ceiling fixtures are coming apart, and even the power outlets are not working. Many times, the problems are from the decorating company trying to earn extra money by not buying the materials you requested but substituting with something cheaper or far cheaper. Additionally, the problems rise from the decorating companies just trying to finish your home as soon as they can and not following the rules and guidelines you requested – that is why you end up with faulty wiring, bad paint finishes, poor tile and floor work, and a variety of other issues.

So SourceJuice, what does all this have to do with importing from China? Well, if you look above at the two options you may find some exact similarities to sourcing and importing from China. Quality happens when you either put in the time or have someone else do that for you. There are many Chinese companies and suppliers that adhere to giving you the best product for the money you are providing them, but alas there are (like anywhere in the world) far more who just see you or your company as a one time deal – get your order, build it quick (possibly ignoring your material requirements and guidelines or standards) and ship it out to collect the funds as quickly as possible in the fastest amount of time. This is reality and it doesn’t stop just because a company is verified or a trusted supplier or even if it’s someone you have done business with for some time.

Take another look at the SourceJuice article Beware the Middleman and Seek the Intermediary for a real life example where it was a little late to bring in a third party (the trusted partner) and in hindsight the lesson learned was one of investing the time or investing the money to make sure you are not surprised by bad news but rather get what you expect. Even the largest and most sophisticated companies in the world face this lesson – review this post on the Heparin scandal for yet another example. If you followed the news on the Heparin sourcing issue, you will find that it seems to be a matter of substituting ingredients to make a larger profit.

Many of you will say the analogy of the home and importing from China can come from anywhere in the world. That in fact, this happens even in America as well as London to Russia and Brazil. Yes it does, it isn’t just a China challenge, it is your challenge when you invest in a product and find a supplier to generate your orders into shipments. It is your opportunity to work with such a supplier to generate the profits you so desire at the margins that led you to come from all over the world to China. It is your due diligence that will either make you vastly successful or vastly in debt if not wondering how you ever got into the situation you did.

The smart and successful companies and people that import from China know (like the Chinese home buyer who is investing either their time or their money on a trusted partner) that everything needs to be managed and that means everything. Yes there is a cost to managing everything in time and expense, but in the end the time and money you save by not having to deal with crisis situations to substitute materials will far outweigh the time and money you invested!

And in case you’re wondering what the final apartment looks like…

May 11, 2008 | Filed Under Quality Control | 8 Comments

Responsibility for Quality Lies with Importers - The Heparin Scandal

Paul Midler of The China Game has a blog post titled Heparin Case: China Says Responsibility For Quality Lies With Importing Nations which introduced us to the Heparin scandal. For those not yet in the know, Heparin is at the heart of a scandal where an unlicensed factory in China is reportedly responsible for causing 4 deaths and over 300 allergic reactions.

Heparin is a drug made from hog intestines and is vital when used in the dialysis process. There are two companies making Heparin, ATP and Baxter. Baxter has been outsourcing part of the production to China and it turns out this factory was unlicensed. Watch this video by Today’s Machining World explaining the situation.

The FDA has been tasked with inspecting the factory involved in Changzhou.

Karen Riley said that the agency’s inspection team has completed their inspection of the China facility and a “number of potentially objectionable conditions” were identified relating to the firm’s manufacturing process.

While it’s terrible that people died and that others were injured in this unfortunate incident, there is a lesson to be learned here. As the global economy has grown so fast, it’s clear government agencies have not kept up, neither on the China side nor the US side. While government may play a role, it’s up to the purchaser and importer to ensure safety for the products they develop and sell. Only personal responsibility, sometimes even at an additional cost, will provide people with safe products. Read more

March 4, 2008 | Filed Under Quality Control | 2 Comments

Does China Have a Return Policy?

In most developed countries, returning a product purchased at a retail location is not a problem. In fact it’s so easy that people often will purchase a product when they’re not even sure if they will keep it. For example, when a customer purchases a product from Walmart, the world’s largest retailer, they are assured that Walmart will take almost anything back, for almost any reason. An excerpt from their return policy reads as follows:

To return a purchase to a store, take the following articles to Customer Service at your local Wal-Mart:

* The item you wish to return
* The invoice for that item
* All original packaging and accessories

For all payment methods except Bill Me Later®, an associate will issue an immediate credit to the original payment method or provide a store credit for the cost of the item and the sales tax, if applicable.

But what happens when Walmart (or your company!) receives defective or substandard goods from a factory in China? Does China have a return policy? The Silk Road International Blog has an interesting article titled Returning Products to a Factory in China where David provides insight into what the reality is on the ground and what your legitimate concerns should be when deciding to request a return of product.

In summary, David points out that if you’re receiving defective/ substandard products and you’re just finding out about it when it hits the dock at your landed destination, you failed to perform the necessary quality checkpoints that simply are required when working with Chinese factories.

So what’s the solution? DON’T EVER SHIP BEFORE YOU (YOU PERSONALLY OR SOMEONE OTHER THAN THE FACTORY) APPROVE IT. It doesn’t matter how “good” your relationship with the factory is. It doesn’t matter if you’ve shipped the same thing a dozen times before. It doesn’t matter how big your order is or how many other future orders rely on this shipment.

If you’ve got product in your home country (and you’ve already paid for it) it’s too late to be finding find problems.

However, accidents do happen, schedules are tight, small companies can be inexperienced, etc. In addition to the obvious issues involved with requesting a refund such as potentionally damaging your relationship with the factory, here are 2 points out of the 6 that we consider vital to consider:

2. You may not get the product back into the country-especially if it’s defective or already opened because of import restrictions. There are limits to what China (and all countries) will allow into their country. Rejected product and or second hand items are often not allowed into China. You need to confirm with a freight forwarder before you start negotiations with your supplier that this is really an option.

You may also find yourself with an IP (Intellectual Property) issue:

5. You will see the returned product again, somewhere. If the product is usable and if you can send it back into China and if you are getting a second order for free I can guarantee you that the factory will sell the stuff to cover their costs. They don’t care about your reputation in the industry-they are concerned about their bottom line, first and foremost. Be prepared for customer service calls from Karachi.

Check out the entire article and as always, do your due diligence to prevent problems from happening once it’s too late!

January 15, 2008 | Filed Under Quality Control | 5 Comments

Quality Rating Systems – Single A through 5A

There is still a stigma in many peoples’ minds about the quality of goods produced in China. With recent events leading to news about toys, it is understandably a very important topic. What you need to know is that many manufacturers utilize a rating system for their products. This rating system can give you a gauge for your products’ quality and also give you a better understanding of reasons for product cost. This is very important when comparing similar products from various sources.

While this system, for the most part, is governed on the “honor” system, you can inquire with the manufacturer about what makes a particular product fall into a specific rated category. There isn’t a standard rating system in place and the manufacturer typically determines what qualifies a product for each level. Some of the differences between ratings involve levels of material quality (plastics construction/thickness), life of the product, number of uses, thickness of coatings/finishes and components. On a side note, this does not mean that Mattel (the toy company) has been selecting a lower quality rated product that includes utilizing lead paint. This issue is caused when the factory isn’t properly informed of where or how they sourced their raw materials (or in the worst circumstances didn’t know or care).

Single “A” though “5A”
The rating system is comprised of “A” rating indicators, the more of them, the higher the quality and cost. Every country typically has a particular acceptable “A” rating for a product and the manufacturer is usually familiar with the details of each country’s requirements.

Let us use kitchen and bath faucets to explain this point further. “AAAA” and “AAAAA” are acceptable quality grades for faucets utilized in the US. The differences in these two grades are great and so is the cost. The “AAAA” product might have a typical lifespan of 10,000 uses (turning the faucet on/off), is constructed with a plastic valve and has a lower quality finish. In comparison, the “AAAAA” product has a lifetime warranty, includes a ceramic valve and high quality finish. Many times you can mix components from different grades to match the requirements of your market, consumer, or grade.

Do not always go for the higher rated product just because of the higher rating. Just as any smart consumer would do, get all the specifications and ask the right questions. Working with a manufacturer that has implemented a rating system like this means they are organized. Organization is key when there are so many variables that can mean the difference of having a profitable landed cost or not.

The time of China only producing cheap knock-off goods, toys or furniture has long since passed. This is an era where high quality goods are available if you look in the right places. As an example, I was able to source an identical “waterfall” roman tub style faucet/fixture to that of an item sold at Home Depot Expo ($1,200) for 7% of retail (FOB) with a “AAAA” rating.

Dylan Blankenship signature
dylan@sourcejuice.com

December 21, 2007 | Filed Under Quality Control, Sourcing Guides | 2 Comments