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As trade tensions between China and the United States escalated in 2019, many Chinese exporters found themselves searching for creative ways to bypass the increasing tariffs. One of the most commonly adopted strategies was transshipment—a practice of rerouting goods through third countries to obscure their true origin. While this method may seem like a clever workaround, it is fraught with risks and complexities, as one unfortunate Chinese factory learned the hard way.

The Setup: Transshipping via Indonesia

In an attempt to fulfill orders from an American buyer, a Chinese factory partnered with a freight forwarder to ship goods through Indonesia. The freight plan looked comprehensive:

  • Shipping Route: Xiamen → Jakarta → New York
  • Cost:
    • Sea Freight: $350 per 40HQ from Xiamen to Jakarta, and $2,400 from Jakarta to New York
    • Indonesian Transshipment Fee: $1,800 per 40HQ, covering customs clearance, handling, inland transport, and export procedures
  • Financial Flow: Payments from the American buyer would go to a designated Indonesian partner’s account, which would then remit the funds to the Chinese factory

The Breakdown

The first container reached Jakarta on December 23, 2019. However, complications soon arose. The freight forwarder failed to complete customs clearance, citing a mismatch between the Certificate of Origin (FORM E) and the bill of lading. Despite multiple follow-ups and attempts to resolve the issue, the container was ultimately abandoned.

In September 2020, the U.S. buyer demanded a full refund. To maintain their reputation, the factory agreed to resend the goods at no extra charge. They suffered a direct loss of over 760,000 RMB (approx. $107,000).

Worse still, a subsequent payment of 112,250 RMB from the U.S. buyer to the freight forwarder was never returned to the factory.

The Legal Fallout

When taken to court, the freight forwarder claimed that the clearance issue stemmed from the factory’s documentation error. However, the court ruled otherwise:

  • No credible evidence was provided by the freight forwarder to substantiate claims of document mismatch
  • The freight forwarder failed to submit any official statement from Indonesian customs
  • The court held the freight forwarder liable under Article 10 of the Supreme People’s Court regulations for maritime freight agency disputes

The Final Verdict

The court ordered the freight forwarder to pay over 820,000 RMB to the factory, including the lost goods and unreturned payment. Unfortunately, the freight company had already ceased operations and had limited assets. The factory only recovered a fraction of the amount after a prolonged legal battle.

Lessons Learned

This case serves as a cautionary tale for exporters considering transshipment routes:

  1. Documentation Must Be Flawless: Even a minor discrepancy in paperwork can lead to seizure or abandonment.
  2. Choose Freight Partners Carefully: Ensure your freight forwarder is experienced, reliable, and transparent.
  3. Avoid Informal Financial Arrangements: Never agree to third-party payment handling without legal safeguards.
  4. Legal Frameworks Matter: Verbal agreements or WeChat conversations may not stand up in court.

Final Thoughts

Transshipment may appear to be a viable strategy to mitigate tariffs, but it is laden with risks that can easily outweigh potential gains. As global trade regulations tighten and compliance standards become more rigorous, businesses must prioritize transparency, legality, and due diligence in every shipment.

When it comes to international logistics, shortcuts often lead to setbacks. Invest in trust, not just tactics.