Shortsighted approaches lead to overspending.
Most air freight – including for printed circuit boards – is hauled in the cargo holds of passenger aircraft. While the number of available flights is slowly increasing as Covid restrictions lessen, the price is still high, and getting PCBs delivered on time and at a reasonable cost remains a significant challenge for buyers.
That’s why they should negotiate with suppliers for a “delivered” price.
PCB buyers often overlook fluctuating freight costs when considering total cost of ownership (TCO) of the offshore products they purchase.
I’ve dealt with many buyers from OEMs and EMS companies who insist on buying PCBs without any regard for or knowledge of the actual freight costs. The mentality is that freight is handled by another department and is not the buyer’s concern.
But this shortsighted approach means companies are more likely to overspend on their PCB purchases.
It’s always better to negotiate a delivered price, especially when it comes to high-mix, low-to-medium volume purchasing. When you have multiple part numbers, each with a different delivery date, it just makes sense to pay the delivered price and move on to your next project.
Even for buyers who need low-mix and a higher volume of product, buying at an ex-works (EXW) or FOB origin price may not be the best practice.
Here are several scenarios where failure to negotiate a delivered price will cost you:
- Without a delivered price, your company takes possession of the shipment at the factory. If, as sometimes happens, several boxes of boards are lost in transit, it will not be the factory’s responsibility to replace them.
- When product comes in and does not meet your quality standards, or it’s built wrong, and you’ve already paid for freight. Sure, you can renegotiate with the manufacturer, but that is another headache that could have been avoided.
- Two bills are to be paid: that of the manufacturer and that of the freight company; each may have different terms. The manufacturer, which ships in volume, will likely get better rates – especially with shipping rates quoted in Asia instead of the US – than you would get paying for shipping yourself.
- The PCB manufacturer – and not you – will have to absorb fuel and holiday surcharges imposed by freight companies to have the product delivered.
- Tariffs on PCBs manufactured in China are due at time of arrival, which you will pay. A negotiated delivered price would include tariffs (DDP). That means payment for the product, the freight, and the tariffs would be due at the later, pre-negotiated date.
Keep in mind that tariffs on PCBs manufactured in China are based on the factory price at time of export and not on the cost of any freight or overhead. PCB buyers should periodically ask for both a factory price and a delivered price to keep tabs on current freight costs and ensure tariffs are being applied correctly.
A variation of the delivered price model is to have inventory consigned, especially when it comes to larger or consistently running part numbers.
Remember to factor accurate shipping costs into the PO.
It is understandable many OEMs like to have product on the shelf, ready to be assembled on a moment’s notice. But that convenience comes at a cost, as it is expensive to have already paid-for product sitting on the production floor, waiting to be shipped out.
Buyers should have a negotiated program in place permitting their PCB supplier to maintain agreed-upon inventory levels while only invoicing the purchasing company at time of use. One invoice covers the cost of the product, the freight to get it to the dock, any applicable tariffs, and the cost of having it sit on the supplier’s shelf.
The more certainty buyers can build into their supply chains, the better. Working with a good board manufacturer and practicing smart PCB purchasing will help control costs year-round and increase corporate cash flow. •
Greg Papandrew has more than 25 years’ experience selling PCBs directly for various fabricators and as founder of a leading distributor. He is cofounder of Better Board Buying (boardbuying.com); This email address is being protected from spambots. You need JavaScript enabled to view it..
