Should I Use a Logistics Company that Specializes in IT?

It depends.

If you’re only shipping your IT hardware domestically, and in low volumes, probably not. Domestic supply-chains work well enough for most businesses, regardless of country.

If you need to deliver hardware to international sites but only a handful of times a year, it might be worth it, especially if the shipments are high value. But it’s not imperative. For 3 to 5 times a year, you can probably have your hardware vendor scramble to make it happen. It will be more expensive and more frustrating than working with the logistics provider yourself, but bearable.

But if you have global IT shipments many times a year—even if it’s just once a month—you probably know from personal experience that yes, it’s worth it.

There’s a simple reason for why: the value density of IT hardware commodities makes it extremely costly to a business when a shipment is delayed, damaged, or lost.

Value Density

Teams with dozens of global IT shipments a year are typically supporting data centers and sites that regularly need to add capacity in the form of servers, switches, routers, and/or other critical equipment (FPGAs for high frequency traders, etc.). The value of a single one of these devices from a pure dollar perspective is tens of times greater than the value of the average pallet of goods that’s shipped in America! IT hardware is extremely value dense. It’s the most value dense commodity next to fine art and extremely valuable ores.

When it comes to international shipping, high value shipments are often inspected by customs officials, which means there’s a greater chance of delayed and/or rejected shipments. If customs clearance isn’t handled properly, it can get permanently stuck in a “black hole,” or worse, confiscated or destroyed.

What makes this worse is that insurance coverage for high value commodities is very unreliable. Over a decade ago, when FGX first started shipping IT equipment, we had a general policy that covered our client’s shipments in event of loss or damage. For certain shipments where we used a courier, like FedEx, we would purchase their insurance. Although we had no lost shipments or shipments that didn’t clear customs, there were instances of poor handling of the boxes by airlines that resulted in damage. When we made a claim, we quickly found out that both our own and even FedEx’s coverage would be disqualified for a number of reasons. This made it very hard for us to feel comfortable provide coverage for our clients. This eventually led us to hire a firm to specifically underwrite our own policy that is catered just for global IT logistics.

Moreover, the operational and business value of IT devices being delivered and put to use is often greater than the hardware’s purchase value. For example, if hardware isn’t delivered by a certain date, it could mean that a product isn’t launched in time or sufficiently supported.

But there’s also a second order effect that makes it even more important that a shipment doesn’t fail: IT commodities are relatively low in supply; just because you want the hardware doesn’t mean you can have it. For example, due to the scarcity and demand of high quality FPGAs, if a box is lost or stuck in customs, a trader may not be able to get their hands on another set for months, and the opportunity cost is often in the millions. During any supply-chain crunch (like the one we saw during COVID), this effect is seen in full blast as the business value of hardware becomes much greater than its purchase value.

This is all to say that, if you have global IT shipments, it probably makes a lot of sense to work with a logistics provider that increases the chances of successful deliveries. In the case of IT, it means working with a team like FGX that specializes in the commodity and understands all of its related nuance.

But of course, we’re biased, and so to play our own devil’s advocate, the question then is:

1. How much greater are your chances of an on-time, successful delivery when shipping with FGX versus a non specialized logistics provider?

2. Is the additional expense worth the risk reduction? (A trick question, because we’re usually just as cost effective if not more, than traditional logistics providers)

How much greater are your chances of an on-time, successful delivery when shipping with FGX versus a non specialized logistics provider?

Although physical damage and transportation risk is a factor when it comes to shipping globally, that’s not usually where general logistics providers fall short. The biggest risk is usually customs clearance risk. But I’ll share the inputs that need to be taken into consideration for each IT shipment and let you decide for yourself:

1. Physical Product Compliance - Do the products satisfy all local regulations surrounding electricity restrictions, product certifications, required markings and labelings?
   
   

2. Intangible Product Compliance - Based on the country of destination, how are you declaring intangible line items like software, licenses, and subscriptions?
   
   

3. International Trade Codes - What are the most accurate and best tariff codes to use to minimize duty exposure, compliantly? This is a big deal because of the value denseness of hardware. Choosing a less efficient code can create thousands of dollars of sunk costs.
   
   

4. Export Compliance - Based on the country of import and consignee, is an export license or declaration required? Even if it’s not required, is it safer to obtain one anyways or have the consignee complete an acknowledgment form? For example, shipping to a data center partner in China.
   
   

5. Import Compliance - Based on the nature of the products, do they require a permit or license to clear customs? Which countries require a COO or other technical documentation and where can it be obtained?
   
   

6. Importer and Exporter of Record - Based on your team’s accounting and financial requirements / goals / considerations, which entity should act as the Exporter or Importer of Record? Or should you use a third party service?
   
   

7. Commercialization - Based on where the hardware was purchased and if international remittance is required, shipping documentation and invoices need to be setup in a certain way. When you layer this with IOR and EOR, this becomes more complicated.
   
   

8. Project Management - Based on your project’s deadlines and goals, reverse engineering which logistical solutions are viable strategies for meeting the target date.

The above is why we have an extremely detailed and meticulous method for processing every single shipment from request to delivery.

Whereas value denseness creates business risks, the technical nature of IT commodities creates logistical and customs clearance risks. Although most freight forwarders will have a rudimentary understanding of incoterms and exportation / importation, they fall short when it comes to knowing about and managing through the nuances of exporting and importing IT commodities.

Is the expense worth the risk reduction?

This is sort of a trick question, because shipping with FGX is probably equal to or cheaper than using a non specialized logistics provider, so there’s no additional expense. When I say equal or cheaper, I mean pure CAPEX. Of course we provide you with plenty of OPEX benefits but even dollar for dollar, our solutions are more cost effective across the board.

There are a few reasons for why this is possible but I’ll just name three:

1. We’re the primary provider of services. If a logistics company doesn’t have the internal capability to solve a problem for a customer, they will hire a vendor that can, mark up the costs and pass it back to the customer - which is most freight forwarders. We don’t hire anyone to solve the problems in 6 of the 7 categories I listed - all of that work is done in-house. The only service that we partially contract out are Importer and Exporter of Record - but only for countries with low volume. In most of our lanes, we use our own entity. And in fact, we look to lower this cost for our customers wherever we can via our Entities feature. On the transportation side, we’re also an IATA agent; we don’t contract out the actual shipping.
   
   

2. Our solutions are lean; we don’t use and thus charge for unnecessary services. General brokerages will rely on and hire vendors without understanding if all of the services being quoted are needed. If a vendor says that they have to setup a shipment using a local sale transaction and thus have to charge more, it’s unlikely that a freight forwarder or general logistics company can push back on it, because they don’t know themselves.
   
   

3. There’s A LOT of opportunity for cost reduction in international shipping. From HS code optimization to import efficiencies, there’s often dozens of opportunities left on the table. For high value shipments, that can equate to hundreds of thousands of dollars. You’re not going to know where or how to locate these inefficiencies without having a lot of experience. It’s similar to working with a really good tax accountant that’ll find you tax optimizations wherever possible.