Case Study: Container full of Sandbags [SCAMMED]

This is a story of an Australian Company receiving a container load of sandbags instead of the copper wire they ordered from China.

There are many opportunities to be had in China, and these opportunities can make a Company and/or yourself a lot of money; yet where there are opportunities, there are those looking to take advantage of the situation, read till the end to find out what you can do to avoid these types of situations.

In May 2019, it was Sam’s first time to import a large number of copper wires from China with an order valued at US$35,000. Sam found the Chinese supplier (A Trading Company) from Alibaba.com and sent a representative to visit the supplier in China. After visiting the supplier, Sam signed a Purchasing Agreement and made an initial 15% deposit to the supplier.

Sam and the Chinese supplier signed a purchasing agreement, yet the price was a CIF price, which means the supplier will organise the China Customs Clearance and shipping. The purchasing agreement also states that the supplier will arrange their own product inspection, which is a Red Flag.

Two weeks after Sam made the second 15% deposit, the supplier stated they still haven’t received the money. While Sam was trying to sort out with his bank to trace the seemingly missing money, the supplier suddenly informed Sam that they have already shipped the container and it will arrive in Australia soon.

Note: This is very unusual as they allegedly shipped the goods before receiving the 30% deposit in full.

The supplier provided two certificates – Quantity and Quality certificates from the Chinese Customs. These two certificates were the only things for Sam to decide whether to make the balance payment or not. With such a rushed shipment, it created urgency by the supplier, and Sam decided to make the payment.

When the shipping container arrived in Australia, Sam opened it to find out it was full of sandbags! instead of the copper wire, he ordered.

Investigation

It turned out that the supplier was a scammer and they had faked all the documents. The information such as the document serial number, issuing officer’s name, signature and stamp on the Quantity and Quality certificates are all real but were taken from 4 different authentic documents and were put together using Photoshop.

The local business and police department indicated that it would be very difficult for them to lodge the case since they cannot really come to Australia to collect evidence. They suggested Sam contact the Australian police and provide an official statement to prove the container is full of sandbags when Sam opened it and that he did not change the contents in the container. This statement would then need to be taken to the Chinese Embassy to be notarized.

The investigation continues…

Lessons learnt

1. If a price for the product is too good to be true, then it is.
The supplier offered Sam a price with copper wire he couldn’t refuse from the beginning. The copper wire is an international trade product and has its market price, that can be checked.

2. Without a system, importing can be a minefield.
Sam went to China once and didn’t have any importing system or process to follow, which meant he had to rely on the supplier.

3. Visiting the factory doesn’t authenticate the supplier.
Sam went to China and visited a factory without a trade assistant. He was not able to tell whether this factory is really the supplier that he has been communicating with. In fact, the factory SAM visited was not the supplier’s factory, it turns out the supplier only buys from that factory.

4. Background checking
For anyone who is dealing with an overseas supplier for the first time, we highly recommend a thorough background check. ChinaDirect Sourcing offers Desk Research on any given supplier to check if they are a registered and legitimate company.

5. Factory vs Trading Company
ChinaDirect prefers a supplier who has their own factory rather than a Trading Company. A Trading Company would normally rely on a separate factory to provide them with the products and then the Trading Company would sell the products to the buyer. The process would usually become more complicated than writing on the paper due to the human factor. Therefore, based on our past experience we suggest using a Manufacturing Company (Factory) than a Trading Company.

6. Purchase Order vs Sales Contract
A Sales Contract is made by the sellers who cannot put themselves in the buyers’ position. Thus, most of the time, the sales contract’s term & condition would usually benefit the sellers. With a Purchase Order agreement, it would maximise the buyer’s advantage. For example, in a sales contract, it won’t state what happens if the seller cannot deliver the product on time where a Purchase order would state the seller shall compensate for any loss to the buyer.

7. Pre-Shipment Inspection (PSI)
You should always do a PSI, at ChinaDirect Sourcing our inspection team would check all the products according to the product specifications. Furthermore, to suit our client’s needs, we can arrange the inspection on the same day of cargo loading. We then can ensure that the goods have been loaded and sealed. This is an additional cost, yet a very important aspect of the importing process that should not be overlooked.

8. FOB vs CIF
FOB: Free on Board (or Freight on Board). This means that the cost of delivering the goods to the nearest port is included by you, as the buyer. Using FOB is preferred, although sometimes it requires more workload.

CIF: Cost, Insurance and Freight. The price includes freight charges and insurance to deliver the goods to your nearest port. With CIF, the supplier/sellers would handle the transportation which means you will be kept in the dark for the shipping process, which creates unnecessary risk.

Conclusion

Importing from China is full of opportunities and risks; using ChinaDirect Sourcing and/or attending our Master Class will assist you in reducing the risks considerably. We Manage End-to-End Importing from China to Australia, with Reputable Chinese Wholesalers, Suppliers and Manufacturers.