1. The comparison in the boardroom
A company decides to shift part of its sourcing from China to a neighbouring country on cost grounds.
The quotation shows a lower unit price. The landed cost calculation does not include the documentation regime.
2. What changes
Origin
Goods from the new source may not qualify for the preferential rate the existing customers rely on.
Certificates
A different certificate regime applies, with different documentary requirements.
Consistency
The existing customer’s purchase order may name a country of origin.
3. Why this is missed
Sourcing decisions are usually made on unit price, freight and lead time.
Documentation is treated as a fixed cost regardless of source.
4. The numbers
For a shipment requiring consular legalization of two documents, the authentication cost is a fixed amount per consignment.
For a high-value shipment, that is negligible. For a low-value, high-frequency shipment, it can exceed the margin.
A change of source that shortens the supply chain and increases the order frequency therefore increases documentation cost per unit.
5. The origin consequence
A change of source country can break the preferential treatment the customer was receiving.
The customer experiences a duty increase and renegotiates the price.
6. What to check before the decision
Does the new source qualify for the preferential rate the customer relies on?
What documentation regime applies to shipments from that source?
Does the customer’s requirement specify a country of origin?
7. Closing view
Sourcing decisions are occasionally reversed by documentation cost, and more often by an origin change that the customer notices before the supplier does.
*This article is based on standard export costing practice and the origin rules of China’s free trade agreements.*