This afternoon I was discussing the EU free tariffs with my German friend Holger who has a factory in Johannesburg. Holger I have known for many years has one of these Movement Certificate EUR.1 licenses allowing him to export into the EU with no import taxes. He has used this for certain products and I was trying to understand how this works.
I had no idea this was even a thing these days because having tariffs in place protects your local economy and in my mind should be a priority. Why any country or region like the EU would allow this makes very little sense, but for now will see how we can take advantage of this.
Those that follow my posts know that we are waiting on the green light to start our packaging , supply and distribution business for another company who handles the sales of these products. This is a health product that comes from the Far East and has launched in Australia already achieving very strong sales figures and has been well received.
The original plan was to set up a production facility in Johannesburg before replicating this in the EU. Those plans have been tweaked slightly with no production facility in the EU for now and instead will set up a warehouse distribution center instead. That is still a cost you would of had if you had a production line in the EU so this is not an extra cost so this is not saving any money going this route. They have not asked me any questions yet and I have so many for them already all in a good way trying to see the thought processes. If the profit margins show this is the right move then great and that the facility in Johannesburg generates savings vs an EU facility then I will be very happy. No one wants a change of plan 2 years later with an in hindsight we should have done this and what I will avoid by highlighting my train of thought.
The product initially will come pre mixed directly to Johannesburg in bulk requiring this to be packaged into the correct sachets and then into larger packs that hold 20 sachets. As long as we can show the bulk of the work is done in Johannesburg then the product will be exempt from EU import tariffs. I am not sure if this is enough to qualify as enough "work" so this needs to be looked into more deeper. Possibly we will have to mix the ingredients locally in order to qualify which would then make more sense to myself.
According to the EU tariffs a health supplement can expect to pay up to 12% as an import duty depending from which country it originates from. If it was only a 5% duty then I am not sure if it is not better just to set up another production facility in the EU and why I am going to be doing some homework before this is decided for us. My friend bought me on board because I am experienced in production lines and will always research what I am investing and getting involved in. One would be foolish just to take someone's word as gospel because I have no idea how experienced they are and their experience or back ground.
There will always be hidden costs not factored in and have seen this time and time again when those doing the planning have unrealistic expectations. The unknowns that those that have done this type of thing before and are obvious will not be so obvious to those that have not.
Having a production facility in Johannesburg would mean a double transport cost and we all know shipping is far more expensive these days than it was 10 years ago. The $3K containers are more like $6K these days and this would be x 2 having moved the product twice plus when in new packaging will most likely take up far more space than just bags of ingredients which would have been the bulk ingredients on container number one. This could realistically mean one container received and two containers out which in theory as a worse case scenario adds an additional $12K to the finished product. Maybe I am over thinking this yet I have to look at all the various angles and be ready with the correct answers.
This is a numbers game which most businesses are and at least when it comes to the final decision I will know my numbers and can have my say. I do not know the owner of the product and I am only providing the production service, but obviously want this to work making sure the profitability is not wasted. I am not saying the change in the plan is good or bad at this point in time because I have no clue as yet even though I do think this could be an oversight not thought out properly.
