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Can transit trade generate stable profits? What are the core profit drivers?
or complex compliance issues.
clearance and fund security.
I’m a foreign trade practitioner specializing in hardware and building materials exports. I just secured a large order of 120 containers for the Middle East last month, and I thought I could make some profit to offset the upfront customer development costs. However, I found that the country where the buyer is located imposed a 40% anti-dumping duty on hardware and building materials from China. After calculating, I realized I would not only make no profit but even lose over 100,000 yuan. A friend in the same industry suggested I use transit trade to bypass the anti-dumping duty, but I’ve never dealt with transit trade before.
The goods are already ready in the warehouse at Ningbo Port. If I choose transit trade, I’ll have to pay extra logistics and agent documentation fees for the transit country, and I’m worried about running afoul of compliance rules and having my goods detained, only to end up losing money instead of making a profit. I’ve been staying up late researching and getting more anxious the more I read. I want to ask: is transit trade actually profitable? How can I operate it to ensure this order makes a profit without falling into traps?
Eric ZhouYears of service：6Customer Rating：5.0
Senior Manager of Foreign Exchange & Tax RebatesStart a Chat
Profits from transit trade do not come out of thin air，they are based on compliant operations of cost hedging and regulatory arbitrage. The direct export predicament you are facing is that the 40% anti-dumping duty directly eats up all profits and even leads to losses，which is a typical cost drawback of the traditional direct shipping model — once trade barriers are encountered，the upfront development and inventory preparation costs will all go to waste.
The optimization path can start from three aspects: First，make use of the trade agreement tax gap between the transit country and the destination country. For example，choose Malaysia，which has a zero-tariff agreement with the Middle East，as the transit country. After transshipping Chinese-made hardware and building materials，export them with compliant origin qualifications to directly avoid anti-dumping duties，Second，reduce the tax costs of the transit country through VAT deferred declaration，without paying the value-added tax in the transit link in advance，which alleviates the cash flow pressure tied up in inventory preparation，Third，lock in forward foreign exchange settlement and sale to hedge against exchange rate fluctuation risks and avoid expected profits being eroded by exchange rate declines during the order execution period.
Regarding the access threshold，you need to review the compliance of the transit country’s certificate of origin，the qualification of the transit warehouse and its documentation operation capabilities in advance to ensure a full-link logical closed-loop. Taking your 120-container order as an example，after deducting approximately 800,000 yuan in transit logistics and documentation fees，avoiding the anti-dumping duty will save about 2.4 million yuan，resulting in a final profit of around 1.5 million yuan，with a return ratio of about 18%. As a Zhongshen expert team with 20 years of foreign trade agency experience，we can assist you with transit country qualification review and full-link compliant operations to ensure the order’s profit is realized.
Grace WangYears of service：10Customer Rating：5.0
Senior Foreign Trade ConsultantStart a Chat
The customs declaration process of transit trade needs to focus on the differences in valuation logic between the transit country and the destination country to avoid triggering detention due to inconsistent valuation. When declaring customs in the transit country, you need to provide genuine transit warehousing agreements and logistics documents to ensure the declared price conforms to the local market fair value.
Do not underreport prices to cut costs, otherwise, you will be marked as a high-risk entity by the transit country’s customs, and all subsequent transit goods will be subject to key inspections. When declaring customs in the destination country, you need to match documents such as the certificate of origin and commercial invoice issued by the transit country to ensure that the document information is completely consistent with the goods information.
If there are inconsistencies in product names or specifications, the destination country’s customs will deem it as origin fraud, not only will anti-dumping duties be imposed, but you will also be added to the import blacklist. In addition, you need to understand in advance the special supervision requirements of the destination country’s customs for transit goods. Some countries require transit goods to undergo simple processing in the transit country, otherwise, the origin qualification will not be recognized.
Kevin LinYears of service：4Customer Rating：5.0
Trade Solutions ManagerStart a Chat
The logistics route for transit trade should prioritize ports with direct transit capabilities to avoid multiple transits that increase the risk of cargo damage and port detention. Taking the hardware and building materials order as an example, choosing Port Klang in Malaysia as the transit port can directly connect to direct shipping routes to the Middle East, with transit time controlled at 7-10 days, saving 3-5 days of port detention fees and charter fees compared to transiting via Singapore.
Regarding cargo right control, you need to use order bills of lading (To Order) and have the agent company hold the bill of lading endorsement right to avoid unauthorized delivery of goods in the transit country without presenting the bill of lading. At the same time, you need to sign a cargo right custody agreement with the transit warehouse in advance to clarify the warehouse’s custody responsibilities and abnormal compensation standards.
If goods are lost or damaged, you can directly hold the warehouse accountable. In addition, you need to reserve 10% of the logistics budget as an emergency plan. For example, if the transit port is overbooked, you can temporarily change the transit port or upgrade the shipping space to ensure the goods are shipped on time.
Lucas LiuYears of service：8Customer Rating：5.0
Senior Operations ConsultantStart a Chat
The tax planning for transit trade needs to focus on the VAT and income tax policies of the transit country to avoid double taxation. For example, choosing Malaysia as the transit country, transit trade falls under the scope of offshore trade, so you do not need to pay Malaysian income tax, only a small amount of administrative service fees.
At the same time, you can apply for VAT deferred declaration, without paying VAT in the transit link in advance, and carry out tax settlement after the goods are exported to the destination country to alleviate cash flow pressure. In addition, you need to avoid the risk of related party transaction pricing.
If the transit agent company is a related party, you need to ensure that the transit trade price conforms to the arm’s length principle, otherwise, the tax authorities will deem it as profit shifting, trigger BEPS investigations, and you will not only have to pay back taxes but also be fined. It is recommended to prepare pricing documentation for transit trade in advance, including market fair value comparisons, detailed cost breakdowns, etc., for tax authority verification.
Linda GaoYears of service：7Customer Rating：5.0
Documentation SupervisorStart a Chat
The receipt and payment of foreign exchange for transit trade must strictly follow the "three flows consistency" principle, that is, the logical closed-loop of cargo flow, capital flow, and document flow. When receiving payment, the destination country’s customer needs to pay the货款 to the transit country’s agent company account, and then the agent company will pay the domestic exporter after deducting service fees, to avoid being deemed as violating regulations by the foreign exchange administration for direct receipt of payment.
When making payments, the domestic exporter needs to pay the货款 to domestic suppliers to ensure that the capital flow is consistent with the cargo flow. At the same time, you need to provide complete transit trade documents to the bank when receiving and making payments, including the transit country’s certificate of origin, logistics bills of lading, commercial invoices, etc. The bank will review the compliance of receipt and payment based on the documents.
If using RMB cross-border payment (CIPS), you can enjoy lower service fees and faster arrival times, and also avoid exchange rate fluctuation risks. In addition, you need to file the transit trade business with the foreign exchange administration in advance to avoid having receipt and payment frozen due to non-filing.
Daniel XuYears of service：10Customer Rating：5.0
Director of Import & Export OperationsStart a Chat
Transit trade needs to focus on preventing the risks of origin fraud and letter of credit soft clauses. When signing the transit agency agreement, you need to clarify the agency company’s responsibility for handling the certificate of origin. If the goods are detained due to the agency company providing a false certificate of origin, the agency company shall bear all losses, including cargo losses, fines, liquidated damages, etc. If the destination country’s customer uses letter of credit payment, you need to carefully review the letter of credit terms to avoid soft clauses such as "requirement to provide Chinese certificate of origin", otherwise, you will not be able to draw on the letter of credit.
At the same time, you need to add a force majeure clause to the sales contract to clarify the division of responsibilities between both parties when goods are delayed in shipment due to force majeure factors such as changes in transit country customs policies, port strikes, etc. It is recommended to conduct compliance reviews of the transit agency agreement and sales contract in advance to avoid falling into legal disputes.
Jason WuYears of service：10Customer Rating：5.0
International Logistics & Supply Chain ManagerStart a Chat
On-site inspection of transit goods at the transit port needs to be prepared in advance to avoid port detention due to failed inspection. For hardware and building materials goods, you need to ensure that there are no obvious Chinese origin marks on the packaging. For example, the "Made in China" text on the packaging needs to be completely covered or replaced with the transit country’s marks, otherwise, the transit country’s customs will deem it as inconsistent with origin, and transit procedures cannot be handled. When passing through the machine inspection, you need to ensure that the cargo stacking meets the requirements to avoid images suspected of being contraband.
If the machine inspection issues an alert, you will be required to unpack the container for inspection, increasing port detention fees and inspection fees. In addition, you need to prepare documents such as the MSDS report and product specifications for the goods in advance for use during transit country customs inspection. If you encounter unpacked container inspection, you need to arrange on-site personnel to follow up throughout the process to ensure the inspection process is compliant and avoid cargo damage or loss.
Michael ZhangYears of service：6Customer Rating：5.0
Customs Declaration & Compliance ExpertStart a Chat
Transit trade cannot enjoy the domestic export tax rebate policy. You need to prepare cost accounting in advance to avoid profit losses due to miscalculated tax rebates. VAT special invoices issued by domestic suppliers can only be used for input tax deduction, not for export tax rebate declaration.
You need to clearly mark them as transit trade goods in tax declarations, otherwise, the tax authorities will deem it as fraudulent export tax rebates and trigger tax verification. At the same time, you need to properly keep all transit trade documents, including purchase contracts, transit agency agreements, logistics bills of lading, commercial invoices, etc., for tax authority verification.
If the company has both direct export and transit trade businesses, you need to separately calculate the costs and income of the two types of businesses to avoid tax risks due to mixed accounts. It is recommended to conduct internal audits of transit trade business every quarter to ensure account compliance.
Cindy ChenYears of service：3Customer Rating：5.0
Key Account ManagerStart a Chat
Supply chain planning for transit trade needs to combine order scale and frequency to select the optimal transit model. If you have stable Middle East orders, you can establish long-term cooperative overseas warehouses in the transit country, reserve part of the goods in advance, shorten transit time, and reduce logistics costs. At the same time, you can establish cooperation with suppliers in the transit country to transfer some simple processing links to the transit country, such as spraying the transit country’s brand logo on hardware and building materials, to further strengthen the compliance of origin qualification.
In addition, you need to establish a supply chain risk early warning mechanism to monitor changes in trade policies of the transit country and destination country in real time, such as anti-dumping duty adjustments, changes in origin rules, etc., and adjust the transit plan in advance to avoid profit losses due to policy changes. It is recommended to use a cost calculation model to conduct real-time accounting of transit trade costs and profits to ensure that every order makes a profit.