By D.B. YOUNG
Will wholesale demand for work gloves three months from now be 30,000 pair, 600,000 pair, or 1 million pair ? or more?
That’s the question Paul Zee must answer before placing his orders with glove-making factories in China.
As owner of South Pasadena-based Pacific Glove, Zee buys about $9 million worth of industrial gloves each year from China. And the process that Zee navigates moving orders, money and merchandise among various parties thousands of miles and an ocean apart is hardly simple.
From start to finish, the journey of a single pair of gloves from a factory in China to the final customer takes two to three months.
The process begins with Zee, who must anticipate demand for the gloves he imports in order to have merchandise ready and waiting when orders come in from his U.S. customers.
“The way we handle importing is based on my own predictions,” Zee said. “I simply bring in containerloads and containerloads of gloves to my own warehouse based on what I think demand will be.”
Based on his assessment, Zee begins the importing process by placing “blanket orders” every six months or so with each of his five or six main suppliers in China, such as Jinghua Leather Products Factory on China’s central coast. The typical blanket order contains no specifics or obligations for either party. Rather, each of the orders merely specifies a raw volume of merchandise that Zee plans to buy over a period of time. Based on that blanket order, the factory is able to anticipate Zee’s future specific orders and set aside a corresponding amount of manufacturing capacity and production materials.
“For example, I predict we’ll use 50,000 dozen (600,000) gloves over the next six months,” Zee said. “So one big order covers my usage for six months. Then every month I give (the Chinese factories) a quantity breakdown the assortments of gloves for that month.” Zee provides them that information by placing an order with each of the factories, specifying the exact types and amounts of gloves he wants to buy.
Money and credit don’t enter the picture until Zee places one of his orders with a particular factory for specific merchandise. At that time, he contacts his banker, Trade Bank, a joint venture between Wells Fargo Bank and Hong Kong Shanghai Bank. Trade Bank then sends out a letter of credit, or “LC,” to the bank of the factory filling the order.
“The LC, very simply, is a conditional check,” said Zee. Each LC has different conditions attached, but most require the beneficiary to produce various documents before he can collect the payment. Documents often required include shipping forms to show a product was sent on time, and forms from a quality inspector who checked the merchandise before shipment. Each LC also contains a description of the merchandise and an expiration date.
“The form (of the LC) is according to (the order-placing party’s) request,” said Eva Lin, Zee’s trade service representative at Trade Bank. “(Zee’s) is pretty much the same each time.”
Once the factory in China receives the LC, the clock begins to tick, as the manufacturer hurries to fill the order and produce the necessary documentation before the letter of credit expires. It is the factory’s responsibility to make the gloves and ship them to Los Angeles, either to the Port of Los Angeles or Long Beach. At that point, its responsibilities typically end and it can collect on the LC.
The importer has little or no recourse if problems occur after the merchandise is delivered to the port. “If the supplier has provided all the documents, then the bank pays,” he said. “We have no right to go to the bank and say, ‘The quality is not right.’ The bank would say, ‘This is your problem.'”
It is critical for an importer like Zee to know and trust the companies he does business with, and do everything to prevent quality problems and other potential glitches before they happen.
Once Trade Bank issues payment on the LC to the factory’s bank, that amount of payment becomes an import loan to Pacific Glove, which the company must pay off within 90 days. Most importers typically arrange a fixed line of credit from their banks for their letters of credit and import loans.
For Pacific Glove, the combined credit line for LCs and import loans is in the “upper seven digits,” said Zee.
Once the gloves arrive at the port typically in containers holding anywhere from 36,000 to 600,000 pairs per container, depending on the thickness of the gloves Zee contacts his customs broker, a private contractor whose job it is to get the merchandise through customs and into Zee’s warehouses. The process of getting goods cleared through customs is mostly one of paperwork, much of which is computerized, said Joe Schmid, owner of J.S. International in Long Beach, Pacific Glove’s customs broker.
Zee pays most of his fees, including duties, processing and trucking fees, either directly or through J.S. International. Customs and trucking fees for an average shipment usually run $4,000 to $5,000 for a container of gloves, Schmid said. The customs broker also collects his own fee, which typically runs about $120 per shipment, Schmid added.
The entire process of getting goods through customs is essentially the same for most containers, but varies slightly based on the merchandise. For example, Zee’s gloves may fall under any one of several tariff rates, which vary from 5 percent to 15 percent, depending on the glove type, Zee said. In addition, some gloves are classified as textiles, and those must also be accompanied by forms from the Chinese government showing they are part of China’s annual quota for textile imports to the United States.
“It’s about a week’s time of work and waiting between the time (the gloves) arrive in the U.S. and the time they go to Paul,” Schmid said.
Once the goods are in Zee’s warehouse, it’s a matter of waiting for orders to come in.
“From the time we receive (the gloves) to time of sale, they only stay here (in the warehouse) two to four weeks for the more popular items, while slow-moving merchandise can stay here for four to six months,” Zee said. Then come the calls from his customers, which include Chicago-based Boss Manufacturing and St. Louis-based Wise El Santo.
Once wholesalers receive and pay for their gloves, Zee’s job is done.