Blind shipments are a more common occurrence in the logistics world as of recent years. While the concept is rather simple, it’s important that you understand precisely what a blind shipment is, the risks associated with it, and how you can properly prepare yourself to be involved in one. Here is a simple breakdown of a what a blind shipment is:
Blind Shipment: What Is It?
A blind shipment is the “blind date” of the business world. It occurs when one or more parties in the transaction are unaware of who the consignee (or purchaser of the goods) is. Said differently, the shipper or selling party is “blind” regarding who the actual buyer of the goods is.
How it Works
A blind shipment is often requested by distributors who are seeking to simplify and lower costs associated with getting a product into the retail space. Essentially, the consignee (or buyer) of the goods will purchase the goods and have them shipped directly to the retailer. Here is an example:
Manufacturer A: Manufacturer A is based in China. They manufacture a product that is being sold in this transaction.
Distributor A: Distributor A is based in the U.S. They are the one’s who are purchasing the goods from the manufacturer to be sold elsewhere.
Retailer A: Retailer A is based in Germany. They are purchasing products from Distributor A.
In the above case, Distributor A makes their money on the margins between the purchase value of the goods from Manufacturer A and the selling value of the goods to Retailer A. If Retailer A were to ever discover that the products were actually coming from Manufacturer A in China, they would stop buying from Distributor A and go get the products at a lower cost directly from Manufacturer A.
Thus, in this case, Distributor A would play the role of a reseller of the goods. They purchase the goods from the manufacturer and sell them to the retailer. But they do this all as a blind shipment so as to keep Retailer A in the dark regarding where the products came from. It essentially masks the identity of the true manufacturer of the goods.
Why Buyers Do Blind Shipping
A distributor will often ship blind for a few reasons. One is for the afore mentioned cost and time savings. The goods have less distribution channels to travel through if the shipment is set up from the get-go to be sent from the manufacturer to the retailer under the distributor’s name.
However, another huge reason is to conceal a third-party vendor. In a blind shipment, the third-party vendor’s (the manufacturer’s) information is substituted by the seller’s information. The ultimate purchaser of the goods is then blind regarding who fulfilled the order in the beginning.
Blind Shipment: Mitigating Risk
Dealing with a buyer that you don’t know can be a bit scary. Will they pay for the goods?
If you are dealing with a new customer, there is always an element of trust-evaluation included in the transaction. Luckily, a Letter of Credit (LC) is a great way to mitigate the financial risk associated with moving a product.
Letter of Credit
A Letter of Credit is an agreement between a buyer and seller’s bank that payment will be fulfilled upon the successful execution of a transaction. Essentially, rather than trusting the word of your customer (who you are, in this case, “blind” to), you are able to secure the promise of payment by you and your customer’s bank.
If you are going to be involved in a blind shipment, greatly consider the financial risk associated with the transaction. Using a Letter of Credit is a smart move to mitigate the risks associated with payments.
Blind shipping is an increasingly popular topic as international trade continues to grow. Various distributors are using the method to simplify their supply chains without revealing the information of third-party vendors to their customer.
If you have any questions regarding blind shipping, are wondering how you can safely be involved with a blind shipment, or have any other additional related questions, please feel free to reach out to a team member. We are always happy to help in any way that we can!