Knocked Down (KD)
a shipping method whereby manufacturers send a collection of product parts to another region or country where the different parts are assembled to make the finished product.
Knocked Down Details
Developed countries have the technology and know-how required to manufacture different automotive, electronics, and machinery products, among other sectors. Resellers and dealers in less developed regions depend on the expertise of these manufacturers to provide quality products to their local customers.
Resellers can import the finished product directly from the manufacturer or import a collection of parts to be assembled in the destination country. Shipping a whole product is costlier due to higher import duties. These countries prefer knocked-down body parts because they serve as a way of pricing and counting exports, and you can pay smaller tariffs for them.
In the knocked-down shipping strategy, the manufacturer packs the main body and the various corresponding parts separately. The packages are sent to the destination country together with the assembling manual. The assembling company waits until all the pieces have arrived and then starts the assembling process to make the finished product. We refer to the dismantled package as a knocked-down kit.
Knocked Down Example
Let us assume manufacturer A has a factory in country X with the technology needed to manufacture buses. In country Y, they do not have the technology to make their own buses. Country Y directs company B, which deals with the sale of vehicles, to import buses from Manufacturer A.
The importer has two options. They can import a ready-to-use bus or import the different body parts and assemble them in country Y. The ready-to-use bus would take up more space in the shipping container and probably attract more government import taxes. This reason prompts the importer to use the knocked down method.
Company B will request Manufacturer A to send the dismantled bus in different shipments containing the various parts such as the wheels, windshields, interiors, and the main body. Once all the components arrive in country Y, company B will assemble the parts to make the complete bus.
Types of Knocked Down Kits
There are two forms of knock-down kits: complete knock-down (CKD) and semi knock-down (SKD). The two kits differ in how much the manufacturer disassembled the body parts and the local input needed to reassemble the pieces to a finished product.
- Complete knock-down kit (CKD): a shipping strategy through which manufacturers sell 100% unassembled product parts to their affiliates and partners in other regions. The affiliates import different components separately and assemble the finished product at assembly sites in their country.
- Semi-knocked-down kit (SKD): this method is also known as a medium knocked-down kit or incompletely disassembled kit. The manufacturer partially assembles the product parts into larger parts with relating functions and sells them to their partners in other regions for assembly into the finished product.
Significance of a Knocked Down Kit
Importing products such as electronics, automobiles, and machinery exclusively made in foreign countries is expensive. You pay high import duties and tariffs. The exporter also has their fair share of export expenses when selling finished products directly to their business partners.
Knocked down shipments are a better and cheaper way to import your foreign products. You will pay lower import duties. Your manufacturing partner will avoid additional costs of assembly and finished product expenses while sending the package. Some knocked-down products also have tax preferences from local governments since they see them as sources of employment for local workers.
Another advantage of knocked down shipping over finished product shipping is establishing and expanding local production in developing countries. Local assembly factories create hundreds of jobs for local workers, which improves the economy of that region.
Knocked Down Units versus Completely Built Units
Completely built units (CBU) refers to products sold by a manufacturer as a whole finished product. These products are ready for sale upon reaching the destination country.
For instance, when you import a CBU car, you can pay for it and drive it away once it lands in your country. For knocked-down units, you might wait for over a month before workers assemble the different parts into a functional car.