New to FOB ? Confused with EXW ?

Today, I’m going to introduce these 3 letter shipping abbreviation, to be exact, shipping terms or Incoterms.

Believe it or not, my first traing lesson is the Incoterms when I came into the forwarding industry 10 years ago.

In fact, it is also the essential shipping knowledge for every importers to know.

The shipping costs, time and related guide are all depend on the shipping terms you choose.

So let’s dive right in.

Tire of lengthy explanation ?

Basically, just take note shippint terms are rules used for international shipping

But what’s the main points ?

Keep reading…

• What is it ?

The Incoterms are rules that globally-recognised set of standards, used worldwide in international contracts for the delivery of goods.

• Who made it ?

The shipping term rules are developed and maintained by International Chamber of Commerce ( ICC ) .

• What is it for ?

The trade terms help traders avoid costly misunderstandings by clarifying the tasks, costs and risks associated with the transportation and delivery of goods.

• What is the update ?

The most current version of the rules is Incoterms 2020 which came into effect on 1 January 2020.

Again,

just remember shipping term is always the first topic for every shipment.

You may wondering why ?

Price, Right & Disputes.

I called it PRD.

The trade term you dealing with suppliers have effect on 3 sides :

   • Goods Price

For example, it can be a bit higher than seller’s EXW price when you choose FOB, because seller will take local export cost into calculation and make final quote.

   • Shipping Price

Still we use FOB and EXW to explain.

When you choose FOB, means the local export charge in China will be paid by your suppliers. And if you choose EXW, you will need to bear this costs.

   • Property in goods

Why is that ?

Suppose you choose CIF term, that’s to say, your supplier provide the shipping service to the discharge port only.

Supplier can control the costs, time in this step of door to port. And they can determin to speed up or choose to delay, because you don’t own the cargo at this time.

   • Disputes and claims.

Disputes and claims happen along with the unforeseen costs & delay.

The shipping terms will be used to resolve those disagreements since the international standard rules have legal effect.

What are the terms used in shipping ?

Just we taked a bit about FOB and EXW in the example.

They are the basic shipping terms for importers shipping from China

Surely there’s much about these and the other trade terms to learn.

Now it is time to explain the details of all shipping terms.

That’s all for the shipping terms description.

Still confused ?

Don’t worry.

Here is a picture illustruation for to simply your understanding the whole delivery process.

A picture show you all Incoterms.

Borning with so many terms ?

Well, here is another more simple way.

It maybe not very accurate, but more useful.

There are so many terms.

Question is what’s the best suitable shipping term ?

And which option is safe or competitive ?

Here is what I going to talk about.

FOB VS FCA

It’s a very popular term for full container loads (FCL).

For a less than a container load (LCL) or air freight shipment, FCA is more suitable.

Why ?

Because there is a middle step for load consolidation.

The named place of delivery is the consolidation facility, not the ship or plane. Consequently, the buyer will be liable and responsible for the remaining transportation and terminal charges.

EXW VS FOB

The difference lies in the export operation ( Customs clearance, trucking, doc processing, etc ) and the local charges.

When FOB, China suppliers will take care of the export Customs, trucking, certificate or orgin, etc and pay all these costs.

It seems there are no reason to choose EXW ?

Of course not, EXW can be a perfect Incoterm for those middleman who require blind shipping.

The whole shipping and goods will be totally under control of the buyer when EXW.

So seller is kept out of the final client of the middleman.

FOB VS CIF

To make it simple,

” port to port shipping when FOB ” or ” door to port shipping when CIF ? ”

The key point is shipping by yourself or by your supplier ?

When you choose CIF, you just take care of the import operation when goods arrive to port, and you may save trouble involved in getting shipments out of China.

But the cons is you may have to pay more since CIF demands more effort and expense on the part of the supplier.

What’s more, shipping & cargo is not under your control. Delays easily happens. If the supplier is fake, you even lose all of your goods money.

In this situation, that’s why FOB is more popular and you need a FOB designated freight forwarder like Freightkim:)

DDU VS DDP

Both DDU and DDP are door to door, the difference lies duty paid or not.

But everybody wants the service with DDP all-inclusive price.

However, most door to door delivery service quote by forwarder like us is just DDU.

Why we don’t quote DDP instead ?

1.Tax & Duty is based on hs code and cargo value. It takes time and effort to confirm the hs code for each shipment with different cargo and corresponding tariff or VAT.
2.Some importers don’t have necessary company or identity to import, even delivery to door is a problem, let alone pay the tax and duty.
3.Tariff change frequently in some countries especially in US. 25 % tariff was imposed to many shipments from China durin the trade war.
In short, make the tax & duty collected as per the Customs invoice.

The final Incoterm selected can effect a lot.

It is crucial to have in mind which interests ( cost, time, responsibility ) you need to cover in the negotiation.

If you plan to ship from China, now or in the future, please contact me, and I will provide you with a solution subsequently.