We are assuming you have learned the basic rules of Incoterms, now it’s time to move forward.
Which incoterm (aka shipping term, freight term or trade term) should I choose?
An importer need to look into the options of buying the goods under the terms that are more favorable to his or her expenses. We suggest you should always choose FOB shipping between you and your supplier. But why?
The short answer is by doing this, it will greatly reduce your shipping costs and give you more control over the shipment.
Let’s list the most commonly used terms first:
- CFR or CIF
We can divide them into three types.
- EXW – You only pay the goods value.
- FOB – You pay the goods value and inland transportation cost.
- CFR, CIF, DAP, DDP – You pay the goods value, inland transportation cost, and sea/air freight cost (or more)
1. NEVER EXW.
Quite a few buyers come to us and ask our comments about choosing EXW for the max control of the goods. We strongly don’t suggest this term for any sourcing, not including small samples.
If you have ever looked into the meaning of EXW, you may change your decision. When the truck arrived at the warehouse or the manufacturer, the supplier even has no obligation to loading on it. Not mentioning the customs declaration at the loading port.
All export clearance documents and procedures are included in the FOB price. Importers are wise to avoid hassle and simply stick to FOB.
Yes, we can do all the stuff for you if you insist on EXW. But clearly it’s costly and time consuming. Things should be easier.
So again, NEVER EXW.
2. Freight cost is cheaper when FOB shipping.
As we know, CIF or CNF means your supplier would arrange the cargo to your destination port or airport, while DAP or DDP means to your destination place.
The supplier told you the logistics cost, and you paid it. It is a more convenient way of international transportation, but you must realize that there’s a big chance that you are paying a lot more to get the goods than you should.
So here’s the question.
Why my supplier charges me more?
2.1 Some suppliers try to mark up the freight cost offered as an additional way of making profit.
The first reason is easy understanding.
2.2 Most suppliers quote you higher just in case.
Most manufacturers are made-to-order. They need time to get the production done. They don’t be sure about what’s the shipping cost will be after 2 weeks or 1 month or much longer, when the goods are ready to delivery.
The total amount has to be settled down before that. So hundreds dollars added in reserve for future changes.
2.3 Some suppliers quote you the same as they got, but the price itself is not the cheapest one.
Suppliers get logistics cost, but they don’t compare often. The price is very likely not the cheapest one. A professional cargo agent knows the carriers’ advantage and can get cheapest price.
3. FOB means the logistics solution will be better.
We will quote the best price and provide more than one solution. Besides, special-purpose advice for you to check and decide easily. The response time to any delivery issues will be shorter, because you don’t have to wait your supplier paraphrased.
Through experience and relationships with top-tier carrier partners, we negotiate the least cost rates available.
4. FOB means better control and work efficiently.
You have better control of your cargo and your budget. The cost is always important and you will have a better chance of gaining a more competitive freight rate.
Using your own forwarding agent will help you obtain more accurate information in a timely manner. We can assist you better once a problem arises. The logistic partner you choose always works together with you for YOUR best interest.
If your shipment is small (less than 200 kgs or less than 1 cbm), EXW is better. For such a shipment, door-to-door courier is the best choice.
Maybe you are new to international trade, we suggest FOB + to-door delivery for your trail order or small shipment. Because handling international logistics may be too detailed or complicated for a new importer.
If you have a good freight partner, hopefully us, always use FOB when negotiating with your supplier. No matter what your freight specialty or shipping needs, you will always find a best-in-class shipping solution that fits your budget and specifications with us.
It’s always the right time to complete our quote form and start working together.