Introduction
Are you familiar with the shipping terms from China? If not, don’t worry. Here I will introduce the incoterms for shipping from China to other countries. But maybe you do not know which to choose. However, here are many factors to consider to do a sales transaction from China successfully. You can refer to ddpch.com that helps you in this process.
Ddpch gives many services consisting of product research, quality control, shipping, customs clearance of goods and home delivery. You just buy and contact us and we do everything. So you do not have to deal with the terms of shipment. But you may be eager to know about the incoterms for importing from China. Here I discuss all the Incoterms and introduce the best one.
Understanding Incoterms: An Essential Guide
Incoterms, short for International Commercial Terms, are a set of globally recognized standards in international trade that delineate the responsibilities and obligations of buyers and sellers. A deep understanding of Incoterms is not just beneficial but critical to ensure smooth transactions, particularly in global commerce where misunderstandings can result in costly mistakes. From clearly defining who bears the costs to who assumes the risks at each stage of the transport process, Incoterms bring clarity and prevent potential disputes and misunderstandings between the parties involved.
Moreover, Incoterms also outline where ownership of the goods transfers from the seller to the buyer, which is crucial for customs purposes. They standardize the language and terms used in international trade, making business more predictable and secure. Whether you’re a seasoned trader or a novice in the global market, familiarizing yourself with Incoterms can significantly streamline your operations and help you better navigate the intricate dynamics of international commerce.
Incoterms 2023: Latest Updates and Changes
Incoterms and their Impact on Freight Charges
Incoterms play a pivotal role in determining how freight charges are allocated between the buyer and the seller in international trade. Each term distinctly outlines who is responsible for each cost, risk, and task during the transportation of goods. The chosen Incoterm influences the total freight charges and, consequently, the final cost of the product.
For example, under the EXW (Ex Works) Incoterm, the buyer bears all freight charges and is responsible for arranging and paying for all transportation and logistics from the seller’s premises to the final destination. On the other hand, under the DDP (Delivered Duty Paid) term, the seller is responsible for all charges, including shipping, insurance, customs duties, and other expenses involved in delivering the goods to the buyer’s location.
Therefore, choosing an appropriate Incoterm can significantly affect freight charges. Understanding the specific responsibilities and costs under each term can enable buyers and sellers to make informed decisions, manage their logistics more effectively, and potentially minimize their freight costs.
Why the Knowledge of Incoterms is Crucial in International Trade
In international trade, different trading practices and legal interpretations between countries can lead to confusion and disputes. Incoterms, devised by the International Chamber of Commerce (ICC), are designed to reduce or eliminate uncertainties arising from such disparities. They provide traders across the world with a common framework for the rights, risks, and obligations of both the buyer and seller.
A deep understanding of Incoterms allows businesses to protect their interests by precisely defining who is responsible for what, at what point in the process, and under what circumstances. This knowledge not only helps prevent costly misunderstandings but also enables businesses to optimize their supply chains. In addition, a sound grasp of Incoterms is fundamental to ensuring compliance with regulatory requirements, thus helping to avoid legal complications and penalties that can arise from violations of import/export rules.
Decoding Incoterms: FOB, CIF, and EXW Explained
Free On Board (FOB), Cost, Insurance and Freight (CIF), and Ex Works (EXW) are among the most commonly used Incoterms in international trade, and understanding these terms is vital for a seamless trading experience.
FOB is a type of agreement where the seller is required to deliver the goods on board a shipping vessel. The seller bears all costs and risks until the goods are on board the ship at the designated port of shipment. Once the goods are on board, the buyer assumes responsibility for all risks and costs associated with the goods.
CIF, on the other hand, requires the seller to arrange and pay for transporting the goods to the port of destination, including the cost of insurance. While the seller is responsible for ensuring that the goods arrive safely at the specified port, the risk transfers to the buyer as soon as the goods are loaded onto the ship at the port of origin.
Lastly, under an EXW agreement, the seller’s responsibility is limited to making the goods available at their premises, or another named place. The buyer carries the bulk of the responsibilities, including all costs and risks associated with transporting the goods from the seller’s location to the desired destination.
Knowing the meaning and implications of these Incoterms can enable businesses to choose the most appropriate terms for their transactions, fostering effective and efficient international trade.
Import shipping terms from China; FOB
Do you the meaning of it? You may be surprised if I tell you that it means ‘Free on Board’, and refers to a commonly used Incoterm (International Commercial Terms). While Incoterms are the protocols international trade and responsibility between the supplier and buyer. FOB trade terms are the most used to import products from China to the UK. Under these shipping terms, the seller is responsible for all costs involved in the delivery process until the goods are at the designated port.
At ddpch, we do our best that you receive the best delivery quote. As experts in the freight industry, we offer the best benefits for all.
But some people do not know the responsibility of the suppliers in shipping from China. They think that the supplier is only responsible for half the journey. So here I want to inform you about the costs your supplier should cover:
Documentation fees
When you import from China, there are shipping documents that must be produced for your goods which can cost up to £60.00.
Entry summary declarations
The Entry Summary Declaration (ENS) is the cost that should be paid by the supplier.
Terminal handling charge
The terminal handling charge (THC) is the cost of loading the goods at the relevant port in China.
License fee
Don’t forget that the suppliers should have licenses to export products.
When your goods have been cleared through a series of customs checks in the country of origin, you need a customs clearance agent in order to dictate the costs of the process for leaving or entering the country.
Transportation costs
The transportation cost includes the fee to send your goods.
Telex release
The supplier should send the shipping documents by electronic release. Without this release, you cannot claim your goods.
Ex Works Shipping Terms
Ex Works shipping terms are Incoterms that require the importer pay all costs involved in shipping from the supplier to your home. Remember that the buyer is responsible for the Ex Works shipping terms, and not split like FOB terms.
CIF/CFR Shipping Terms
Both CIF/CFR (Cost, Insurance and Freight/Cost and freight) are incoterms that the supplier is responsible for the safe arrival of the goods until they arrive at the desired destination port. Remember that these two shipping terms are exactly the same, except that CIF is offered with minimal insurance.
In both CIF and CRF shipping terms, the seller’s invoice must include the cost of the goods for shipping from China. They will pay the freight to the destination port, and the buyer will pay for the terminal handling at the port.
Benefits of FOB Terms
By using FOB terms, you have full control from purchase to delivery. So the buyer has the power to control the costs as hidden or unexpected fees.
Which incoterm is best for buyer?
Here are the best Incoterms for buyers:
- FOB (Freight on Board): The seller/exporter will leave the goods at the port of origin, and ready for international transport. It is free on board from China. FOB price covers product cost, local exporting fees, delivery of your order to the port.
- EXW (Ex Works): The EXW Incoterm is also a good choice.
- DAP( Delivered at Place).
- Which is the best FOB or CIF?
By using CIF, when the goods reach the destination, the buyer will be responsible.
- Most of the time, we offer FOB to buyers and CIF to sellers. FOB saves buyers’ money and provides control, but CIF provides more profit for the seller.
Importing from China: FOB, CIF, or EXW Incoterm?
Choosing the incoterm affects greatly the whole cost. If the lowest sale price is more important for an importer, it will lead to a very costly mistake. So here we provide a closer look at choosing the incoterm regarding the import costs.
Price of product depends on Incoterm
The price depends on if you’re importing with the FOB Incoterm, CIF Incoterm, or EXW Incoterm. Many Chinese suppliers apply the cost of the freight directly to the product price.
Note: the price is not always related to the price of the ocean freight rate. So suppliers want the buyer to choose a certain Incoterm that benefits the supplier more. We explain it in more details after discussing the CIF Incoterm.
Incoterms determine the amount of control you have
Incoterms determines your control over the shipment. The one that has control over the ocean freight will have control over costs and higher bargaining power.
If you accept that your supplier manages the ocean freight, you must accept the price and conditions that he has agreed upon with his freight forwarder.
We recommend FOB, since you have more control over the importing freight shipment without any responsibilities.
The FOB Incoterm
- Buyer’s responsibilities: Pay for the cargo, ocean freight, insurance, arrival fees, customs clearance at destination, inland transportation fees at destination from port, and all corresponding tariffs and taxes.
- Seller’s responsibilities: Deliver the goods based on the conditions agreed with the buyer, provide the necessary certificates, manage inland transportation in China, manage customs clearance and pay the corresponding customs fees in China, and port expenses at origin.
Therefore, under the FOB Incoterm, the importer is responsible for paying, hiring, and managing the ocean freight shipment. By choosing the FOB Incoterm, you, as the buyer, can:
Choose the carrier, route, and transit time
Talk with the freight forwarder
Pressure the seller to lower his price
Lower costs by reducing your tax
Have control over your overall costs. There are fewer responsibilities with the FOB Incoterm than the EXW Incoterm.
FOB vs EXW for importing from China
The merit of importing from China with FOB is the control you have. Compared with EXW, you have fewer responsibilities.
With FOB, your responsibilities as an importer are the freight rate, arrival costs, and delivery. By using EXW, you’re responsible for any problems and unanticipated fees.
But both the FOB and EXW Incoterms are safe for the importer, and the difference is just related to the responsibilities. So I recommend FOB since unlike the EXW, it is cheaper with less responsibilities.
Importing from China with the CIF Incoterm
- Buyer’s responsibilities: Paying for the cargo, arrival fees, customs clearance at destination, inland transportation fees at destination from port, and import taxes.
- Seller’s responsibilities: transporting the goods according to the conditions agreed with the buyer, obtaining the documents needed for the export, doing inland transportation in China, managing customs clearance and paying customs fees in China, hiring and paying for the ocean freight, insurance.
- A novice importer may be cheated by the options of no freight payment, no responsibilities in choosing a freight forwarder, no having to organize the freight shipment and the business is cheaper than other incoterms in CIF.
But do not use CIF Incoterm for any import since it limits your control over costs. When you import from China, the choice of CIF increases your overall costs. Since you have to hire an agent at destination to manage customs clearance.
Therefore, as the buyer, you have to pay for additional destination expenses. So for importing from China, I recommend FOB over CIF if you work with a supplier that you do not know or can’t trust.
Importing from China with the EXW Incoterm
- Buyer’s responsibilities: Paying for the cargo, arrival fees, customs clearance at destination, inland transportation fees at destination from port, and import taxes.
- Seller’s responsibilities: transporting the goods according to the conditions agreed with the buyer, obtaining the documents needed for the export, doing inland transportation in China, managing customs clearance and paying customs fees in China, hiring and paying for the ocean freight, insurance.
- A novice importer may be cheated by the options of no freight payment, no responsibilities in choosing a freight forwarder, no having to organize the freight shipment and the business is cheaper than other incoterms in CIF.
But do not use CIF Incoterm for any import since it limits your control over costs. When you import from China, the choice of CIF increases your overall costs. Since you have to hire an agent at destination to manage customs clearance.
Therefore, as the buyer, you have to pay for additional destination expenses. So for importing from China, I recommend FOB over CIF if you work with a supplier that you do not know or can’t trust.
What’s the best Incoterm when importing from China?
FOB, CIF, and EXW are good choices for your import from China. Each has a different amount of risk, responsibility, cost, and security. I recommend choosing the one that gives you the most control over the ocean freight shipment. So feel free to contact us if you do not know which one to choose.
Concluding ramarks
As a leading freight forwarder, DDPCH ensures seamless, cost-effective international trade by helping clients navigate through complex Incoterms. We provide tailored shipping solutions, ensuring transparency, risk management, and optimized costs. Our expertise extends from advising on the most suitable Incoterms for your specific needs to handling logistics end-to-end. Choose DDPCH to transform your global shipping experience.
Incoterms, short for International Commercial Terms, are a set of rules that define the responsibilities of sellers and buyers in the international trade of goods.
FOB (Free On Board) is an Incoterm where the seller delivers the goods on board the vessel at the named port of shipment and clears the goods for export. The risk then transfers to the buyer.
EXW (Ex Works) means the seller makes the goods available at their premises, and the buyer is responsible for all costs and risks associated with transporting the goods to the desired location.
The choice between FOB and CIF depends on the specific circumstances of the buyer and seller. FOB generally offers more control over shipping costs and logistics for the buyer, while CIF can be more convenient for the seller.
Understanding Incoterms is crucial when importing from China as it helps you comprehend who bears the risks, costs, and tasks at each stage of the shipment, thereby allowing for better cost management and risk mitigation.
Documentation fees refer to the costs of producing necessary shipping documents for your goods when importing from China. These fees may vary, but could be up to £60.00 or more.
Incoterms define who is responsible for paying each cost associated with international shipping, including freight charges. The chosen Incoterm can significantly influence the total freight charges and thus the final cost of the product.
The right choice of Incoterms can help you manage your costs effectively, mitigate risks, and improve customer satisfaction by ensuring a smooth shipping process.
Depending on the specific Incoterm, either the buyer or the seller might be responsible for customs clearance. Under DDP, for example, the seller is responsible for customs clearance, whereas under EXW, this responsibility falls on the buyer.
Both CIF and CFR (Cost and Freight) are similar in that the seller is responsible for the costs and freight to bring the goods to the port of destination. The difference lies in that CIF also requires the seller to insure the goods against the buyer’s risk of loss or damage during transit.
The right choice of Incoterms can help you manage your costs effectively, mitigate risks, and improve customer satisfaction by ensuring a smooth shipping process.
