FOB, CIF or EXW? The Incoterm you choose to import from China can greatly affect your overall cost. But oddly, it's rarely the focus of your import activity.
Most importers tend to put the lowest possible sales price as a higher priority, ignoring other details. This could end up being a costly mistake. Given their direct impact on import costs, now is the time to start taking a closer look at Incoterms.
Product prices vary by Incoterm
The price of your purchase will vary depending on whether you imported using FOB Incoterm, CIF Incoterm or EXW Incoterm. Many Chinese suppliers include shipping costs directly into the product price, which is why they usually have different price lists depending on the Incoterms used.
Be very careful when negotiating with Chinese suppliers here, as the price difference does not always correspond to the price of sea freight. Suppliers have been known to use this to manipulate buyers into choosing a specific Incoterm that is more beneficial to the supplier. This will be explained further when we discuss the CIF Incoterm.
Incoterms determine the control you have
The Incoterm you choose will define your control over your shipment at every stage of the shipping process. Whoever controls ocean shipping has control over costs and greater bargaining power.
If you let the supplier manage the ocean freight, you must accept the price and conditions he sets with the freight forwarder.
Import from China with FOB Incoterm
FOB Incoterms are probably the favorite - and in some cases only - Incoterms of experienced importers. We are talking about countless imported products with different characteristics, each with their own unique needs.
In my opinion, if you can only choose one Incoterm to import from China, FOB Incoterm will be your best choice. Why? FOB Incoterm gives you more control over your imported ocean cargo without the responsibilities that come with it.
Import FOB and EXW from China
As mentioned, the biggest advantage of using FOB to import from China is the control you have. You also have less responsibility than EXW.
For FOB, your responsibility as the importer is freight, cost of arrival and delivery. This means that any problems at the origin will be the responsibility of your supplier in China. However, with EXW, you are responsible for any problems and unexpected expenses - both at the origin and destination.
In short, while both FOB and EXW Incoterms are considered safe options for importers, there are significant differences in how responsibility is allocated.
Import from China using CIF Incoterm
Buyer's responsibility: payment of goods, arrival fee, customs clearance at destination, inland transportation at destination from port to warehouse, and corresponding import duties.
Responsibilities of the seller: deliver the goods according to the conditions agreed with the buyer, obtain the necessary documents for export, manage the inland transportation in China, manage the customs clearance and pay the corresponding customs fees in China, rent and pay the sea freight, insurance, and original Origin port charges.
For a novice importer, a CIF Incoterm may look very tempting: no need to pay for shipping, no need to choose or negotiate with a freight forwarder, no need to organize shipments, and most importantly, the item is actually cheaper than buying under another Incoterm they.
Import from China using EXW Incoterm
Buyer's Responsibilities: Pay for the goods, manage inland transportation at origin and destination, pay origin, ocean freight, insurance, manage customs clearance at origin and destination and pay appropriate fees, and pay appropriate customs duties.
Seller's Responsibilities: Deliver on the terms agreed with Buyer, provide all required documents and proofs.
What is the best Incoterm when importing from China?
In theory, FOB, CIF and EXW are your viable options for importing from China. Each involves a different amount of risk, liability, cost, and safety.
My advice
Choose the safest Incoterms that give you maximum control over your ocean freight.
