We understand, there’s so many questions, and we also understand there is so much industry terminology that you just wouldn’t understand.If you find yourself screaming at your computer screen “JUST TELL ME IN PLAIN ENGLISH!” then, fear not. You are not alone. We are a friendly Logistics company to make your process easy, so that you can get on with doing what you do best - sell your product and make money!
Here are some golden rules with some brief explanations of ‘why’:-
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Buy FOB Terms!
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FOB = Free On Board. That means the price relating to ‘shipping costs’ that you would be paying your supplier is Free, until the goods get on board the ship (if a full container load) or container (if its a part load, also known as LCL = Less than Container Load). You can view our handy Inco Terms PDF here for more info.
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Choose your own Freight Provider!
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Obviously, we’d like that to be us but no matter what, buying FOB terms places the decision and right to choose the freight forwarder yourself. This is the sole main reason for buying FOB terms. You get to agree the pricing, not just from port to port, but more importantly port to DOOR. If you don’t choose your own freight forwarder, or buy products under CFR/CIF terms where the factory ‘Arrange it all for me’ – that is going to come at a HUGE price.
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Chinese suppliers would most likely pay ZERO for the freight. In some circumatances (brace yourselves) they would even be paid for booking the freight with a local chinese freight company! That’s right – they will get paid whilst also charging YOU for the freight either seperately, or hidden inside inflated product prices. How will you ever change this set up if you start off on these terms? The supplier can show a low freight charge tricking you into believing you’ve got a great deal, but really you are most likely paying more than you should for your product.
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The Freight would arrive to the desitnation whether thats UK, Europe or USA (for our readers) and the local freight office partnering the local Chinese company would be instructed to collect some fees. These will look like local destination charges but actually, they are almost triple/quadruple, with extra charge lines of fees added to make up for the loss of freight revenue the Chinese side had to pay out to the factory! So in fact, you pay the supplier for freight (saving you having to arrange it – thats the sell!), then you’ll pay AGAIN on inflated arrival charges, and you’ll have no say or honest feedback of where your cargo is whilst its travelling because you, are not the customer of the freight forwarder!
7. Rate Fluctuation – it happens! More recently, rates fluctuate up and down every single month, and sometimes weekly. If you do not buy FOB terms, your factory will set the margin of freight allowance at their worst case scenario – i.e the highest rate level. You will NOT benefit from the lows during rate drops. It’s YOUR business, it’s YOUR money, so YOU should have the savings, not your supplier.
8. Visibility – Think about service. For every product/SKU you have on board, you could have customers chasing. What do you tell them? When is it arriving? If you don’t choose your own Freight Forwarder, you are not the customer and are likely to get 2nd hand info via the Chinese factory of when the cargo will arrive. It’s not always accurate. It’s also likely on a cheap service that tranships at other ports on the way increasing the chances of delays. Service is paramount to any successful business.
9. Risk – Who owns the goods whislt in transit? You own the goods as soon as you’ve paid for them, however if the factory (whether it be China, USA, Far East, India, Europe) do not send you the original bill of lading which acts as a receipt for the goods, or an Express Release authoriation to the Freight company, you cannot have your goods. We have known suppliers to go into liquidation during transit, and the goods for importers not released. Choosing your own freight forwarder can really help in this situation whereas you have more control.
We will publish another article for import costs, explaining what you should pay and when, including VAT/DUTY. How to calculate your bottom line costs.
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