Importing from China: CIF, FOB, or EXW Incoterm?

Is it FOB, CIF, or EXW? The Incoterm you select for your import from China can have a significant impact on your overall cost. However, it is rarely the focus of your import campaign.

Most importers prioritize obtaining the lowest possible sale price while overlooking other details. This could turn out to be a costly mistake. Given their direct impact on import costs, it’s time to start paying attention to Incoterms (thedissertationhelp, 2022).

It is also important to work with a reputable freight forwarder that can provide guidance and support throughout the importing process. Look for freight forwarders in the USA that have experience with importing from China and can offer air freight forwarding services if needed. Some of the best freight forwarders in the USA include DHL, FedEx, UPS, and Expeditors.

Importing goods from China can be a cost-effective option for businesses in the United States looking to expand their product offerings or reduce production costs. However, one of the most critical decisions you will make when importing from China is choosing the right Incoterm for your shipment. The most commonly used Incoterms for imports from China are CIF, FOB, and EXW.

Common Incoterm for Import from China

1-     CIF (Cost, Insurance, and Freight)

CIF (Cost, Insurance, and Freight) is an Incoterm where the seller is responsible for arranging and paying for transportation and insurance of the goods to the port of destination. The seller is responsible for loading the goods onto the shipping vessel and clearing customs in China. Once the goods arrive at the port of destination, the buyer is responsible for unloading the goods and clearing customs in their country.

The advantage of CIF is that the seller is responsible for most of the logistics and paperwork, which can be beneficial for businesses that do not have experience with importing from China. However, the buyer has limited control over the shipment and may have to pay additional fees for port charges and customs clearance.

2-    FOB (Free on Board)

FOB (Free on Board) is an Incoterm where the seller is responsible for delivering the goods to the port of departure and loading them onto the shipping vessel. Once the goods are on board, the responsibility transfers to the buyer, who is responsible for arranging transportation and insurance from the port of departure to the port of destination, as well as unloading the goods and clearing customs in their country (LLamazares, 2020)

The advantage of FOB is that the buyer has more control over the shipment and can choose their own freight forwarder to handle the transportation and insurance. This can potentially save costs, as the buyer can shop around for the best freight forwarding services in the USA. However, the buyer is responsible for arranging and paying for transportation and insurance from the port of departure to the port of destination.

3-    EXW (Ex Works)

EXW (Ex Works) is an Incoterm where the seller is only responsible for making the goods available at their premises. The buyer is responsible for arranging and paying for all transportation, insurance, and customs clearance.

The advantage of EXW is that the buyer has complete control over the logistics and can choose their own freight forwarder to handle the transportation and insurance. This can potentially save costs, as the buyer can shop around for the best air freight forwarding services in the USA. However, the buyer is responsible for all the logistics, which can be complex and time-consuming.

When choosing an Incoterm for importing from China, it is essential to consider the level of control and responsibility you want to have over the shipment. If you are new to importing from China and want a more straightforward process, CIF may be the best option. If you have experience with importing and want more control over the logistics and potential cost savings, FOB or EXW may be the better choice.

Why Do You Need Incoterm When Import from China?

Incoterms are essential when importing from China because they clarify the responsibilities and obligations of both the buyer and seller in an international trade transaction. They provide a standard set of rules that define the delivery of goods, transfer of risks, and payment terms between the buyer and seller.

When importing from China, it is crucial to agree on the appropriate Incoterm with your supplier or buyer to avoid misunderstandings and disputes. The chosen Incoterm determines who is responsible for various aspects of the shipment, such as loading and unloading, transportation, insurance, customs clearance, and payment of fees and taxes.

For example, if you choose CIF as the Incoterm, the seller is responsible for arranging and paying for transportation and insurance to the port of destination. This means that the seller must load the goods onto the shipping vessel, clear customs in China, and pay for the freight and insurance. On the other hand, if you choose EXW, the buyer is responsible for arranging and paying for all logistics, including transportation, insurance, and customs clearance.

Therefore, understanding and agreeing on the appropriate Incoterm is crucial for successful importing from China and can help avoid costly mistakes and disputes.

Wrapping UP!

In conclusion, when importing from China, it is crucial to choose the appropriate Incoterm, which defines the responsibilities and obligations of both the buyer and seller in the international trade transaction. The most commonly used Incoterms for imports from China are CIF, FOB, and EXW.

CIF is an Incoterm where the seller is responsible for arranging and paying for transportation and insurance of the goods to the port of destination, while FOB is an Incoterm where the seller is responsible for delivering the goods to the port of departure and loading them onto the shipping vessel. EXW is an Incoterm where the seller is only responsible for making the goods available at their premises.

Choosing the right Incoterm depends on the level of control and responsibility you want to have over the shipment. CIF may be the best option for those new to importing, while FOB or EXW may be better for those with experience who want more control over logistics and cost savings.

When importing from China, it is also important to work with a reputable freight forwarder that can provide guidance and support throughout the importing process, including air freight forwarding services if needed. Ultimately, understanding and agreeing on the appropriate Incoterm is crucial for successful importing from China and can help avoid costly mistakes and disputes.

Reference

LLamazares, O., 2020. Incoterms 2020: main changes. Global Negotiator Blog.–URL: http://www. globalnegotiator. com/blog_en/incoterms-2020-main-changes/(дата обращения: 20.04. 2018).

TDH, 2022. List Of 15 Successful Companies In The World. Online available at <https://thedissertationhelp.co.uk/list-of-15-successful-companies-in-the-world/> [Accessed Date: 24-oct-2022]