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Making your first booking to ship goods from overseas can be very daunting. It isn't surprising the number of people trading internationally that do not know the basic meaning of Incoterms. Incoterms are a set of international terms of sale that all shippers and consignees should be aware of. If you know what the term you are buying under means you will also know what else you will be responsible for in terms of transport costs, and will be able to avoid any nasty surprises. We are seeing an increasing number of people getting caught out by this, being told a value of their shipping and not being aware of costs at the other end. As a importer, you have a right to be able to arrange your own shipping of the goods.
The most common terms and their meanings are listed below...
Under the terms (CIF - Cost, Insurance, Freight) and (C&F - Cost and Freight) the shipper will be responsible for paying freight and charges up to an agreed point. For example if you are shipping goods from China to Belgium you may agree with your supplier your purchase goods under Incoterm "CIF Antwerp". In this case the supplier will nominate their own carrier and will ship goods to arrival Antwerp port. Supplier will include costs to get goods to Antwerp in his price to you under this term. If "CIF Antwerp" then supplier should also include cargo insurance (this should always be on door to door basis).
The tricky element of purchasing under CIF / C&F terms these days is that when goods arrive at destination port you have no idea what the carriers destination charges will be, and nowadays they can be much higher than the freight cost etc. We would always advise you when getting a CIF / C&F price for your goods to also press supplier to check with carrier and advise what the corresponding destination charges will be.
FOB means "Free on Board", which is to say that if you purchase from your supplier under this Incoterm your supplier will pay all charges at origin to the carrier. You will be responsible for paying the freight element (port to port or airport to airport), and the destination charges.
Why do business FOB? How do I organise my own shipment?
Due to the above mentioned problems with CIF / C&F terms FOB has become increasingly popular The main reason is that it is not open ended. You pay the supplier an FOB price in which they include the price for the product plus origin charges, then you pay the carrier a set price from port / airport of loading to your door. The only charges that are not covered are usually duties, taxes and any form of customs intervention which as the importer of the goods you should be aware of anyway.
With FOB you also nominate the carrier that the supplier uses giving you control over your shipping.
Ex works is as it sounds a price that the supplier will give for products only, meaning that you will pay the full cost of shipping the goods from the factory at origin to your door. The down side of this Incoterm is that on every occasion your nominated carrier / freight forwarder will have to revert to their origin partners for clarification of local charges for your specific order. This can often cause a delay of 1-2 days while you wait for a price to approve prior to arranging shipment. Remember with FOB your suppliers price already includes local charges at origin and your carrier / freight forwarder should be able to quote you a price from FOB to your door (port to door) straight away.
There are more terms of sale (Incoterms) out there, above are just the main three in use today. For a more complete listing please feel free to visit our website www.mannson.com and go to the resource centre where you will find "A rough guide to Incoterms".