When venturing into importing goods from China, many novice entrepreneurs often grapple with the decision of choosing the right Incoterms option. FOB or CIF? Determining which is better for importing requires a clear understanding of the differences between Incoterms FOB and CIF. In this article, we will delve into the concept of FOB and its implications when importing from China.
What is FOB?
FOB, or Free On Board, is an Incoterm that delineates the fair distribution of obligations related to costs, risks, and insurance between the buyer and the seller during the process of importing from China. The FOB process can be broken down into crucial stages:
- Manufacturing and preparing goods for shipping.
- Transportation from the factory to the port.
- Loading the goods onto the vessel at the ship’s rail.
All these stages are the seller’s responsibility when goods are sold on FOB terms. This means that the Chinese company is obligated to execute and cover the costs of these actions while bearing associated risks. It’s important to note that some Chinese companies may attempt to extract additional funds from the buyer for transportation costs from the factory to the port or alleged customs duties. However, the buyer is not obligated to pay these charges.
Responsibilities of the buyer commence from the FOB location and include:
- Sea freight from the Chinese port of loading to the port of destination, along with insurance of goods.
- Unloading and warehousing of goods (THC, warehousing costs, etc.).
- The customs import procedure (customs duty, VAT, submitting import documentation).
- Transportation of goods from the port to the final destination (e.g., warehouse or company’s office).
This clear division of responsibilities between the buyer and the seller allows for better cost estimation and understanding of the stages for which the buyer is responsible. When planning to import from China under FOB terms, careful calculation of transportation costs is crucial, as the price provided by the Chinese manufacturer typically covers only the product itself.
Sea container shipping transit time from China to Jebel Ali, UAE
| POL (port of loading) | POD (port of discharge) | Transit time |
| Shanghai | Jebel Ali | 20 days |
| Shenzhen | Jebel Ali | 15 days |
| Qingdao | Jebel Ali | 24 days |
Why Choose FOB Over CIF? Contrasting FOB with Incoterms CIF (Cost, Insurance, and Freight), which shifts the obligation to cover sea freight costs to the seller, importing under FOB provides greater control over the entire process and the product’s price. Hidden costs associated with CIF shipping are shifted to the buyer at the port of discharge, making FOB a preferred choice for importers who seek transparency and control over their importing endeavors.
Conclusion: FOB, standing for “Free On Board,” is a vital international trade term in the realm of shipping and freight contracts. Importing from China using FOB terms signifies a clear demarcation of responsibilities and costs between the seller and the buyer. Understanding these implications is crucial for successful and cost-effective importing, allowing entrepreneurs to navigate the complexities of international trade with confidence.
