11/06/2020
1. FOB – Free on Board
(or Freight on Board)
The most popular term used on sites like Alibaba.com is FOB. This is basically the DEFAULT pricing used when dealing with suppliers in China.
FOB pricing means that it covers:
Product cost
Local exporting fees/customs
Delivery of your order to the nearest port
This price won’t cover shipping from China to the UK (or any other country), insurance of the shipment, local customs fees (VAT & import duty), customs clearance fees, local port fees or delivery to your address.
Often, you will see that the term FOB is followed by another word. For example, FOB Ningbo. Ningbo is a city in China, so FOB Ningbo means that this is the port that the supplier will ship your order to, which is covered by the FOB price.
There are many ports in China, so depending on the supplier’s location, they usually use the closest port by default. However, you can ask them to send your goods to a different port—in which case, the FOB price will most likely increase.
The reason why FOB pricing is the most commonly used in China is because, traditionally, most goods are shipped by boat. Nowadays, however, with the rise of marketplaces like eBay and Amazon—and with everyday people importing smaller orders and using couriers and air freight more often—that situation has changed.
Should you use FOB pricing with your supplier? It really depends on your order size and weight. If you will use sea freight, then yes, FOB is the way to go. If you will use air freight then, again, FOB is the way to go (only this time it will be to an airport instead). If, however, your order is small and you will use a courier delivery service, you should not use FOB. In this case, use EXW instead.
2. EXW (Ex-Works)
Sometimes referred to as the “ex-factory” price, EXW basically means the cost of the product and nothing else! No shipping costs or export fees in China are included in this price, never mind the local port and customs fees or delivery to your door.
Still, there’s a place for these pricing terms when you use a courier shipping method for your order. By courier shipping, I mean the fast air courier shipping method offered by companies like DHL, UPS, TNT and others. Delivery from China via courier usually just takes 4-6 business days. The downside is that courier shipments are very expensive and are only suitable for very small items (and sample orders).
If you have decided that courier shipping is the way to go, you should ask your supplier for the EXW price AND ask them to get a courier shipping quote for you.
Yes, that’s right, ask the supplier to organise your courier shipping. If you do it from the UK (or US), you will pay much more. Local Chinese suppliers will get much better rates, so there’s no point in doing this on your own.
Hopefully, your supplier will be honest, though, as sometimes they try to overcharge you on the shipping fees. The best way to avoid this is to get shipping quotes from three different suppliers, even if you don’t plan on ordering from the other two. This way, you can compare all three and see if your real supplier is trying to overcharge you. If they are, you can simply ask for an explanation as you have proof on hand that two other suppliers can ship the order for less.
Another advantage of using EXW + courier shipping is that you won’t have to deal with the local customs clearance procedure. Courier companies will do that for you and invoice you for VAT, import duty and a small customs clearance fee. Then, they’ll deliver the goods straight to your door.
So, EXW should only be used together with a courier shipping method. Don’t use it for sea freight shipments, even if you’re planning to use your own shipping agent. Instead, go for FOB because it will be cheaper than paying extra fees to your shipping agent to cover local delivery/export fees in China.
3. CIF
CIF — Cost, Insurance and Freight.
For , the price also includes sea freight charges and insurance to deliver the goods to YOUR nearest port. But remember, it’s only to the port. From that point onwards, it’s up to you to take responsibility for the shipment.
4. CNF
— Cost and Freight (or Cost, No Insurance, Freight)
CNF is similar to CIF, except insurance is not included.
If your supplier quoted you a CNF Felixstowe price, it means that the price includes shipping of the goods via sea freight to the Felixstowe port. When the goods arrive there, you’ll have to organise customs clearance and delivery to your home/office/warehouse.
While the CNF price can look very attractive, keep in mind that there will be other costs involved when your goods arrive in London, such as:
Customs clearance fee
Value added tax (VAT)
Import duty
Port security charge
Fuel surcharge
Docking charge
Warehouse storage fee
Etc.
So, the CNF price is really just the tip of the iceberg and is not the true, FINAL price that you’ll pay for the products you’re importing.
Also, since you’re new to importing, it will take more time than usual and be a lot of hassle for you to organise everything at the London port.
A much better alternative is to use a freight forwarding agent for your shipments from China. These companies take care of EVERYTHING mentioned above and will deliver the goods to your door without you having to mess around with the customs clearance procedure.
You will usually receive an invoice from them once your goods have arrived that clearly lists all the taxes, customs fees and port fees.
I highly recommend you use such a company, at least for your first few importing deals. These freight forwarding companies are very affordable and can actually work out cheaper than if you try to do it all on your own.
My recommendation for UK customers is Woodland Group, which is a freight forwarder with great customer service, weekly shipments from China and very competitive prices. Get in touch with them to find out exactly how much your order will cost delivered to your door after all the fees and taxes have been paid.
When contacting a freight forwarding company, make sure you ask for a door-to-door price. This is very important. Otherwise, you can end up with a host of additional charges when your goods arrive in the UK.
The FOB price in combination with the use of a freight forwarder is the most cost-effective way to do sea freight shipments from China. And you will know EXACTLY how much it will all cost, even before you place your order with the supplier.
5.DDP (Delivered Duty Paid)
This means that the price includes EVERYTHING:
Price of goods
Local export costs in China
Shipping to the UK (or any other country)
Customs clearance in the UK, VAT, import duty and other charges
Sounds good, right? Yes, this sounds like the PERFECT way to do business in China. And often you will discover that this DDP price is just slightly higher than the FOB price. Perfect, right?
As adults, we all know that if it looks too good to be true, it is too good to be true.
How can the DDP price be just slightly higher than the FOB price when you know that the import duty and VAT adds at least 25% extra in fees in the UK? And then add the actual shipping cost, customs clearance, etc. It simply CAN’T be true!
That’s because it’s not true. Some Chinese suppliers are taking advantage of various loopholes in the transit system, undervaluing the goods, hiding smaller shipments in bigger pallets, etc. In short, they AVOID paying proper import taxes and VAT and basically smuggle your goods into Europe without paying all the necessary taxes.
