The world's biggest annual migration
As we read and see more and more in the news that Chinese exports to ‘developed’ countries are considerably reducing it is a time to be very wary about quality. While there is still strong growth from ‘emerging’ markets such as Africa and South America, the reduction in exports from the larger Western markets creates a pressure and strain on all the factories that rely on these orders to maintain their budgeted and normal business.
If Europe and US demand decreases further there will be steep competition between these factories. With this competition comes reduced price margins and this will likely mean compromise on quality as these factories fight to survive. When your products become secondary to the factory’s survival, it is time to spend extra attention to make sure you are still getting the quality you expect.
When the bottom line is threatened, this is when quality problems arise. Instead of focussing their energies on maintaining the standards of your product, factories will be trying to get as many of your products completed as fast as possible so the next order can go through. Factories will likely also attempt to bolster their profits by blaming wage increases and raw material costs. Short-sightedness being a regular player in Chinese business, many factories will let all this happen at the detriment of your relationship with them as a customer. Read more…
Give an inch...
(Have you read Part 1 of this article?)
By this point, the overseas purchaser has been let down dreadfully by the supplier and had to compromise their margins in order to have their goods released. But it got worse. When the CI (Original Paper Commercial Invoice) and COO (Certificate of Origin) were requested from the supplier, they refused to do even this stating that it would cost yet more money to produce these documents and therefore not worth it.
We explained that in order to export the products these documents were required from the manufacturer. This was met this time with abuse and a refusal to have anything else to do with the matter. The aggression showed by the supplier at this point was typical to a kneejerk reaction by a lot of suppliers when their back is at a wall and they have gone so far that even though they are wrong, they don’t want to lose face by admitting it or even compromising.
Luckily my time in China has allowed me to meet some influential individuals in the export and customs world here and we were able to get some documentation to push the order through customs and onto the ship for our client. This documentation was also enough to comply with import, customs and duty purposes when it arrived at its destination port. Doing it this way should of course always be a last resort.
Read more…
Recently I was contacted to assist in a case whereby a Chinese supplier had decided to change their mind about delivery terms on an order. This was post-production and while it was held at a 3rd party shipping agent. Initially, a quote was supplied to a European purchaser that was priced for FOB, Chinese port. These terms were accepted and the ordered processed.
Somewhere between ordering and before loading onto the vessel at the port, the supplier decided to change their mind and claim that this was no longer FOB and were only prepared to pay a small courier fee to the shipping agent. Not only did they do that but they also refused to offer a Commercial Invoice and Certificate of Origin – two documents that are critical when exporting from China and importing into your own country.
Read more…
CIF means Cost, Insurance and Freight. This Incoterm (international commercial term) is also commonly referred to as DDP, which means Delivered Duty Paid to the destination port.
The supplier basically takes responsibility for the product from manufacturing, freight, customs and duty for the buyer. It normally works out a little more expensive for the buyer than if they were doing it themselves or FOB but it is an option many prefer as they don’t have to worry about the costs and hassle of the whole process.
If the buyer prefers this delivery method they should be sure to state it at the very beginning to the supplier. What normally happens is that the supplier will nominate their own shipping agent and deal with the process themselves.
Payment terms for an FOB product in China can be from 20%-50% initial deposit/down payment to begin manufacturing/assembly of the product. Once completed and ready for delivery the supplier will load the product into the container (FCL and LCL) and export it to be loaded onto the container ship at the port.
At this point the B/L (Bill of Lading) is exchanged for the remainder of the order value. Once this has been exchanged, the product is in the custody of the purchaser or the shipping agent/freight forwarder that has been enacted.
Depending on the agreement the buyer has with the shipping agent/freight forwarder the product can be managed all the way to the buyer’s door from that point onward.
FOB as explained before covers the cost of your product either until your shipment is loaded or until it has arrived at your destination port.
If it is FOB destination port, then the purchaser has to pay for:
- Shipping Fee.
- Customs fee at the destination port.
- Duty on the product if it requires any (Your will have to research this or shipping agent should be able to classify the product.
- Once released, delivery to the final destination as listed on the shipping documents.
The purchaser can do this whole procedure themselves but it is highly advisable and both economically and time efficient to enact a shipping agent or freight forwarder to take care of this for them.
If it is FOB port of loading, then the purchaser has to pay for points 2-4 as above.
As a general term, FOB means ‘Freight On Board’ or ‘Free On Board’ as it is more generally used in international shipping. This means that the seller will pay for the goods to be loaded onto the vehicle of transport.
The term FOB can be used to clarify which part of the shipment is being paid for by the supplier and which part is to be paid for by the purchaser.
For instance FOB, (port of loading) indicates that the seller will pay for the goods to be loaded onto a vehicle of transport (usually a container ship) at the initial port only. Shipping, Duty, Customs clearance and delivery to final location will be paid by the purchaser. Usually this is a shipping agent as nominated by the purchaser.
FOB, destination port indicates that the shipping fee will be paid by the seller/supplier. Duty, customs clearance and delivery to final location will be paid by the purchaser.
For a more in depth understanding of the term FOB, contact your shipping agent or get in touch with us with an explanation of the shipping situation.
