ARE YOU READY TO TRANSPORT YOUR PRIVATE LABEL PRODUCT?
Finally! Your new product is ready at the supplier to be transported. Only, who’s going to arrange and pay for the transport? Are you going to make sure it’s picked up from the factory? Or does the supplier ensure that the products are delivered to the nearest port? In other words, you don’t want any ambiguity about who arranges the transport and who pays for what part of the transport. Besides there are things like transport insurances, licenses, authorisations, documents and risks that require coordination. To create international transparency about this, the ICC Incoterms were created.
Incoterms is the abbreviation for the ‘International Commercial Terms’, defined by the International Chamber of Commerce. The Incoterms provide a clear picture of the operational obligations and costs of bringing goods from the supplier to the buyer. Incoterms also determine the point of risk transition between buyer and supplier regarding freight loss or damage. These terms are general, they may be clarified for specific situations. Another feature of Incoterms is to provide instructions to transport companies, freight forwarders, customs and other service providers that may be involved in your shipment. Furthermore, they provide clarity on funding to banks or other financial agencies.
“Incoterms determine till when the supplier is responsible for the delivery of the product to a buyer. Depending on the Incoterm, this means until the supplier’s own door, the port from the supplier’s country or the port of thebuyer’s country, or until the buyer’s door.”
THE 11 INCOTERM RULES
The International Chamber of Commerce website briefly describes the 11 Incoterm rules. The three Incoterms you’re most likely to deal with in China are EXW, FOB and FCA:
- EXW — Ex Works means that the supplier delivers the goods to the ‘door’ of the factory. The supplier is not required to load the goods into the truck. In addition, the supplier is not responsible for the clearance. The clearance determines whether the captain meets all the conditions and customs requirements. This has everything to do with the departure of the ship or plane and the cargo.
- FOB — Free on Board means that the supplier brings the goods on board of the ship. Upfront it has been agreed which port and ship this will be. After the transition, the buyer has to bear all risks of damage or loss. Follow-up costs are for the account of the buyer. A freight forwarder should be perfectly capable of assisting you or making the appointments for you.
- FCA — Free Carrier means that the seller delivers the goods to the carrier (e.g. the freight forwarder) at an agreed location. It is recommended to describe this as clearly as possible, as there is a risk transition from the seller to the buyer.
Most Chinese suppliers work with local companies to bring goods to the port and have them exported safely through customs. Generally, these local businesses are more efficient and better than foreign freight forwarders. If the supplier makes you choose between FOB and FCA, it is definitely appropriate to accept these Incoterms. In all of the above cases, transport and customs charges in the country of arrival are still for your own account.
This, in short, are the most important things you need to know. As shown in the picture, there are also Incoterms where the supplier has more responsibility. In any case, make sure you are well aware of the Incoterm that applies to your situation. You don’t want a horror story when it comes to your cargo ☺