As you may know, at IBMH we try to help you choose the best options of Incoterms in the purchasing management in China, these are a set of international rules governed by the International Chamber of Commerce, which govern the duties and responsibilities of both buyer importer and the exporting seller.
But apart from the official information that govern the Incoterms as clauses that determine an international sales contract, there are many other hidden factors and bad practices by some Chinese manufacturers, which here at IBMHCORP we have had in the past, and therefore we have the necessary experience to be able to avoid such problems again in the future.
What does the incoterms influence?
- The price.
- Where the delivery of the goods is performed.
- Where the risk on the goods transfer occurs
- Who pays and contract transport and insurance.
When we work CIF, the supplier is the one who is responsible for the costs of transportation from origin to destination. In addition, the seller must buy insurance and pay the corresponding fee. With the CIF, moreover, the seller must deliver the necessary documents of packaging, freight and customs (documents, permits, requirements, taxes), but this is simply the official theory, we explain the reason for this claim.
One of the bad practices carried out by some Chinese manufacturers who recommend work in CIF, is to reach a hidden agreement with the forwarding company, so that the costs of the freight that are supposedly to be paid in full, were not paid entirely in origin (which would be officially an obligation), giving all these expenses, and even more, directly to the destination costs. How do they do it?
It is very easy, the merchandise just arrives at the port of destination, but is recorded directly for the own logistic operator or its strategic partner, which is in charge of informing the importer’s costs necessary to make the customs office and the costs required to carry their goods from the port of destination to their cellars or warehouses, and the importer is not available to have the merchandise or use another confidence customs broker, so he has to pay the costs that this company of transportation at destination wants to collect if he wants to receive the merchandise.
Since they know they will have to pay if they want to dispose of the material, the importer has to pay these prices, resulting the operation much more expensive than if you had used the FOB condition, but also with the CIF condition he did not have any information about the traceability of the goods or the correct status with respect to the actual dates of arrival, and what is worse, without the chance to contact anyone to know more.
On the other hand, with FOB we control all transport of all import costs. If you, as the purchaser, decide FOB, remember that it is your obligation to make payment of the freight, insurance, import costs and customs taxes. But this has many advantages, among others you have control of the goods at any time since its departure from China, since the logistics company has been contracted by you directly, upon arrival at destination you can work with your usual customs broker that apply you a preferential price list and also you will not have surprises in the transport costs from the port of destination to your cellars or warehouses.