What’s an FOB? Or a CIF for that matter?
When shipping to or from an overseas country, you need to understand the proper purchase & freight terms dictating costs and responsibilities. After all, who likes dealing with unexpected costs, or worse, disasters associated with misunderstandings and incorrect interpretations? Obviously, nobody, but with international freight, you’re dealing with other countries, which means different customs, different languages, and different expectations – all of which will impact your shipments.
In one of my recent posts, I outlined a project that we took on after the shipper painted himself into a corner by not having his basis covered before putting all of his belongings in a container heading for Germany. (read more about it HERE)
The point I always try to express is that we want to start off on the right foot, because there are things we can’t control, like customs inspections, labor issues, or other political, economic, or environmental challenges – and I would rather help you navigate through those, rather than things that could have been avoided if a little more care were taken in the planning process.
Terms are so important when working with foreign entities where language and cultural barriers may exist, so I’ve put together something that will take the mystery out of the shipping process for those of you who are concerned about protecting your investment and knowing your responsibilities – Your 2010 Incoterms:
Incoterms 2010 is the most recent publication of 11 international trade rules that were developed at the beginning of the 20th century. They make it easy to identify important responsibilities delegation, and will help determine the manner in which the shipment is transported.
More specifically, the use of the correct Incoterms will tell you where to pick up your goods, who is to pay for and schedule delivery, and when exactly responsibility changes from one hand to another.
Every importer or exporter should have access to the INCOTERMS before a purchase or sales are finalized, but here’s a chart to help you get started:
Your international freight forwarder can assist in clarifying freight terms and share some wisdom about which terms may serve you best. In fact, I recommend that you have a conversation with a forwarder before making any final decisions, because there are certain methods that are used more often than others, and there are very good reasons for that. Your forwarder can help you understand what those are, why, and what the best path is for you.
As a quick illustration, we help a lot of US exporters by using CIF, which stands for Cost plus Insurance Freight – The reason being that the shipper can control the sale and the freight, which, in some cases drives the re-payments of the goods (letter of credit). (Learn more about the different codes HERE).
Reciprocally, and in our experience, US importers have far better results shipping FOB port or airport of origin, because most are interested in controlling their freight as soon as it boards the vessel at the port of origination. You tend to like the fact that you have total control over costs and time-lines.
But no two businesses are exactly alike, and no two shipments are either, so make sure you get professional advice on the subject. You never know what outside forces are going to be in play at any given moment, but they will.
They are many ways to ship a cat (isn’t that the saying?), and these terms show up on your paperwork, so you should know how they impact your shipments. We’re happy to help if you’d like to price out different options and weigh the risks and consequences with a seasoned professional. Ask for a free quote today!