The ICC & Incoterms
The International Chamber of Commerce is an organization responsible for policy advocacy, standard setting, and arbitration of disputes of commerce on an international level. One of the sets of standards they developed are known as INCOTERMS. These were first released in 1936, and are updated as needed. Incoterms are international commerce terms. There are 11 and each one represents an agreement that governs the shipping responsibilities of sellers and buyers within international trade. This system was put in place so as to facilitate orderly international trade through contract models that cross language barriers.
The two most commonly used terms are CIF (Cost, Insurance, and Freight) and FOB (Free on Board). Each defines which party is responsible for the freight charges, what insurance is provided (or not) and who is responsible for the goods while in transit. The agreement also establishes the point where the buyer assumes responsibility.
You should see one of the incoterms used on any quotes you get that deal with international importing. They will list the term, and then the city for which the term will apply to. An example would be a line in the quote that may say something like “Shipping Terms – FOB, Shanghai, China”.
FOB – Free On Board
The buyer makes arrangements for all freight and port fees from the shipping point in China to their door. Once the goods have been picked up in China, all responsibility for the shipment rests with the buyer’s shipping company in the case of damages or lost product. The buyer’s shipping company is also responsible for clearing the shipment at customs.
CIF – Cost, Insurance and Freight
The seller’s shipping company holds responsibility for the cost of goods until it arrives at the customs port nearest the buyer. Minimum insurance and all freight to the port of entry are included in the prices quoted to the buyer. The buyer is then responsible for the shipment from the point of delivery which includes unloading charges and any further shipping from that point.
The large majority of our customers prefer that we quote them in CIF terms. This saves them the hassle of finding their own freight company, or paying a higher price for the freight from an unknown shipping company. Chinese companies often get lower shipping rates as they know the business culture in China which helps them negotiate better rates.
Having our partners in China handle the freight also streamlines the shipping process and saves time, which lets you get your product quicker and more cost effectively.
Learn more about how we can help you import your product from China here.