Don from AMZ Transit here, and today I’m going to cover Incoterms, mainly EXW and FOB, two of the most common terms used when shipping from China. I’ll also lay out what they mean to Amazon sellers, and go a little deeper into risk and everything based on our experiences here after moving a lot of shipments.
Incoterms are short for International Commerce Terminology. It’s essentially a set of terms, internationally recognized, that’ll define the responsibilities of each party involved in the transaction – in this case, you the buyer, and the supplier/seller.
Ex Works (EXW) basically means you’re responsible for everything from the door of the supplier to the final destination. Your supplier finishes the products, sets them in their warehouse for pickup, and the ownership of the goods basically becomes yours upon full payment. You’re on your own from there!
Pros/Cons of EXW:
– Cheapest price from the supplier, however your trucking cost to the port likely won’t beat theirs. That said, it’s worth checking!
– This is the lowest risk if you’re hiring a forwarder, as FOB adds an extra responsibility for the supplier.
– Port fees, customs/export fees, and any paperwork is handled by you or your forwarder…not the supplier.
– From experience, we find EXW ends up costing more in the end, as suppliers generally can consolidate shipments to the port, whereas we would be sending a truck just for your products. Suppliers also usually have a great local trucking rate, and since most of these factories are extremely rural, this goes a long way as well.
– Some suppliers do not have export licenses, so they will not offer FOB terms – therefore you’re forced to ship EXW. This can mean the supplier is smaller, or maybe do not export often which can be a red flag. We can export these products still, however it’s sometimes not a good sign. While this is a discussion of it’s own, we strongly recommend an inspection before releasing payment in these cases.
Free on Board (FOB) means the supplier takes the products to a warehouse of your choosing in China, outside of the port. This usually means “FOB (port name) when referenced, which references the port they will deliver to. Once your goods are at the port, you’re now responsible to take it all from there. They will file export and include all fees to get the product “on board” the container. This is by far the most common term of sale in our experience.
Pros/Cons of FOB:
– This one usually ends up being the most cost effective for the buyer, as the factories usually have the best rates on trucking to the port.
– Everything in China is not what it seems! Sometimes the factories will complain to try and haggle cheaper loading fees out of the warehouse you’re delivering to so they can milk a little more profit out of the deal for them. This can be a minor pain, but usually results in the Chinese dealing direct with each other….after all Free on Board means the supplier must pay to load the goods on the container, and since you’re going to be sharing goods with other buyers if you’re not shipping a full container, the labor to load it can vary from forwarder to forwarder. Since it’s billed afterwards by the Chinese warehouse, it opens up the possibility of negotiation. Overall I wouldn’t worry much about this, but don’t be alarmed if they start to haggle with each other. It can be quite interesting.
– This adds an extra layer of responsibility to the supplier, but most can do it no problem in our experience.
What about DDP, FCA, DDU and all the others? If I’m shipping with AMZ Transit, which should I do?
If you’re arranging freight with AMZ Transit, we recommend sticking to EXW and FOB. This will allow us to handle everything or near everything for you – and we’re including everything so there’s no risk of hidden fees or issues later down the line. With DDP and others, it’s tough to ensure everything gets done right in advance – there’s a specific process for shipping to Amazon, not only to save money, but to ensure you make sure everything is set up for an easy delivery to FBA early on. We assist with this process from before the goods are even ready to make sure we get it there with no headaches. While we’re extremely inexpensive, a lot of the Chinese companies do not often include customs clearance, port fees at destination, and/or know how to ship to Amazon FBA direct smoothly.
But with us at AMZ Transit – Either EXW or FOB options are fine – we have cross checked both of them many times and FOB is usually slightly cheaper as mentioned before, but EXW gives us the opportunity to make sure we handle everything front to back, which means you’re completely insured door to door, which can be a nice feeling as well.
Hope this helps! Please contact us if you have any questions, or would like a shipping quote. We handle everything for all of our clients, you just get us in touch with your supplier and our team takes care of everything for you.