The eBay and Amazon success stories have led to a surge in small businesses importing goods for sale in the UK, and opportunistic sellers looking for ways to make money have been getting their hands on anything from textiles to e-cigs, cables and packaging supplies at low cost and selling them on through online businesses.
It’s such a popular way to make money, possibly because there’s no need for a dedicated website, you can just set up your own shop on Amazon or eBay and off you go! Because it’s working out so much cheaper to import from abroad, we’re receiving many more enquiries from customers about the legal requirements and procedures, including INCOTERMS; and most first time importers don’t know the difference between Cost, Insurance & Freight (CIF) and Free on Board (FOB.)
Incoterms® are a set of rules internationally recognised rules which are used worldwide in international and domestic contracts for the sale of goods – they make life easier for international businesses by giving them a set of internationally accepted definitions and rules of interpretation for most common commercial terms.
So – what’s the difference between a CIF shipment and an FOB shipment? And which is best for you?
In the case of CIF, the cost of sea transport and insurance are included with the purchase price. The only costs not included are Destination Terminal Handling, Customs Clearance Import vat & duty and any other fixed fees the arrival warehouse charges for shipments arriving on CIF terms (these warehouse charges can vary depending on the particular warehouse)
With a CIF agreement your supplier will choose the carrier that meets your needs for the cheapest possible price, which sounds great until you want a specific route or a faster transit time. Longer transit times can affect your profits and cash flow as you’re forced to wait longer for your goods to arrive.
Even worse; when you’re quoted for a CIF shipment, the Destination Handling Charge (DTHC) isn’t included in the quote, so you don’t always know the total cost of getting your goods transported from A to B. The DHTC charges are often artificially hiked up to well above market rates, and as a first time importer, you wouldn’t know that.
Neither would you know that your cargo suppliers insurance doesn’t fully protect you as an importer, it protects the supplier of the goods. If your cargo is lost or damaged, the supplier gets a pay-out but you don’t. You have to rely on the goodwill of the supplier to get a refund or any kind of redress. You could also find that you will still have to fork out for customs entry, import duties and transport inland, even if the goods are lost/damaged.
The other option is a Free on Board (FOB) shipment, which puts you in control of your cargo and gives you the total costs up front. With an FOB shipment you choose the vessel upon which your goods are transported, and the agreement stipulates that the obligations to deliver them are only fulfilled when the goods have passed over the ship's rail.
If you’d like advice on importing goods, INCOTERMS and different types of shipment, talk to the experts! We have many, many years’ experience with helping people with large and small cargos, and we’ll be delighted to help you find the best options for your business.