FOB Shipping | How to Importing from China

FOB Shipping | How to Importing from China

Based on statistics, approximately 70% of China’s exports are traded using FOB terms, and this percentage is expected to rise. FOB is one of the most commonly used trading terms for China’s international transactions. To successfully import goods from China, it’s essential to have a clear understanding of FOB, and this article will serve as a comprehensive guide to help you achieve that.

• Understanding FOB in Shipping
• What Is FOB Price?
• Why Do Many Buyers Like FOB Shipping from China?
• FOB vs CIF
• FOB vs DDP

Understanding FOB in Shipping

FOB is a common abbreviation for “Free on Board”. When shipping under FOB, the seller sends the goods to a port in their country and delivers them to you or your freight forwarder at that port. The seller is responsible for all costs and risks before delivery, but once the cargo is loaded on board, you become responsible for the cargo, including all costs and risks afterward.

Example of FOB Shipping from China

Imagine you are buying 20,000 bottles from China to the USA. The bottles were manufactured in Yiwu and will be shipped to New York. Let’s review the specific responsibilities, risks, and costs that the buyer and seller should bear under the FOB shipping term.

What Does the Seller Need to Do?

Typically, the seller packs the goods and sends them to the Port of Ningbo by truck, as it is the closest port to Yiwu. The seller is also responsible for handling the export declaration and paying all costs incurred during the process.

If the goods are damaged prior to being loaded onto the vessel at Ningbo Port, the seller is responsible for compensating the buyer.

What Should the Buyer Do?

As a buyer, it is recommended that you use a freight forwarder to help arrange shipping. If you do not have one, you can ask the seller to recommend one. Since finding a reliable forwarder can be time-consuming and require significant effort, it is best to leverage the seller’s existing relationships.

Once the goods are loaded onto the vessel at Ningbo Port, the buyer assumes all costs and risks. The following steps should be taken:

• Allow your freight forwarder to arrange shipping from the Port of Ningbo to your destination
• Pay shipping costs to your freight forwarder at the destination, as FOB is “freight
• collect”
• Obtain an import license, complete import customs clearance procedures, and pay
• import duties and taxes
• Assume the risks of damage and loss of goods in transit from Ningbo Port to your destination

It is recommended that you purchase cargo insurance to cover potential damage or loss of goods during transit. If damage or loss occurs, the buyer can file a claim with the freight forwarder rather than request compensation from the seller. The seller is only responsible for ensuring the goods are in good condition when loaded at Ningbo Port, although they can assist with communication with the freight forwarder.

If the damage to the goods is caused by the seller’s packaging, the buyer may negotiate with the seller for compensation.

Please note that if your seller ships from Ningbo Port, the shipment should be indicated as FOB Ningbo. If your seller chooses to ship from Port of Shanghai, the shipment should be indicated as FOB Shanghai. The designated departure port should be clearly displayed.

In addition, China has a long coastline spanning 32,000 km with numerous ports. If you use FOB, please confirm with your seller which Chinese port to ship from. Ensure that your forwarder can pick up the goods at the agreed time to avoid any additional costs.

FOB Shipping Point vs FOB Destination

When looking up FOB online, you will come across FOB shipping point and FOB destination. These terms further define the FOB term. However, when importing from China, these terms are not commonly used. In most cases, you will sign the FOB shipping term with your seller, as we mentioned earlier.

FOB shipping point, or FOB origin, means that you are responsible for all costs and risks of loss and damage when the goods leave the seller’s warehouse. It is similar to EXW under which you will also be liable for everything from picking up the goods at the seller’s location to your final destination.

FOB destination means that the seller will keep the title of the goods until they are delivered to your place. Therefore, the seller should bear all things from their warehouse to your destination, including all costs and risks. It is similar to CIF, DDU, or DDP, under which you decide the destination and let your seller directly ship goods there.

In practice, if you want the goods shipped to the port in your country, the Chinese sellers will sign with you CFR or CIF shipping terms instead of FOB destination. If you want the goods sent directly to your door, it is actually DDP or DDU delivery terms. Read on to know the differences in detail.

What Is FOB Price?

To better explain FOB price meaning, let’s suppose you buy 20,000 watches on Alibaba. Your seller is in Guangdong province, China. You and the seller reach a FOB shipping agreement. In this case, the seller will include the costs from the factory to [Guangzhou Port] and customs declaration fees in the FOB quotation in advance. The FOB price formula is:

• FOB price = original product price + costs from factory to Guangzhou Port + customs declaration fees

For example, the original price of a watch is $10, the cost from factory to port of Guangzhou is $800, and customs declaration fee is $500.

• FOB price = $10 * 20,000 pieces + $800 + $500 = $201,300

Generally, the seller will give you the FOB quotation ($201,300) in two ways.

One way is that the seller will charge FOB fees for each product. So the unit price of the product you actually get under FOB term is:

• FOB price / 20,000 pieces = $201,300 / 20,000 pieces = $10.065 per piece

The other way is that some sellers will tell you the unit price of a watch is $10 and the FOB cost is $1300 ($800 + $500).

Either way, you should pay the seller $201,300, and you don’t need to deal with the cargo until it is loaded on the designated ship at Guangzhou Port. The seller will be responsible for everything before that.

Pay attention. FCL and LCL will have some impact on FOB fees. If your cargo is shipped under FCL (Full Container Loaded), the seller will complete the customs declaration for you. But if your cargo is shipped under LCL (Less Than Container Loaded), your overseas freight forwarder will deal with customs declaration and then charge your seller.

For bulk cargo (LCL), if the FOB cost operated by the seller is $400, it will be $600 or even higher if operated by your freight forwarder. Therefore, the seller will reserve a space for the unstable customs declaration fee when quoting.

Why Do Many Buyers Like FOB Shipping from China?

Experienced FOB buyers usually prefer FOB delivery term because they usually have freight forwarders in their own countries. Their forwarders can easily calculate all logistics and import costs from any port in China to the buyer’s warehouse.

Therefore, if the buyer wants to compare the prices of different sellers, such as three sellers located in Yiwu, Shanghai, and Guangzhou, they will want the seller to give the FOB price. As it includes all the export fees and the costs to the China port. This way, it will be easier for the buyer to compare the costs for their importation.

In addition, under FOB, the buyer seems to have a lot to do, but in fact, many freight forwarders can help them deal with everything from a China port to their place, including all transportation, customs clearance, etc. The buyer just needs to do some communication with their freight forwarder and wait for delivery in the warehouse. This will save them a lot of trouble.

It sounds like FOB is really good. No wonder so many buyers prefer it. However, FOB is not suitable for all situations. It is better for buyers who have some experience in import and export and have their own reliable freight forwarders. So never use FOB shipping terms only because many people around you use it. There are also many other trading terms you can choose. And now let’s see their differences.

FOB vs CIF

CIF is the short form for “Cost, Insurance, and Freight”. It is another most commonly used shipping term for buying from China. Compared with FOB, CIF sellers will help you handle more things during transportation.

Under CIF, your seller should ship your goods to the port in your country, pay freight charges and buy cargo insurance for you. They are responsible for the cargo and bear all risks and costs until the goods are delivered to you at your port. Then you need to find brokers to help you clear the customs and contact a truck or express company to deliver the goods to your location.

Usually, if you do not have a cooperative freight forwarder and want your seller to help you send the goods to your country, you can choose CIF. Generally, it is more suitable for new buyers who do not have much experience in international shipping. You only need to deal with the goods when they arrive in your country port, which will be easier for you.

Here, we have to say something about CFR (Cost and Freight). CFR is similar to CIF. The only difference between them is that the CFR seller does not need to buy cargo insurance while the CIF seller needs to do it. So, under CFR, to increase the safety of cargo transportation, you need to purchase certain transportation insurance on your own.

FOB vs DDP

If you sign a DDP shipping term (Delivered Duty Paid) with the seller, they actually provide you with door-to-door service. Your seller will deal with all processes from their factory to your destination, including all transportation and costs, import and export customs clearance, customs duties and taxes, etc.

DDP is also very suitable for new buyers. And it is very popular among e-commerce sellers. For example, many Amazon FBA sellers ask their Chinese suppliers to send goods to Amazon warehouses under DDP.

DDU (Delivered with Duty Unpaid) and DDP are always compared together. They are very similar. The difference between them is that the DDU seller will not pay customs duties and taxes for you, while the DDP seller will cover it.

The End

We hope you now have a clear understanding of the FOB shipping term after reading this article. If you have any questions, you can leave a comment below.

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