How to find the best shipping option for my product
The final part of the procurement process is the delivery. It is often underestimated, which costs can arise and how much a comparison of costs is worthwhile here. In the following article we will introduce the most important international trade regulations (Incoterms), show the difference between FCL and LCL, as well as between air and sea freight and demonstrate where the dangers lie in shipping.
EXW, FOB or CIF? It's easy to lose track of things in the logistics jungle. Behind these terms hide the so-called Incoterms. These are the most important international trade clauses that you will encounter again and again in the future when buying and shipping goods abroad. Already with the comparison of offers and prices of manufacturers you will encounter them for the first time. The devil is here in the detail. These three letters can make a considerable price difference. Manufacturers play with the ignorance of their customers again and again. Prices are usually given by the manufacturers in EXW (ex-works) or FOB (freight on board). While at ex-works the goods are collected at the location of the factory, the FOB price includes the delivery up to the deck of the freighter intended for the dispatch.
Essential points which the manufacturer must fulfil with FOB:
(a) The seller shall obtain the export licence and complete all customs formalities necessary for the export of the goods.
(b) The seller shall deliver the goods on time on board the vessel designated by the buyer.
(c) The seller shall bear the risks of loss or damage until they are delivered on deck of the vessel.
(d) The seller shall complete the export formalities and bear all customs duties, taxes and other charges incurred with the export of the goods.
Here it can already assume which considerable differences lie between EXW and FOB. So when comparing prices, it is always important to pay close attention where they refer to. Usually it is advisable to make an FOB agreement with the factory, because the handling of the shipment is much easier afterwards and the manufacturer must also guarantee that the goods are delivered properly to the cargo ship.
Here you will find an overview of the most important Incoterms:
FOB (free on board): Agreed port of loading
FCA (Free Carrier): Location of the agreed carrier.
EXW (ex works): Location of the manufacturer
CPT (Carriage paid to): Agreed place of destination
CIP (Carriage insurance paid): Agreed place of destination
CIF (Cost insurance freight): Passing of risk at the port of shipment, passing of costs from the port of destination
CFR (Cost and Freight): Agreed port of destination.
FCL and LCL shipping
In this section we would like to discuss the best known terms in relation to freight. When shipping goods, a distinction is usually made between FCL and LCL. Behind this are the two most common freight options, the "full container load" (FCL) and the "less than container load" (LCL).
With FCL, the shipping company takes over from the shipper a container that has already been fully loaded and sealed by the customs authority for shipment. This container is then transported as a whole to a specific consignee. FCL is the most cost-effective method in terms of volumetric unit and weight unit. The usual container sizes vary between 33.2 and 85.9 cubic metres.
However, it is often the case that the goods ordered do not fill an entire container. Especially with smaller order quantities or products of smaller size, it can happen that several partial loads are consolidated in one container and then deconsolidated again. The costs incurred per volumetric unit and weight unit are higher here than in FCL, as higher administration fees are incurred.
However, this shipping option is a very popular alternative for companies whose order sizes are between FCL and the much more expensive air freight. Many smaller companies therefore ship as LCL.
The freight insurance is quite inexpensive with 50 to 100 USD and covers all damage that can occur during the transport of the goods.
The transport times essentially depend on whether air or sea freight is used for shipment. In addition, the distance travelled plays a major role, especially in the case of sea transport. The delivery time for air freight between China and most regions of Europe or the United States is usually between 7-10 days. The shipping time by sea is between 25-35 days. In addition, however, it can take up to another week until the goods have been properly loaded in the port of export. It can also take another three days at the port of arrival until the goods have been unloaded and released for collection. With bad luck, delays of two to three weeks can occur.
5 quick tips for a fast shipping:
- Avoid transmission errors between the bill of lading and the commercial invoice and make sure that the declared customs value is correct.
- Save yourself unnecessary stress and always ask for FOB. Make sure that the supplier prepares all documents for the export permit in a timely manner.
- Ask the forwarder to contact the supplier a few days before the planned shipment to discuss everything that needs to be done.
- Pay the balance of the freight costs in time so that there are no delays.
- If you are already very late, let some of the goods (e.g. 20%) arrive by plane and the rest by sea. This will save you valuable time and avoid going "out of stock".