FOB Shipping: What Is It?
If you’ve ever heard of the term ‘FOB’ shipping, you will have probably wondered what on earth it means. Well, let us tell you. ‘FOB’ means ‘Free on Board’, and refers to a commonly used Incoterm (International Commercial Terms – a set of pre-defined trade terms published by the International Chamber of Commerce ICC)). While Incoterms are the protocols involved in fair international trade and allocate responsibility between the supplier and buyer, FOB trade terms are the most used to import products from China to the UK. Essentially, under these shipping terms, the seller is responsible for all costs involved in the delivery process up until the goods are on a vessel at the designated port. But, once these goods have been loaded and secured onto the vessel, it is the buyer’s responsibility for any risks or costs involved up until the goods arrive at their desired destination.
Definition and Meaning
As we mentioned before, FOB is the abbreviation for ‘Free on Board’. The use of FOB shipping terms involves equally and fairly spitting the costs, responsibilities and risks between the seller and buyer of the goods. Under these terms, the seller is responsible for covering all the costs that might be involved in the shipment up until the goods have been loaded on a vessel as the port. In other words, an import from China to UK means that your supplier is responsible for any goods until they are loaded onto the boat in China. However, the moment that the vessel disembarks from the port, the responsibility lands in the hands of the buyer or buyers in the UK.
FOB Shipping: Buyer Responsibilities
It doesn’t matter whether you are shipping from China to UK, or shipping from China to any other country in the world. As the buyer you are, and will be, responsible for all costs once the goods are loaded onto the ship (or plane to be transported by air) when importing from China. Essentially, this means that when you import goods from China, you are responsible for the cost of transport once of goods set sail or jet off – not the supplier.
More often than not, the terms of FOB include a reference to a port. When you import goods from China, this will be under the name ‘FOB China’ – This means that they expect the responsibility to be handed over to you with the freight element from China to the UK. But, the port is not necessarily always the closest to the seller’s premises since export licences differ between port, as well as the overall cost.
At Barrington Freight, we do our best to ensure that you recieve the best delivery quote available on the market for all your needs and requirements, no matter your delivery schedule or urgency for Next Day Delivery. As experts in the freight industry, we strive to always put our customers first and find the best benefits for all no matter the size of your import goods from China.
FOB Shipping: Supplier Responsibilities
FOB Shipping: Supplier Responsibilities
A factor many people fail to fully consider is the responsibility of the suppliers involved in shipping from China to UK. For example, the supplier is only responsible for half the journey! To address this common misconception, we’ve laid out the costs your supplier is legally contracted to cover:
When you import from China, there are a number of shipping documents that must be produced for your goods which can cost up to £60.00.
Entry summary declarations
The Entry Summary Declaration, otherwise known as ENS, refers to the amount of money paid by the supplier when declaring the goods for shipping from China. Most importantly, the ENS must be submitted up to 5 days prior to the closing date. If the ENS is not successfully submitted, the goods will not be transported, or transported via the next UK bound vessel. In order to not miss the desired shipment, prepare the ENS in plenty of time!
Terminal handling charge
The terminal handling charge (THC) refers to the cost of loading the goods at the relevant port in China. Unless this charge is paid, your goods will not be loaded on board – let alone put into a container ready for shipment! This is due to the cost of paying container terminals for the convenient loading (or unloading) of the shipping containers, as well as other costs required by the chosen shipping line or port of destination.
Many people forget to consider that suppliers are required to obtain licences to export products. If they do not have the correct license, they must pay a fee each time they import from China. For irregular shipments this isn’t a problem, but in order for businesses to profit from sales they must have the correct license and can cost anything from £40.00.
Once your goods have been cleared through a rigorous series of customs checks in the country of origin, a customs clearance agent is required to dictate the costs of the process in order for them to leave or enter the country. Some of the documents involved in customs clearance include the purchase order from the buyer, a sales invoice, Certificate of Origin and packing list, as well as any other documentation requested by the buyer or by financial institutions.
The transportation cost involves the fee to send your goods to the decided outbound port, and the distance your goods a required to travel to get there.
Thanks to modern advancements in technology, it is very unlikely that you will receive your important shipping documents through the post, unless you request them to be posted to you. These days, you will receive any shipping documents by electronic release – paid for by the supplier. Without this release, you will not be able to claim your goods.
Additional local charges
If the list wasn’t long enough, on rare occasions the customs officer in the country of origin may want to inspect the goods or question something scribed on the paperwork, which is why it is crucial that all declarations are free of accidental mistakes.
The Cost of FOB Shipping Terms
Before you decide to ship on FOB terms, make sure you are aware of what you’ll be paying for. To break it down, here’s a general overview of what the service will include:
The suppliers invoice
Even though it is the supplier who is responsible for the cost, it is you who will pay it. But, the supplier will sell you goods on FOB terms, taking their local shipping fees into account. Though these fees will be included in your invoice, you can be assured to not be faced with any hidden surprises.
No matter what, when you import on FOB shopping terms you will pay for the ‘main’ transportation method of your goods from China to the UK. Most of the time, you will need to find a reputable freight forwarder to manage your shipment for a quick and easy experience. While sending one or two boxes of personal shipments is straightforward, buying products in bulk can be much more complicated.
As the person who purchased the goods, you are required to pay all the UK charges starting with have the containment moved from the ship and unpacked ready to be delivered, costing between $10-15 per cubic metres.
No matter when you import goods from China, you will need to declare your import from China to the authorities, and pay the relevant UK duties and tax fee to UK customs, depending on the cost, size and weight of the goods.
Desired delivery location
While the delivery to the final location will be included in your overall delivery fee, it is worth keeping in mind that it is you who will have to pay for the transportation between the port of arrival in the UK to your door.
FOB VS Ex Works Shipping Terms
Just like FOB, Ex Works shipping terms are just another out of the many widely used Incoterms across the world. Under these terms, the importer is responsible for all costs involved in shipping from the supplier to your home in the UK.
While Ex Works are the second most commonly used shipping terms, they are still just as great to ensure your import from China to UK costs are transparent. Both FOB and Ex Works shipping terms can be used to ensure you are aware of all of your costs from the beginning of the shipping process right up until you receive your goods – but note that the responsibility of Ex Works shipping terms are down to the buyer, and not split like FOB terms. Additionally, you will be liable to pay any fees related to incorrect declarations at customs by your supplier – even though it’s not your fault!
Although there a positives and negatives for both FOB and Ex Works shipping terms, we believe that FOB shipping terms are best for first time importers shipping from China to UK. This is because when you import from China to UK, you and your supplier will be aware of what is required from you for seamless shipping from China.
FOB vs CIF/CFR Shipping Terms
For some, a common dilemma when they import goods from China by sea freight to the UK is which shipping term is most relevant to use. As well as FOB and Ex Works shipping terms, you may find that your supplier offers CIF/CRF (Cost, Insurance and Freight/Cost and freight) terms.
Both CIF/CFR are Incoterms wherein in it is the supplier who is responsible for the safe arrival of the goods until they arrive at the desired destination port, and despite the divide, these two shipping terms are exactly the same, except that CIF shipping terms is offered with minimal insurance. For example for an import from China to the Port of Southampton, it is the supplier who would be responsible for the goods until they arrive in Southampton.
Essentially, when using CIF and CRF shipping terms, the seller’s invoice must include the cost of the goods for shipping from China to UK. They will pay for everything including the freight to the required destination port, and the buyer will pay for the terminal handling at the port.
It might appear easy, but CIF is in fact not. Even though with FOB shipping terms you are completely aware that you’re importing from China and are a part of the China import process, it seems almost as straightforward and simple as standard shipping. While it may appear that it is the supplier who is responsible for the majority of import goods from China, meaning the buyer is only required to pay for customs and delivery from the port, this is wrong.
Many people shipping from China for the first time get caught out because they aren’t aware if the crucial steps in the importing from China process. One thing first-time importers often forget is the EORI number – and some aren’t even aware that you need an EORI number to import to the UK in the first place! As a result, you may be forced to pay hidden handover charges.
Benefits of FOB Terms
While a large majority of more seasoned exporters offer Free on Board shipping terms as standard, many suppliers and buyers are concerned about keeping their china import costs under control. In order to ensure you have full control from purchase to delivery, buy your goods on FOB shipping terms. This way, the buyer has the power to control their costs as hidden or unexpected fees that are visible from the beginning.