Benefits of Buying on FOB Terms
February 12, 2019 Posted by normanadmin
FOB, FAS, CIF, etc. What does it all mean?! Shipping has so many acronyms you would think we were texting all the time. What are incoterms and why are they so important? Incoterms define the seller and the buyer’s risks, responsibilities, and costs, as well as the logistics and transportation of goods. If you were writing a legal document for the sale of your goods, the last thing you would say is ‘any terms will do’. Yet many people treat incoterms in this way.
There are some incoterms that make the distribution of obligations and responsibilities between the exporter and importer sound “easier” than others. For example, Cost, Insurance & Freight (CIF) may seem very appealing. The exporter negotiates the rates and coordinates the freight and all you have to do is wait for your goods to arrive. Too good to be true? In most cases, yes. Oftentimes, there are hidden costs and you have no control to change routes in cases of inclement weather, port strikes, or port congestion.
Buying on Free On Board (FOB) terms allows you to choose your freight providers and ensure they are reliable companies. If your supplier arranges the freight, they may choose a carrier based on the cheapest rate which could leave your cargo at risk, extend transit times, incur hidden costs, and more.
When you are paying for the freight, you are in control of your cargo, and you decide the shared procedures with your partners to ensure you receive accurate data regarding your shipments. If a supplier chooses the vendors, you may not receive accurate information about rolled bookings or longer transit time. By gaining control of your freight, you will create more transparency throughout your supply chain.
Buying FOB allows you to avoid unnecessary “document transfer” fees if you choose the same partner for your forwarding and Customs clearance needs. Often times importers are surprised that their supplier-controlled shipment has multiple co-loaders in the mix. This creates opportunities for delays in releases and the possibility for unnecessary fees. Buying CIF and saving on ocean base rates is not worth the potential of hidden costs and liabilities.
Buying FOB allows you to make decisions on a dime. When you control your supply chain you can be nimbler and react to outside factors that affect your cargo. Recently, we have experienced sub-zero temperatures shutting down Chicago, hurricanes altering ports of unlading, and extreme port congestion affecting deliveries. If your freight is paid at origin, how will you be able adjust your logistics plan quickly?
Buying FOB allows you to control your supply chain, choose the best options to ship your freight, and partner will a reliable forwarder for a competitive rate, accountability and transparency. If you have any questions or would like more information, please contact your Krieger Worldwide representative.