Thoughts on FOB price term

By Li Zhang

The goal of this post isn’t to get into the technicality of the Incoterms but to provide some practical tips on the FOB concept when sourcing your promotional merchandise from China.

Buying Side Arranges FOB

The buyer is the first to initiate logistics arrangements.

The basic skeleton steps are as follows:

• Make sure you have the proper packing specifications from your supplier.
• Make sure you are aware of departure port. Price terms from vendor are FOB where?
• Provide this detail to your freight forwarder; generally this in your home country.
• The freight forwarder should come back to you with the rates or more questions.
• For USA importers, provide your freight forwarder the HTS code sooner than later. This is so you can know the import duties. Do not rely on your vendor to provide this unless you are certain that your vendor is good at resourcing the HTS codes. Even then…still check!

Eventually, your freight forwarder should provide you the contact details of the China-side office. You will need this to give to your supplier.

The supplier or the China-side office of your freight forwarder, should contact one another.

If you are a promotional product distributor, chances are that timing is tight. Therefore, you need to prod along the first interaction of the China office freight forwarder and the vendor. In other words, they may not be too proactive from the beginning to start making things happen.

Friction

This China-side freight forwarding office that your local shipper arranges is, 9 times out of 10, a pain in the butt to your China-side supplier. Especially if it’s a first-time order with a supplier then undoubtedly that shipping company is going to be a source of annoyance.

You’d would think since the ultimate goal is to send the goods overseas the China shipping office and the supplier would partner up for the greater good. That’s far from the case. These shipping offices are hard to work with. Then for each job inside of the company, they have a different contact person. Your supplier has to jump through all of these hurdles just to get your goods exported.

Why so much strife? Since the shipping company thinks they are working on behalf of the overseas shipping office, they want to do as little as possible in helping the supplier line up the shipment and get all moving pieces going forward. It’s the Chinese mindset of “I don’t know them, why should I help?”

This seems counterproductive, right?

The Chinese-side shipper is making extremely low margins (they work on volume, not individual cases). If the supplier and freight forwarding office don’t have a history together, both parties are probably not working up-to-speed for the other; ie finding the right sync. Instead of either side taking responsibility, important points and confirmations are left by the wayside thus leading to possible delays and customs inspections.

Promotional Products FOB Perspective

This blog focuses on promotional products and branded merchandise. Quick delivery time is always required; therefore consider the following when doing FOB.

• When ordering from many factories and suppliers your shipper is reestablishing this relationship with a new company every time.
• A good supplier helps to overcome these issues and will fully-partner up with your shipper in spite of the trouble the shipper is giving.
• Your local shipper doesn’t give you the whole story. They may not know the entire scenario. Many delays are because of the shipper being hardheaded and non-transparent with the factory on when goods need to be in the warehouse, closing dates, etc… If your delivery time is urgent, control the shipping via your local office; be “in the know”. Leaving it all up to the supplier does not equal you putting in the proper amount of legwork.

Plan accordingly

• When planning on delivery times with your Chinese supplier leave out the unnecessary information. The supplier doesn’t need to know when you need it in what city for what brand, for what campaign, for what event. They need to know when the goods need to leave their factory and when it needs to leave China. Don’t focus on in-hand date, focus on China departure date. If you are booking this from abroad, you and your shipper focus on all dates once it leaves China. Believe me; I’ve seen great confusion in buyer and supplier talks, where the buyer is talking about an “in-hand” date and the supplier is talking about a out-of-factory or at most, China-departure date.
• A 1-day delay can lead to a 1-week delay. The China-side shipper doesn’t do a great job coordinating the closure and sailing options with the factory (which shipping lines leaves, what day, for what delivery?). The China shipper should be spoon-feeding the factory this info, but instead the factory has to scratch and claw just to get fuzzy facts. Again, lack of margin leads the shipper to do as little as possible.

Partnering with your factory to achieve fluid shipping

Keep in mind when dealing with factories; their vision is not extending too far past the factory walls. Delivery to them means the day the goods leave the factory. And rightfully so…they are a production facility, not a logistics company.

These are headaches a supplier shouldn’t have to put up with…but they do on their buyer’s behalf. On the overseas side, be sure to do your due-diligence in making sure all moving pieces and parties line up. Don’t leave it all in the hands of the factory. Allow them ample energy to focus on production.

A good supplier will learn how to deftly navigate these waters on your behalf.

Doing more and more volume with your shipper and with same supplier will start reducing these possible FOB problems.

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