March 03, 2010
In the international business practice, how to quote to a client is very important for a salesman. Here we briefly analyze the difference in practice between CIF and FOB quotation including their advantages and disadvantages. The tenet of 《International Chamber of Commerce Terms》(we will call it “INCOTERMS” for short below) is the international rule to provide explanation for the payment terms which are used frequently in the international trade, in order to avoid the uncertainty about the payment terms as a result of the different explanation between different countries, or at least to decrease the uncertainty at some extent. The popular used version now is the INCOTERMS 2000. Our company uses EXW, FOB, CFR and CIF mostly during the business practice.
l EXW: EXW EX works. The buyer pays for all the freight costs and inland costs under this payment term. The container loads the goods from the seller’s factory directly.
l FOB：Free On Board. The buyer uses their own shipping agency and pays for the freight costs.
l CFR: Cost and Freight. This payment term is used mainly for air and express shipment.
l CIF: Cost, Insurance and Freight. The seller finds the shipping agency and pays for the freight cost. Usually our company will also suggest the client insure for their goods for the sea shipments.
In practice, most of the foreign trade companies like to quote in CIF term after they receive an enquiry. The advantage of CIF quotation is very obvious: the client can know the cost of every item he ordered clearly. The disadvantage of a quotation in CIF term is disputable at beginning stage. In theory, the price for different place will be different due to the different freight cost. If the client doesn’t offer the quantity of the goods he ordered, the salesman couldn’t know the exact volume of the order. Then, they can not know whether they should calculate freight cost in the basis of LCL or full container. It is obvious that the freight cost rate for LCL and full container is different. Normally the salesman will take the higher cost quoted to the client to safe his business. To some extent, the buyers will loss the cost advantage in this quotation manner.
Currently, our quotation system is basing on FOB term. Once the client starts a new order discussion with us, we will only provide price in FOB term first. Once the clients finalize the quantity of each item, we will calculate accurate freight cost and insurance fee for them in light of their definite order. The pattern of the Proforma Invoice(P/I) is FOB price of goods plus freight cost plus insurance cost. Also, we will confirm the freight and insurance cost again with our clients just before the shipping date. This will help our client to get the actual cost of the freight and insurance during different seasons. Of course, in this manner it is a little difficult for a new buyer to get complete picture for the cost at our first round quotation. From this viewpoint, comparing to CIF quotation, the FOB quotation is more cost effective. There is no space for margin from freight and insurance. However, it leads to more workload and needs more customer-oriented mindset. If the client has his own shipping agency, FOB price is the best choice.
For the FCL shipments, the shipping companies we worked with regularly are:
MAERSK, http://www.maerskline.com/appmanager/ MSC, http://www.mscgva.ch/ COSCO, http://www.cosco.com/en/index.jsp
HANJIN, http://www.hanjin.com/cn/main.html
YM, http://www.yml.com.tw/index.asp
CSCL, http://www.chinashipping.com.cn/
EMC, http://www.evergreen-marine.com/tw/ CMA-CGM, http://www.cma-cgm.com/ Generally speaking, if the client doesn’t have special request, we will choose the vessel which is the most close to our delivery time. If the client wants to use particular vessel, we can also find it for him. All we do is to provide the best service for our clients.
For LCL and air shipments, the shipping agencies which we worked with are as following:
Shanghai Amass Freight Int’l Co., Ltd. http://www.amassfreight.com/
Eurasia International Group, http://www.eurasia-intl.com/
JHJ International transportation Co.,Ltd. http://www.jhj.com.cn
YICHENG Logistics, http://www.yicheng-logistics.com/
FEIYI AIR CARGO, http://www.fr-solutions.com/index.asp
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