Importing from China: Incoterms – Why buying on FOB or Ex Works terms out of China is always the best option for an Australian Importer

If you’re new to importing, one of the major tips we have is It’s really important to not allow your supplier to organise the freight - you always want to be buying on FOB or Ex works buying terms.

You as the importer want to retain as much control over the shipment as you can and you can do that by using a local Australian freight forwarder that has a trusted network to organise the shipping.

If the supplier is quoting you freight rates that seem too good to be true, or much cheaper than what any local freight forwarder have quoted then it’s a huge red flag and you should be very weary of proceeding.

Here are a couple of reasons why:

Reason 1
We’ve seen countless occasions where Australian importers accept the price, the goods are shipped and then all of a sudden, the supplier hits them with another large bill for random unquoted charges that they ‘forgot’ to bill prior to shipping. Then the supplier will let you know that they will need to hold the shipment pending payment – essentially like a ransom.

You do not want to be in that situation, once the goods are on their way there is no stopping the shipment and you are then legally responsible for whatever happens to the shipment on arrival so if you don’t pay the extra money to your supplier, the supplier has the ability to hold the shipment, and the goods will go into storage at the port here in Australia and the storage charges can mount extremely quickly – we’ve seen some instances where the storage costs mount into the tens of thousands of dollars all the while the importer has tried to argue with the supplier to no avail.

It’s a situation you really don’t want to be in and it’s easily avoided by ensuring that you don’t let the supplier organise the freight. You do this by buying on FOB or Ex Works buying terms – you can learn more about incoterms / buying terms by clicking here

Reason 2
If the freight rate seems too good to be true then it almost always is. Some suppliers have arrangements with a freight forwarder in Australia that they nominate, and together they will offer a freight rate significantly lower than the current market rate.

As an example, let’s say they offer freight at $1000 which might be $300 or $400 less than the actual cost of the freight and much cheaper than you might have been quoted elsewhere.. They are doing this to ensure their rate seems cheaper on face value so they can secure the booking. Once booked, this container is then shipped and routed via the supplier’s nominated forwarder and then that forwarder here in Australia will send you a bill with exorbitant arrival charges, they will charge things like a ‘China freight recovery surcharge’ to make up for the money they lost on the freight, and this charge could be thousands of dollars. By the time this invoice comes through and you’re made aware of these excessive fee’s, it’s too late to do anything about it and you’re again stuck in a position whereby your goods are held ‘ransom’ until you pay the money.

Again, all you need to do to avoid this risk to buy on strictly FOB or Ex works buying terms, which means you as the importer control the freight via a trusted local Australian freight forwarder and this removes any potential control or ransom situation from the Chinese supplier.

We don’t mean to scare you, but unfortunately this industry still has it’s fair share of companies that don’t have your best interests in mind and they often don’t provide quotations or information on the entirety of the expected costs. Us here at Willship have always heavily disliked these unfair business practices and we will never ever try and deceive importers by not providing them with an accurate and full picture on the costs prior to shipping.

If you have any further questions about this, feel free to get in touch and we’ll be happy to help.