/ By tjchinafreight ivy / Shipping

6 common Incoterms mistakes to avoid

6 common Incoterms mistakes to avoid
6 common Incoterms mistakes to avoid

Incoterms are an essential part of any international ocean cargo. It is established by the International Chamber of Commerce or the ICC and sets out clear guidelines that buyers and sellers must execute transactions according to the parts of the transaction identified by each Incoterm.

Incoterms establish rules and responsibilities for both parties that can be used to resolve differences in the event of a dispute. The choice of Incoterm is determined and agreed upon by the buyer and the seller, who not only understand the responsibilities involved with each Incoterm, but also ensure that he/she is able to meet them.

Despite its importance and the potential consequences of misuse, many buyers and sellers are still unaware of some of the key responsibilities of every Incoterm.

In this article, we'll cover the six most common mistakes in Incoterms listed in Incoterms 2010.

1. Containerized goods use FOB

Despite common belief and practice, FOB Incoterm should only be used for non-contained ocean freight. This error is so common that it becomes a misunderstanding that is deeply ingrained in the minds of importers and exporters.

The main risk involved is the port of origin. Under FOB, the risk is formally transferred when the cargo is loaded on board. However, it is common practice for the shipper to hand over the cargo to the carrier at the terminal awaiting loading.

Since the cargo is at the dock, it has not yet been considered on board. Any damage sustained during this period is still technically the shipper's responsibility and the shipper's insurance should cover this part of the process as well.

However, when disputes arise, the shipper can and does often argue that he has done his part. So, in order to avoid hassle, delays and, more importantly, disputes that can lead to a deterioration in the relationship with the supplier, often the result is that the consignee has to bear the cost.

Apart from FOB, FAS, CFR and CIF are also not suitable for containerized cargo due to the above reasons.

2. Do not specify a location

Many people are unaware that Incoterms rules allow specifying locations. In fact, the failure to specify the full address may be controversial, as the ambiguity allows the seller to choose any delivery point he wishes within the general location provided.

This may be inconvenient for the buyer at all, especially if he has to spend extra time and money to transfer the goods to the final location he originally booked.

3. Seller commits to DDP or DAP without checking if he/she can handle import responsibility in buyer country

Under DDP and DAP, the seller is responsible for paying all arrival charges at the destination. With DDP, this includes paying local taxes (eg GST, VAT, etc.) and handling customs clearance at the destination. Note that unlike DDP, DAP does not require upfront customs clearance fees.

The latter requires him to register as an overseas importer in the destination country, a country-dependent process that can require a lengthy and lengthy program.

4. Buyer uses EXW regardless of his/her influence in the export process

This is similar to the role-reversal point of view mentioned earlier. Under EXW, the seller's responsibility is minimal and ultimately ends with the correct packaging of the item.

From then on, the buyer is responsible for export procedures from the country of origin and any necessary communication with the exporting authorities. For the buyer, it may not be that simple, especially if he/she is not familiar with the export process in the country of origin. In some cases, the seller may be required to participate.

5. Using CIP or CIF without checking that insurance coverage is adequate and complies with commercial contract requirements

According to CIP and CIF Incoterms, sellers are obliged to insure the goods. According to Incoterms rules, only minimum coverage (110% of contract value) is required.

However, depending on the conditions of the contract of sale, this may be insufficient and insufficient for the item being shipped. This amount needs to be met if the commercial contract requires more coverage.

6. Failure to align Incoterm with the bank's payment security requirements

This applies to international payment methods, such as letters of credit, whose secure and reliable nature suggests a lack of complete trust between buyers and sellers.

For letters of credit, payment can only be made after submitting the required documents to the bank to demonstrate that the trading conditions have been met.

/ By tjchinafreight ivy / Shipping

Import from China: FOB, CIF or EXW Incoterm?

Import from China: FOB, CIF or EXW Incoterm?
Import from China: FOB, CIF or EXW Incoterm?

FOB, CIF or EXW? The Incoterm you choose to import from China can greatly affect your overall cost. But oddly, it's rarely the focus of your import activity.

Most importers tend to put the lowest possible sales price as a higher priority, ignoring other details. This could end up being a costly mistake. Given their direct impact on import costs, now is the time to start taking a closer look at Incoterms.

Product prices vary by Incoterm

The price of your purchase will vary depending on whether you imported using FOB Incoterm, CIF Incoterm or EXW Incoterm. Many Chinese suppliers include shipping costs directly into the product price, which is why they usually have different price lists depending on the Incoterms used.

Be very careful when negotiating with Chinese suppliers here, as the price difference does not always correspond to the price of sea freight. Suppliers have been known to use this to manipulate buyers into choosing a specific Incoterm that is more beneficial to the supplier. This will be explained further when we discuss the CIF Incoterm.

Incoterms determine the control you have

The Incoterm you choose will define your control over your shipment at every stage of the shipping process. Whoever controls ocean shipping has control over costs and greater bargaining power.

If you let the supplier manage the ocean freight, you must accept the price and conditions he sets with the freight forwarder.

Import from China with FOB Incoterm

FOB Incoterms are probably the favorite - and in some cases only - Incoterms of experienced importers. We are talking about countless imported products with different characteristics, each with their own unique needs.

In my opinion, if you can only choose one Incoterm to import from China, FOB Incoterm will be your best choice. Why? FOB Incoterm gives you more control over your imported ocean cargo without the responsibilities that come with it.

Import FOB and EXW from China

As mentioned, the biggest advantage of using FOB to import from China is the control you have. You also have less responsibility than EXW.

For FOB, your responsibility as the importer is freight, cost of arrival and delivery. This means that any problems at the origin will be the responsibility of your supplier in China. However, with EXW, you are responsible for any problems and unexpected expenses - both at the origin and destination.

In short, while both FOB and EXW Incoterms are considered safe options for importers, there are significant differences in how responsibility is allocated.

Import from China using CIF Incoterm

Buyer's responsibility: payment of goods, arrival fee, customs clearance at destination, inland transportation at destination from port to warehouse, and corresponding import duties.

Responsibilities of the seller: deliver the goods according to the conditions agreed with the buyer, obtain the necessary documents for export, manage the inland transportation in China, manage the customs clearance and pay the corresponding customs fees in China, rent and pay the sea freight, insurance, and original Origin port charges.

For a novice importer, a CIF Incoterm may look very tempting: no need to pay for shipping, no need to choose or negotiate with a freight forwarder, no need to organize shipments, and most importantly, the item is actually cheaper than buying under another Incoterm they.

Import from China using EXW Incoterm

Buyer's Responsibilities: Pay for the goods, manage inland transportation at origin and destination, pay origin, ocean freight, insurance, manage customs clearance at origin and destination and pay appropriate fees, and pay appropriate customs duties.

Seller's Responsibilities: Deliver on the terms agreed with Buyer, provide all required documents and proofs.

What is the best Incoterm when importing from China?

In theory, FOB, CIF and EXW are your viable options for importing from China. Each involves a different amount of risk, liability, cost, and safety.

My advice

Choose the safest Incoterms that give you maximum control over your ocean freight.

/ By tjchinafreight ivy / Shipping

From May 1st, China’s coal imports will be “zero tariff”?

From May 1st, China's coal imports will be "zero tariff"?
From May 1st, China's coal imports will be "zero tariff"?

In order to strengthen the guarantee of energy supply and promote high-quality development, the Customs Tariff Commission of the State Council has decided in accordance with procedures that from May 1, 2022 to March 31, 2023, a provisional import tax rate of zero will be imposed on coal.

According to the schedule of the announcement, the provisional import tax rate of zero will be implemented this time for imported coal that originally implemented the most-favored-nation tax rate of 3%, 5% or 6%.

According to Shanghai Securities News, at present, the largest source country of my country's coal imports is Indonesia. According to the Framework Agreement on Comprehensive Economic Cooperation between the People's Republic of China and the Association of Southeast Asian Nations and the Import and Export Tariff (2021), the currently applicable tax rate is 0.

The most-favored-nation tax rate applies to coal imported from Russia, Mongolia, and Canada from other import source countries, and the tax rate varies according to different coal types. After Australia cut coal exports to China last year, Russia became my country's second-biggest coal importer after Indonesia.

A number of industry insiders said that under the scenario of high international coal prices, the tariff policy will have a limited impact on the import coal market in the short term, and may have a certain impact on the long-term supply.

According to Guosheng Securities, the current FOB price of 4600 kcal thermal coal in Russia is about US$149.8/ton. If the tariff is reduced from 6% to zero, the CIF duty payment cost will be reduced from 1430 yuan/ton to about 1350 yuan/ton. The domestic quotation of 5000 kcal thermal coal is 950-980 yuan / ton, and the price of nearly 400 yuan / ton is still upside down.

China's seaborne coking coal mainly comes from Russia, the United States, and Canada. The current price of coking coal shipped to China plus freight is about US$515/ton. If the tariff is reduced from 3% to zero tariff, the duty-paid cost will be reduced from 3965 yuan/ton to 3855 yuan/ton .

The first-line quotation of coking coal in Jingtang Port in China is 3500-3600 yuan / ton, and the price of 250-350 yuan / ton is still upside down.

Data from the National Bureau of Statistics shows that last year, China produced 4.07 billion tons of raw coal and imported 323 million tons of coal, an increase of 6.6% year-on-year. The import volume exceeded 300 million tons for the second consecutive year. The coal import dependence was 7.3%, an increase of 0.05 percentage points year-on-year.

According to Qinhuangdao Coal Network, under the circumstance that coal imports are expected to decrease, the relevant ministries and commissions of the state have organized a mid- and long-term contract to supplement the emergency guarantee for imported coal. The amount of mid- and long-term contracts signed is 158 million tons, accounting for about 49% of the country's coal imports in 2021, and the vacancy of nearly half of the total imports has been guaranteed by the policy.

In order to ensure the stable supply of domestic coal and other energy sources, some provinces in southeastern and southern China have also relaxed customs clearance restrictions on imported coal, and the customs clearance procedures of the new process have been significantly simplified.

The previous Indonesian coal import policy requires that, except for Guangdong, other South China ports need to provide terminal purchase contract endorsement. Now Guangxi has fully liberalized the customs clearance of Indonesian coal imports, and Fujian has partially liberalized. This is conducive to the rapid entry of Indonesian coal, which is intended to encourage traders to import customs clearance.

According to data from the General Administration of Customs, coal imports in March 2022 were 16.423 million tons, a year-on-year decrease of 39.9%; in the first quarter, coal imports totaled 51.812 million tons, a year-on-year decrease of 24.2%.

Zhang Jianhong, a senior engineer at China International Engineering Consulting Co., Ltd., said that the current high price of overseas coal is the main reason for inhibiting the growth of imports. The implementation of a provisional import tax rate of zero for all coal this time will help reduce import costs and expand the import of coal resources. It is the coal import from Mongolia, Russia, Canada and other countries, which can better ensure the supply, guide the downstream coal industry to reduce coal consumption, and promote the transformation, upgrading and high-quality development of the coal industry. However, until the international energy prices fall, it is expected that coal imports will be difficult to increase significantly.