EXW vs FOB vs CIF vs DDP in today’s PPE Market
There are many articles online about these common international trade terms, also known as incoterms. We will not cover everything but will focus more on how these terms relate to today’s personal protective equipment (PPE) market. We have heard dozens of unfortunate stories of buyers having their shipments stuck somewhere in China for weeks with no end in sight. Understandably, for these buyers, there is a lot of stress over not only the prolonged time delay but also the very real worry that the goods may never arrive at all.
Let’s start with most simple explanations of the basic incoterms that you hear most when it comes to PPE.
|EXW (Ex Works)|
- Seller is just responsible for getting the goods available at their warehouse and the buyer is responsible for everything else (transport, storage, export/import customs, insurance, freight, etc.)
FOB (Free On Board)
- Seller is responsible for getting the goods past export customs and onto the vessel. Buyer is then responsible for everything after that.
CIF (Cost, Insurance & Freight)
- Seller is responsible for getting the goods past export customs and even all the costs, insurance and freight to get to the agreed port of destination but then after that, the buyer is responsible for handling the import customs duties and everything else.
DDP (Delivered Duty Paid)
- Seller is responsible for everything to get it to the buyer’s place of destination, meaning export/import duties, transport, costs, insurance, freight, storage, etc.
When it comes to pricing, you must be clear on what the incoterms are for a particular price. There will be a lot of hidden costs and headache if you are not clear about this at the beginning. In this particular climate, the risks of not receiving any goods are very real. Here are some potential pitfalls to watch out for when it comes to getting PPE out of China.
1) This first one actually has nothing to do the terms listed above but it is the most common issue right now. Products being sent by “express” such as Fedex, DHL or UPS used to take 5-7 days to get to the US. However, right now, numerous clients have told us about delays in customs lasting even over a month! They have received no shipping updates and are just stuck in limbo. All the express PPE packages are currently being thoroughly checked by Chinese customs to prevent low quality or counterfeit goods from getting exported. Since the export rules keep changing weekly, a lot of the hold-up may be due to not having the required documentation in order. Imagine if our United States Postal Service needed to check every package marked as PPE in its system for having the right labeling or accompanying documents.
a. We avoid this completely by making sure all our shipments are large enough to be shipped through either air or sea freight. By us batching up our customers’ orders, all of our customers can benefit from bypassing this “express” channel.
b. We also work daily with our factories to make sure the labeling on the product boxes and required documents are ready to go while the goods are still on the production line. We have had them change wording, symbols and even the dimensions of the cartons to make sure we will not run into issues later.
2) We have heard many people confuse CIF and DDP and use it interchangeably. With CIF, the buyer is still responsible for handling the import customs and paying US duties, not to mention the transportation costs to get the goods to the final destination. Especially with the trade war happening, those import duties cannot be taken lightly. Each item has a different import duty. For example, for hand sanitizer coming from China, there is an automatic extra 25% under Section 301 Tariffs on China. This is a very substantial increase that a buyer will have to bear.
a. We avoid this by being the end-to-end logistics solution so that our buyers do not have unwanted surprises. We are getting daily updates on any changes in US and Chinese customs so we can be prepared and aware of all the hidden costs. For all our customers, we offer DDP pricing, which means we are responsible until we get it to your door in the US. Ultimately, we want to see the job through all the way to the finish line and make sure our customers are taken care of. A lot of money and lives are on the line and hearing customers who say they have goods floating “somewhere in China” does not sit well with us.
3) Another mistake we see is that often times buyers do not understand what the true chargeable weight is for their PPE because it varies so greatly between different types of products and even between the same products but from different factories. For example, masks are very light so instead of being charged by the actual gross weight, they are charged by the volumetric weight. On the other hand, alcohol wipes are much heavier, so their chargeable weight is based on its gross weight. Not to mention, wipes are highly flammable and aircrafts that carry wipes will charge a premium! Miscalculations here can be very costly to the buyer.
a. We avoid this by knowing all the dimensions for all the products we source. Many people only look at the pricing of the product without thinking about the packaging, but it really has a tremendous impact on the total cost of PPE. By knowing all the specifics about every product and every factory, we are able to be confident on which manufacturers we want to work with and can have accurate projections on what the shipping costs and timelines will be.
In summary, other than sourcing quality products overseas, logistics is the most difficult part of acquiring much needed PPE. You need to work with a trusted team that has a track record of success in this high-stakes environment. The normal rules and timelines do not apply now. Let us know if you have any questions and how we can help at email@example.com.