How to Choose the Right Incoterms When Importing from China
Here, one of our dedicated team members is labeling a package in our China office, preparing it for deployment. This attention to detail ensures that every shipment is carefully processed and ready to reach its destination swiftly and efficiently. Our commitment to precision is at the core of our operations, guaranteeing smooth delivery for our customers worldwide.
When importing from China, selecting the right Incoterms (International Commercial Terms) is critical to ensuring a smooth shipping process. Incoterms define the roles and responsibilities of buyers and sellers in international trade, particularly around who bears the costs and risks at each stage of the shipping process. Choosing the right Incoterm not only protects your business from unexpected costs but also streamlines your supply chain, ensuring your products arrive safely and on time.
In this comprehensive guide, we’ll explore the most commonly used Incoterms, their benefits, and how to choose the best one for your business when importing from China.
Understanding Incoterms
Incoterms are internationally recognized rules that clarify the obligations of buyers and sellers in global trade. These rules outline when and where ownership and responsibility for goods transfer from seller to buyer, making them essential for managing risks and costs during shipping.
There are 11 Incoterms, divided into two categories:
Incoterms for any mode of transport (such as EXW, DDP, FOB)
Incoterms for sea and inland waterway transport (such as FAS, CFR, CIF)
Each Incoterm defines a specific point at which the buyer assumes risk, which makes it important to understand them thoroughly before making a choice.
Key Incoterms for Importing from China
1. EXW (Ex Works)
Buyer Responsibility: With EXW, the seller makes the goods available at their premises, and the buyer takes responsibility for all transportation costs, customs clearance, and risk from that point onward.
When to Use EXW:
EXW is often used when the buyer is experienced with international shipping and prefers to have complete control over the logistics process. This can be a good option if you have established relationships with shipping and customs agents, but it can be risky and complicated for those less familiar with international trade.
2. FOB (Free on Board)
Buyer Responsibility: Under FOB, the seller is responsible for transporting the goods to the port of export and loading them onto the ship. The buyer assumes responsibility once the goods are loaded onto the vessel.
When to Use FOB:
FOB is one of the most popular Incoterms when importing from China, especially for small businesses. It offers a good balance of responsibility, as the seller handles the inland transportation within China, while the buyer takes control once the goods are loaded. This term is often preferred by buyers who want to manage the shipping process from the port onward but don’t want to deal with inland logistics in China.
3. CIF (Cost, Insurance, and Freight)
Seller Responsibility: CIF requires the seller to handle transportation to the destination port, as well as cover the cost of insurance during the shipment. However, the risk transfers to the buyer once the goods are loaded onto the ship.
When to Use CIF:
CIF is a good option for buyers who want to limit their involvement in the shipping process, as the seller is responsible for most of the logistics. However, it’s essential to note that while the seller covers the insurance, the policy may only provide basic coverage, so additional insurance may be needed for full protection.
4. DDP (Delivered Duty Paid)
Seller Responsibility: With DDP, the seller assumes responsibility for delivering the goods to the buyer’s location, including covering shipping, customs duties, and import taxes.
When to Use DDP:
DDP is a great option if you want a hassle-free experience and are willing to pay a premium for the seller to manage all logistics and customs clearance. This term provides the least risk to the buyer but can be more expensive. It’s ideal for those new to importing or businesses without experience in handling customs.
Choosing the Right Incoterm for Your Business
Selecting the right Incoterm depends on several factors, including your experience with international shipping, your control preferences, and how much risk you’re willing to take on. Here are some considerations to help you make the best choice:
1. Level of Control
If you prefer having control over most of the shipping process, terms like FOB and EXW give you more involvement. However, if you’re looking for minimal involvement and prefer the seller to handle most of the logistics, CIF or DDP might be a better option.
2. Risk Tolerance
If you’re comfortable with handling risk once the goods are shipped, terms like FOB and CIF transfer risk once the products are loaded onto the ship. On the other hand, DDP minimizes your risk, as the seller handles customs and delivery to your door.
3. Experience Level
For experienced importers with a good understanding of the shipping process, EXW allows for complete control over the entire logistics chain. However, if you are less familiar with customs and shipping, FOB or CIF can provide a balance between control and risk management.
4. Cost Considerations
Some Incoterms may seem cost-effective upfront but come with hidden fees. For example, EXW requires you to handle all transportation, which can add significant costs. CIF covers insurance but may only offer basic coverage. Evaluate all potential costs to choose the most cost-effective solution for your business.
Frequently Asked Questions
Q: What are Incoterms?
A: Incoterms are a set of international shipping terms that define the responsibilities of buyers and sellers in the process of transporting goods. They clarify when the risk and costs transfer from the seller to the buyer.
Q: Which Incoterm is best for small businesses?
A: FOB (Free on Board) is often recommended for small businesses because it offers a good balance of responsibility, with the seller managing transportation to the port, while the buyer handles the rest of the shipping process from the point of loading onward.
Q: Should I use CIF or FOB for importing from China?
A: The choice between CIF and FOB depends on your preference for control and risk. CIF transfers risk once the goods are loaded onto the ship and includes insurance, while FOB gives you more control by transferring responsibility at the port of loading. FOB is often preferred for better cost control.
Contact Us Today
+1 307-310-5502
Email: connect@intellichainco.com
Address: 306 N Main St. Sheridan, WY 82801
Let IntelliChain be your trusted partner in China, ensuring that every step of your sourcing process is secure and seamless. With our local expertise, we guarantee that your products meet the highest standards of quality, compliance, and safety.
By partnering with us, you can focus on scaling your business, knowing that every detail—from factory vetting to logistics—is handled with precision.
Let IntelliChain be your eyes and ears in China, empowering you to bring the best products to market with confidence.
Why Chinese New Year Can Delay Your Orders: Planning Ahead
In this image, one of our dedicated team members is seen labeling a package in our China office, meticulously preparing it for deployment. This process reflects our commitment to precision and efficiency, ensuring that every product is carefully handled and ready for its journey to customers around the world.
Chinese New Year (CNY) is one of the most significant holidays in China, impacting various sectors, especially manufacturing. For businesses sourcing products from China, the holiday often brings significant production delays, affecting timelines and delivery schedules. Understanding how to navigate these disruptions is essential to maintaining your supply chain's efficiency. In this blog, we’ll explore why Chinese New Year causes delays and offer strategies on how to plan ahead to ensure minimal impact on your business operations.
Understanding the Chinese New Year Shutdown
Chinese New Year, also known as Spring Festival, is a time for families to reunite, and as such, it is a major holiday that sees mass migration across the country. This holiday typically falls between late January and mid-February, depending on the lunar calendar, but the effects are felt for a much longer period.
During this time, most factories in China completely shut down for at least two weeks. However, the production impact often extends far beyond the official holiday. Factory workers travel back to their hometowns, and it can take weeks for the workforce to return to full capacity. As a result, delays may stretch up to a month or more.
Why the Delays Are Longer Than Just Two Weeks
The actual holiday lasts about 7 to 10 days, but the reality is that production facilities often shut down for a longer period due to several factors:
Pre-holiday slowdowns: In the weeks leading up to Chinese New Year, many factories slow down operations. This is because businesses rush to complete orders, causing a bottleneck in production lines.
Post-holiday recovery: Once the holiday ends, it takes time for workers to return and for production lines to return to normal. Some factories experience labor shortages as workers decide not to return, seeking new jobs elsewhere. This extends the delay even further.
The Ripple Effect on Supply Chains
The shutdown doesn't just affect factories but the entire supply chain. Ports, customs offices, and logistics companies also reduce operations during Chinese New Year, contributing to even longer delays in shipping and delivery.
How to Plan Ahead to Avoid Chinese New Year Delays
1. Place Orders Early
To minimize disruptions, it's essential to plan well in advance. The best time to place orders is by mid-November at the latest. This allows factories enough time to produce and ship your goods before the holiday slowdown begins in January.
2. Build in Extra Time for Production and Shipping
Because of the backlog in production before the holiday, even placing orders by mid-November may not guarantee a timely delivery. Factor in additional lead time of at least four to six weeks to account for both pre-holiday and post-holiday slowdowns.
3. Stock Up Before the Holiday
If your business relies heavily on products sourced from China, consider stocking up on inventory well before Chinese New Year to ensure continuity during the holiday period. This can prevent stockouts and keep your operations running smoothly even if there are delays.
4. Work Closely with Your Suppliers
Communication is key. Make sure you’re in regular contact with your suppliers to confirm their production schedules and holiday plans. Suppliers who communicate openly can help you better anticipate any potential delays.
5. Use Multiple Suppliers
Diversifying your supply base can be an effective strategy to mitigate the risks associated with Chinese New Year delays. If possible, consider working with suppliers from different countries or regions that are not affected by the holiday shutdown. This way, even if your Chinese suppliers are unavailable, you can continue sourcing products from other locations.
Frequently Asked Questions
Q: How long do factories close for Chinese New Year?
A: Most factories shut down for at least two weeks, but production delays can last up to a month due to pre-holiday slowdowns and post-holiday recovery periods.
Q: When should I place my orders to avoid Chinese New Year delays?
A: To avoid delays, place your orders by mid-November to ensure production and shipping are completed before the holiday shutdown begins.
Q: How can I prepare my business for the Chinese New Year shutdown?
A: Stock up on inventory, work closely with your suppliers, and diversify your supply chain by working with suppliers from different countries to avoid being entirely dependent on China.
Contact Us Today
+1 307-310-5502
Email: connect@intellichainco.com
Address: 306 N Main St. Sheridan, WY 82801
Let IntelliChain be your trusted partner in China, ensuring that every step of your sourcing process is secure and seamless. With our local expertise, we guarantee that your products meet the highest standards of quality, compliance, and safety.
By partnering with us, you can focus on scaling your business, knowing that every detail—from factory vetting to logistics—is handled with precision.
Let IntelliChain be your eyes and ears in China, empowering you to bring the best products to market with confidence.