When you ship out of China just think FOB

I had an email a couple of weeks ago from someone who wants to ship an order DDU out of China. DDU stands for Delivery Duty Unpaid. It is actually an outdated term having been replaced several years ago by DAP Delivery at Place. In a DAP transaction the seller is responsible for all costs up to the point where the product is delivered. If for example the goods are going from Shanghai to Columbus, Ohio the seller would be responsible for all costs up to delivery in Columbus, with the exception of Duty and administrative costs to get the goods from the port in the destination country to the final destination. This sounds a lot like CIF, the difference being that in a CIF transaction the seller is responsible for the cost to deliver the cargo to the destination port only. At that point the buyer takes over and assumes all costs up to the point of delivery.

Since I have never known anyone to ship an order out of China that was not FOB, and since I know that Chinese vendors do not want to assume risk, what a DAP transaction involves for a seller, I was a little skeptical when I heard about this order. I went online to do some reading about DDU transactions and realize that the only reason a Chinese vendor would consent to DAP is that it allows them to add costs to the project; the vendor selects the carriers and pays VAT and other charges up to the place of delivery. If the vendor is in cohoots with a forwarding company in the US then the charges to deliver the product from port to destination could be excessive. And if you don’t pay those charges they will not deliver your order. Of course, for a first time buyer out of China who has no logistics experience or agent to work with DAP might sound like a very easy solution. But in fact DAP could be both expensive and problematic.

In general anytime you order out of China you really should be looking for FOB terms FOB stands for Free on Board and the seller and buyer share responsibility equally, the seller up to the port of embarkation of and the buyer once the goods have been loaded on to the vessel designated by the buyer or their shipping agent. If you approach a vendor in China and they suggest other then FOB, be skeptical and do some research. Of course there are exceptions to FOB but they are rare for small importers.

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