For decades, exporting products has been vital to the Philippine economy, allowing entrepreneurs to increase profits through global trading. Despite its downward trend recently, exports still account for more than $5 billion of the nation’s GDP. The continuous expansion of digital trading can provide new opportunities for Filipino business owners to export their products to various countries, potentially increasing export rates moving forward.
And despite being an essential part of the economy, numerous exporters face unique issues that can hinder their operations in the long run. For starters, not partnering with an international freight forwarding company can significantly risk the packages getting lost or damaged while in transit. But what remains one of the top issues exporters face on a day-to-day basis is foreign exchange, which constantly fluctuates for several reasons.
Understanding Currency Fluctuations
International forwarding invoices are often complex, with many factors contributing to freight rates around the globe. And one of the significant ones is currency exchange, which mainly refers to how much of each currency is needed when people exchange them. Some factors that lead to currency fluctuations are economic conditions, market sentiment, and political situations.
Currency exchange rates have always been a massive part of calculating freight costs, and even a tiny change in the rates will significantly affect shipping prices. Besides freight prices, currency fluctuation can negatively impact a company’s potential revenue and profit margins. This can decrease an enterprise’s competitiveness in the market, especially if most of its competitors come from countries with stronger currencies.
Mitigating Currency Exchange Risks
The risks of currency fluctuations when it comes to shipping prices are not a new thing. Many organizations have already implemented different techniques that allow them to reduce the impact of fluctuating currency rates when shipping their products.
1. Use Forward Contracts
One of the most straightforward solutions to decrease the complexities of shipping costs is to use forward contracts. This means that the merchant and buyer will agree to a fixed exchange rate that they can use for future transactions. This will allow both parties to know exactly how much the payment would be without worrying about changes in the currency rate.
2. Understand the Currency Adjustment Factor (CAF)
The concept of CAF is mainly used by freight forwarders, enabling them to mitigate the risk of currency fluctuations, especially for long-term contracts. Here, the shipper will have a flat percentage surcharge on the invoices sent to their clients, and this usually is based on the currency where the freight will depart and arrive. Exporters must know this concept to help them plan out their finances in the long run.
3. Currency Options
Apart from forward contracts, it will also help if companies consider currency options strategies when exporting their products. Many enterprises have used this risk management technique to protect themselves against currency fluctuations.
Like forward contracts, this hedging strategy gives businesses the right to export at a fixed price in the future. But the main difference is that the parties are not forced to finish the transaction when the deadline arrives. This is beneficial if the exporter believes they will get a more favorable currency rate, allowing them to mitigate the risks of financial losses.
Conclusion
With digital platforms opening up new opportunities for merchants to sell their products to international customers, exports are expected to continue to rise in the coming years. And so, firms must know the risks they might encounter when exporting products, such as the ever-changing foreign exchange rate. By understanding this, they can implement the proper currency fluctuation management solution that will protect them from financial losses in the long run.
Excelsior Philippines, the country’s top freight forwarding and customs brokerage company, has been in the industry for more than two decades, providing our clients with peace of mind that their shipments will arrive at their destination safely. We can also help you negotiate freight charges for the best shipment value. To learn about our services, contact us now by clicking here or calling (+632) 8525-9775.
After multiple countries restarted their economies after years of being under lockdown, the maritime industry saw an increase in demand as businesses wished to press on and leave behind the turbulent times of the pandemic. This led to increased fuel costs that negatively affected the shipping industry as high fuel costs resulted in high shipping rates.
Shipping and freight forwarding companies had to raise shipping rates in response to high fuel prices as early as the last quarter of 2021. Even though shipping costs rose after economies reopened, this was still a sign that international trade was starting to return to normal. Still, another crisis popped up in the early months of 2022 that hit international freight.
On February 24, 2022, under the guise of a special military operation, Russia essentially invaded Ukraine. Russia was then struck with different sanctions that affected a lot, including Russian oil getting cut off from the market and further driving both oil and gas prices up. The current war did not only affect oil and fuel prices as international freight took a bigger hit thanks to the sanctions, cancelled flights, extended flights, and inflation.
In addition to the war in Ukraine, the current tensions in Taiwan can also affect the current state of global shipping as China’s People’s Liberation Army continues its military drills that simulate a blockade on Taiwan. This is after US House Speaker Nancy Pelosi visited Taiwan.
Ukraine War and Chinese Military Drills of Taiwan
War in Ukraine
Air transport is by far the most affected by the Russia-Ukraine War as multiple airlines reduced or stopped their operations between Europe and Asia. Those that continued their operations had to use extended air routes as both Ukrainian and Russian airspaces are currently closed. Thanks to extended air routes, airlines had to use more fuel, contributing to both higher fuel prices and skyrocketing prices of goods.
A screengrab of the current state of air traffic in Ukraine. Note the lone aircraft in the middle of the Black Sea. Due to sanctions, all airlines either avoid or skirt the Black Sea to avoid going into Russian airspace. Any aircraft in the middle of the Black Sea are likely military aircraft. Photo from live flight tracker Flightradar24.A screengrab of a longer flight path taken by a BELAVIA Boeing 737-8K5flying from Antalya to Minsk. Photo from live flight tracker Flightradar24.
Land freight that relies on routes going through Russia, Belarus, and Ukraine to go to and fro the European Union, China, and South Asia no longer has any safe overland routes. This means that international freight forwarding companies will need to use different routes through the UAE, Serbia, Turkey, or Romania. Customs brokers will also need to adapt to the different language barriers and document processing procedures.
The war on Ukraine also affected maritime routes in both the Sea of Azov and the Black Sea, as the routes are no longer safe. Several merchant ships have been attacked off the coast of Ukraine, making it certain that sea freight will be unreliable until the war ends. Although Russia and Ukraine recently signed a deal to allow grain shipments to move through the Black Sea to mitigate the risks of worldwide famine. Whether this means that the sea lanes will be safe for now is unknown, but Shephard Media noted that the tentative nature of the grain deal might not significantly shift the current security situation in the Black Sea, so it might not still be safe to set sail.
Like how land freight will need to rely on other routes, sea freight will also need alternative routes, making air routes a more viable option for shippers and freight forwarders.
Military Drills Around Taiwan
The blockade on Taiwan also further limited the remaining available air routes as China warned airlines to avoid flying in areas around Taiwan where the military exercises are currently held. China has also designated certain six areas of airspace as danger zones that all civilian aircraft must avoid.
Graphic representation of the areas where the People’s Liberation Army (PLA) plan to hold military drills. Photo provided by the People’s Liberation Army.
While airlines have cancelled flights to Taipei and have rerouted other flights to avoid the airspace in the past few days, air traffic has just returned to normal, at least on August 8, 2022.
Even if air traffic has returned to normal, some disruptions are still expected as military drills continue around Taiwan. The extended military drills can herald a “new normal” for freight and shipping off Taiwan.
The ClarkSea Index is a barometer of shipping fortunes, and during the War in Ukraine, it’s seen that the earnings of the shipping industry improved as the cost of shipping increased. The chart focuses only on tankers, bulkers, containerships, and gas carriers, but it’s safe to say that even the cost of shipping through the air has also increased.
The flight restrictions in Ukraine and Russian airspace effectively removed about 10 million miles of airspace and international freight routes utilized by 20% of the world’s air cargo. This resulted in longer flights and lower air capacity as carriers took alternate routes or canceled flights altogether.
If the military drills off Taiwan continue, there is a chance that the supply chain will further be negatively affected by increasing the cost of goods and causing certain shortages.
Skyrocketing prices
As shipping and freight forwarding routes were negatively affected by flight restrictions and the redrawing of route maps, the cost of transporting goods also increased as freight forwarders, and shippers had to use different routes and use other means to adapt. Longer and alternative routes will jack up fuel costs and then jack up the cost of the goods themselves.
The cost of fuel and energy reliant on fossil fuels already rose due to the higher oil prices, and the cost of other goods will only continue to skyrocket as transportation routes remain restricted. Some food prices, for one, have already eased but still remain high, but things can change if more routes end up getting closed off.
When the war in Ukraine started, there was speculation that electronic vendors might raise prices while using Ukraine as an excuse. PC Gamers didn’t exactly see this change in prices as both GPU prices and cryptocurrency crashed, and other PC parts didn’t see any price increase, at least not significant enough to warrant attention if there was any. However, because Taiwan is export-focused and its main products include electronics, there is arguably a bigger chance of prices increasing if exports are disrupted. Taiwan’s other products include the following:
electronics
information
communication and audio-video products
base metals
plastics & rubber
machinery
Taiwan’s chip manufacturing industry will also be affected as China halts its sand exports to Taiwan. The continuation of military exercises and the rerouting of sea and air freight to the country, halts in sand exports to Taiwan, and possible complications if the situation worsens can negatively affect the prices of electronics and PC parts.
For simplicity’s sake, it’s safe to assume that prices for multiple products will only skyrocket when multiple conflicts are happening that can disrupt the supply chain. As long as the war in Ukraine continues and if the situation in Taiwan worsens, there will be shortages, and price increases and the world will need reliable freight forwarders and customs brokers to keep the supply chain up and running.
Conclusion
Everyone involved in the shipping and freight industry will need to adapt to ensure that they can continue their operations amid different crises and supply chain disruptions. Shippers can only adapt to the situation and look for other transportation routes, hire competent customs brokers to ensure that shipments reach their intended destinations through the new routes, and futureproof their operations.
Excelsior Worldwide Freight Logistics constantly endeavors to be a company of enduring greatness by providing only time-conscious, client-oriented, and exceptional delivery service. We also conduct free orientation for anyone who is willing to learn. It is our advocacy to share our knowledge & experience worth more than a decade in the business. Visit our website today at www.excelsior.ph to learn more about us and our service.
The Philippines is currently seeing high fuel prices, and the public transportation sector is currently reeling from the effects as drivers are forced to pay for expensive gas. Although rollbacks could happen in the future, it won’t change the fact that fuel costs are still high worldwide.
From regular commuters to international freight forwarding companies, many people are heavily affected by rising fuel costs that effectively increase gas prices, transportation rates, and shipping costs.
Why is Gas Expensive?
Increased Demand After Strict Lockdowns
The price for crude oil initially went up when the demand for oil and gas returned as the global economy emerged from strict COVID lockdowns. Both oil and gas prices went up as major economies reopened. Because the Philippines is a net oil importer, gas prices in the country will naturally go up when international oil prices spike.
United States – 18.88 million barrels per day or 20% of the world’s total
Saudi Arabia – 10.84 million barrels per day or 11% of the world’s total
Russia – 10.78 million barrels per day or 11% of the world’s total
Canada – 5.54 million barrels per day or 6% of the world’s total
China – 4.99 million barrels per day or 5% of the world’s total
These five countries contribute 53% of the total world oil production, and anything that can affect both the production and sale of these countries’ oil will affect the cost of oil. Since oil becomes fuel when refined, expensive oil will then become expensive gas.
While the initial oil and fuel price hike were because of the increased demand, the situation worsened thanks to the Ukraine war.
Russia’s Invasion of Ukraine Cut Down Oil Supply
Because Russia invaded Ukraine on February 24, 2022, the world responded with multiple sanctions to penalize Russia. Due to the sanctions imposed by the European Union, the United States, and other economies, Russia has been selling less oil in the market, resulting in lower supply and higher prices.
Europe started ditching Russian oil by reducing the amount of oil they buy from Russia while shopping around for alternative sources. Some countries still buy some Russian oil because they have become too dependent on it, making it hard to look for alternatives. Because there aren’t enough oil alternatives in the market due to oil producers winding down production, oil prices will remain high until Russian oil returns to the market.
As the war sees no sign of ending anytime soon, it’s unlikely that the global oil supply and prices will return to normal anytime soon.
Effects on the Freight Forwarding and Shipping Industry
Even before the Ukraine War, shipping operators in the Philippines had already imposed bunker fuel surcharges to recover from high fuel costs. Fuel accounts for a freight forwarder and shipping company’s operating costs, so they’re recovering the losses through surcharges. In fact, the Philippine Civil Aeronautics Board has already upgraded the passenger fuel surcharge to Level 4, which equates to P108 to P411 per passenger for one-way domestic flights and P543 to P5,026 per passenger for one-way international flights.
The current surcharge is Level 11, which equates to P355 to P1,038 per passenger for one-way domestic flights and P1,172.07 to P8,714.84 per passenger for one-way international flights. Cargo fuel surcharge is also Level 11, which equates to increases of P1.82 to P5.34 per kg for domestic flights and P6.03 to P44.80 per kg for international flights.
Adding the war in Ukraine to the equation, fuel prices will naturally go up. Philippine Multimodal Transport and Logistics Association, or PMTLAI, president Marilyn Alberto noted that trucking costs would continue to spiral as fuel costs continue to increase. International air freight forwarders in the European Union and the United Kingdom were barred from flying in Russian airspace, creating difficulties in going to East Asia, effectively increasing fuel consumption which then increases fuel cost and transit times.
Alberto said that even if the Philippines does not make any significant trade with Russia and Ukraine, the country will still feel the ripple effect of the following:
Higher fuel costs
Long transit times
Suspension of services
Delays due to inspections of cargo bound to Russia to comply with sanctions
The ripple effect increases air and ocean freight rates due to longer container routes, high fuel prices, and possible high surcharges.
Conclusion
The reopening of multiple economies increased the demand for fuel and oil, resulting in higher fuel costs. Both the Ukraine War and the ripple effect of lower oil supply and longer transit times also added to the already high fuel costs. The cost of international freight forwarding will remain high, and it will take time for it to go down. Even so, freight forwarders and logistics companies will continue to operate, and it’s more important than ever to rely on a reputable company.
Excelsior Worldwide Freight Logistics conducts free orientation for those willing to learn. It is our advocacy to share our knowledge & experience worth more than a decade in the business. Visit our website today at excelsior.ph to learn more about our service.
The challenges of importing and exporting goods are very real. In today’s globalized economy, economies must be prepared to deal with the volatility of trading partners and unstable currencies. As a result, even the most well-planned trade transactions can become riddled with errors, which can quickly erode the gains that have been made. Importers and exporters are therefore always at risk of experiencing currency mismatches. These occur when a country’s currency moves in relation to another country.
This kind of situation occurs for a number of reasons. For example, depending on the type of product being imported or exported, the importer may have purchased their goods from a different country at a lower price than they paid for them in their own currency. In order to counteract this, exporters will usually hold back on selling a given good until a favorable rate has been achieved. By holding back on selling a particular good, they will ensure that the foreign country becomes more likely to buy their goods.
Apart from currency mismatch, here are other challenges that importers and exporters regularly face in the competitive world of commerce:
Finding the Right Licensed Customs Broker
There are numerous licensed customs brokerage firms that offer high-quality services to their valued customers, regardless of what type of products they sell. However, some licensed customs brokers are more skilled in handling clients of a specific industry, and choosing one that possesses vast knowledge about your products is definitely an advantage. If you are looking for ways to grow your business, finding the right licensed customs broker that can provide expert advice on how to clear your products on customs authorities is a must.
Planning a Foolproof Logistics Plan
Planning your overall logistics needs for shipping products can be a recurring headache. Since it is a critical factor in any trading business, you have to be extra careful at all times. It usually consists of several processes wherein a single glitch or error could result in dire consequences, such as delays in your shipment’s arrival. Ensuring your products arrive safely on time should always be on top of your priorities.
Calculating the Total Expenses
One of the most grueling financial hurdles in international trade is paying hidden charges. When shipping products abroad, you will most likely burden yourself with additional expenses, especially if you hired an unreliable licensed customs broker.
Some of these hidden charges in shipping include the following:
Less than Container Load (LCL) charges
Port fees
Chassis fees
Wait Time fee
Customs Exams
Preventing Document Backlogs
These involve the delays that might happen during the documentation process, primarily if the importer or freight forwarder in charge provided inaccurate information about their shipment. Complying with the requirements properly will help eliminate all the unnecessary expenses you might bear in committing mistakes in documentation like penalties.
Adjusting to New Rules and Regulations
Regulations in the importing or exporting country can change at any moment, and this alone can sometimes become a nightmare for international traders. A worse-case-scenario would be like transporting an item to a country that suddenly imposes a ban on that very same item. That is why having a freight forwarder, and a licensed customs broker with a wide area of connections can help a lot in detecting these possible fluctuations in rules and regulations.
Excelsior Worldwide Freight Logistics conducts free orientation for those who are willing to learn. It is our advocacy to share our knowledge & experience worth more than a decade in the business. Visit our website today at www.excelsior.ph to learn more about our service.
Setting up a business is not a simple task, let alone offering products that can reach more people on an international scale. If you’re an aspiring entrepreneur looking to plunge into the tough competition of foreign commerce, you must be equipped with adequate skills and knowledge in order to survive.
Running an import-export business is now much more convenient than before with the advent of modern technology. The use of the internet to communicate with customers has become commonplace and the learning curve in managing different operations mostly requires competent organizational skills.
While you don’t have to be an expert in this kind of industry, it is still a necessity to be aware of certain things that can optimize your chance of growth as well as minimize the effects of potential risks. The possibility of failure is always present in any form of business, so you should always pay attention to every detail.
Here are some of the best tips that can help you when starting out an import or export business:
Consider Your Products
Since you will be taking on an import-export trade, the products that you’re going to sell can become the X factor for fate of your company for the following years. Think carefully when deciding which product should you sell and be sure to stick with it. Once you figured out the best products for you, use your judging skills to know whether these products are worth your investment or not.
Always keep these two important questions in mind:
Do people want those products?
Do you know how to sell it properly?
If you are confident that your products can become something that is sought-after by many people across cultures and you know at least the fundamentals of selling it properly, then you now have a set of products to sell.
Find Your Target Market
So you already have some products to sell, and the next problem you need to solve is how you can find the people that are more than willing to buy them. Those people are your customers, your target market. Identifying them from a specific country can be a herculean task, so you’ll be needing extra time and probably a hand to do this the right way.
Prepare in-depth research regarding the latest market trends of the particular location where you desire to offer your products. There are several agencies that can do this for you in case you have a pretty hectic schedule.
Set up a Website and Develop an Online Presence
Creating a website provides your company and your products the needed exposure for online users around the world. Take advantage of multiple online platforms to market your products especially your target market. Be responsive to customer feedback and complaints and establish an online community that can enhance their loyalty and ultimately accumulate sales for your company.
Amp up Your Logistics Connection
One of the most challenging things that your import-transport business will have to overcome is making a solid system or plan on transporting your products. With a bunch of legal processes that concern your line of profession, you must be ready to outsource services in logistics. Take for example freight forwarders. Hiring a freight forwarding agency can significantly lessen your load of tasks in complying with customs requirements and other legal processes. They can even help you find the best carrier so that you can cut down your expenses in shipping.
Excelsior Worldwide Freight Logistics conducts free orientation for those who are willing to learn. It is our advocacy to share our knowledge & experience worth more than a decade in the business. Visit our website today at www.excelsior.ph to learn more about our service.
If you’ve been managing a business for quite some time now, you might’ve experienced some difficulties when it comes shipping your goods from one place to another. Aside from ensuring the safety and timely arrival of your cargo, you also need to familiarize yourself to several jargons associated with the shipping industry. Most business owners nowadays ended up getting confused about some of the technical terms used in shipping. While you don’t really have to be a pure expert when it comes in dealing with these terms, your knowledge about them could prove to be pretty handy in the future indeed.
So, to help you avoid unnecessary misunderstandings and minimize errors while you communicate with your shipping company, here are some of the most common terminology used in international shipping:
Bill of Lading (BoL)
Bill of Lading, also known as BoL is a document given by a carrier to a shipper. This document is issued on a receipt form with the sign of the vessel’s representative and acts as a written proof of contract that a transportation has been made.
This document is very important as many ports do not allow anyone to claim their goods without presenting their BoL. Unfortunately, some notorious freight forwarding scammers use BoL as a way to steal money from the others. Know more about the other freight forwarding scams through this infographic here.
Carrier
Carriers can be an individual or legal entity that offers transporting services for passengers and goods. Examples of carriers are airlines, shipping lines, railroad and trucking companies.
Backhaul
If a driver takes a cargo during the return trip of a commercial vehicle, it’s technically referred to as a backhaul. Cargo vehicles do this practice as a way to maximize the productivity of their trips.
Customs Broker
Customs Brokers are private individual or firms that works as a guide for both importers and exporters in meeting the necessary requirements given by the customs authorities. Many people usually mistook customs brokers to freight forwarders, but both professions have several distinctions with each other.
Freight Forwarder
These are persons or company that specializes in logistics and organizing shipping processes in place of an individual or company to transport their goods.
Hazmat
A shortened term for “hazardous materials,” hazmat is a material that could pose safety risks to anyone that it comes in contact with. Unlike other forms of cargo, shipping hazmat requires special endorsements from all involved parties.
Intermodal
Cargo can be considered as an intermodal once it was shipped using multiple forms of transportation, like a cargo truck and rail transport.
Less Than Truckload (LTL)
When the weight of a shipment ended up being less than the required weight of the truckload rate, that is described as Less Than Truckload or LTL.
Tender
Tender is a fixed cost to move a cargo.
Transportation Management System (TMS)
Transportation Management Systems or TMS is a software designed to help businesses and even some freight forwarding companies to optimize their planning and execution in the physical movement of the goods. There are several benefits that can be obtained by investing in this kind of system.
Importing basically refers to the act of buying goods and services from abroad in order for it to be sold for the customers of the home country. Many business owners nowadays prefer to sell imported products due to its ability to increase profit margins. Moreover, an importer can provide higher quality goods that can potentially surpass those produced by local competitors. If done in moderation, importing can help bolster the national economy as well as widen up the global market.
Despite the benefits of this practice, importing can be a pretty risky option especially for those who are still establishing their foothold in the world of commerce. Purchasing goods from a foreign land requires a specific set of knowledge and skills and a deeper understanding of complex processes of importation.
If you’re starting to think that importing is the next big step for your business, here are some of the most important tips you should be aware of before making any move:
Make sure you are legible to do the importing
Speaking about legibility, it means that you have to be legally allowed to bring those imported goods to your home country. Before you can spend any time, money, and effort into something such as importing, you’ll need thorough research about the laws especially the restrictions of items that you are going to import. Some chemicals and medicines, in particular, are examples of products that could have certain restrictions. Check the legality of the products that you wanted to import first.
Assess all the possible expenses
Planning your budget ahead of time is very important if you wanted to be a successful importer. Be mindful of all the possible expenses before you can place an order to a company abroad. These charges can range from the transport and insurance costs, as well as other legal documents that you need to go through. A good way to limit or minimize these expenses is by hiring freight forwarders and customs brokers since they have the expertise to guide you through the process and find all the best deals for shipping available.
Pay attention to sudden exchange rate fluctuations
One notable example of risks that every importer should know is sudden fluctuations in the exchange rate. Remember that you are buying goods from another country with prices that are not the same as your local currency. So be mindful of the current exchange rate as it greatly affects the final amount that you will need to pay. The rate could either become beneficial or detrimental to your success.
Learn to interact with your foreign suppliers
It’s not easy to deal with suppliers from another country. Language and culture barriers are some of the challenges an importer has to face. Miscommunication could become pretty common in these areas, so better study a lot about the business industry of their country as much as possible.
Determine if there is a local market for the goods you wanted to import
It is your responsibility as the importer to know if there is a growing demand for the goods that you are opting to resale. Determining your potential customers in the local market can help you identify the profitability of that imported product. Conducting some surveys is also a good way for you to come up with a decision on whether importation is definitely the right choice or not.
Aside from gargantuan cargo ships, another object that most people often associate with international shipping industry is container units. These long, rigid, metal boxes form the most integral part of the entire shipping industry- and are the structures that shippers rely on to store various types of cargos that need to be transported from point A to point B.
Having said that, a variety of container units can be used depending on the type of products to be shipped or the special features. To know which one suits best to the products your business is shipping, check out this infographic.
One of the oldest industry in the world is the shipping industry. Though it is often unacknowledged by many of us, it plays a very crucial in today’s global economy. In fact, almost 90% of the things we purchase and use today – from smartphones and construction materials to toiletries and utilities like oil – arrives via ship, according to Rose George in his book Ninety Percent of Everything.
In this post, we will take you on a journey inside the little-known yet very interesting world of shipping and discuss the most amazing facts that surround it.
Choosing the right Incoterms is a vital part of the shipping process. This ensures that both parties – the seller and the buyer – understands their responsibilities, and at the same time, streamlines the whole shipping process so that the freights are delivered efficiently and in a timely manner.
For shipments that are transported through the inland waterway transport, shippers have four Incoterms to choose from: Free Alongside Ship (FAS), Free on Board (FOB), Cost and Freight (CFR), and Cost, Insurance, Freight (CIF). A detailed explanation of these Incoterms is provided in our previous blog Importer Facts: Choosing Your Agreement Between Your Supplier – Incoterms 2010.
In this post, we will focus on the advantages of FOB over CIF, and why it is a more convenient option for shippers.
The seller fulfills their obligation when the goods have been delivered on board the vessel nominated by the buyer at the named port of shipment or procures the goods already so delivered. This Incoterms indicates that the seller has to shoulder all the costs and risks of loss and damage to the goods until the goods have finally arrived on board the vessel, and the buyer will bear all costs from that moment onwards.
The seller fulfills their obligation to deliver when the goods are already placed on board the vessel nominated by the seller or procure the goods already so delivered. The risks of loss and damage pass when the goods are on board the vessel. Aside from freight and clearance cost, the seller needs to procure and pay for a marine insurance against the buyer’s risks of loss of or damage to the goods while in transit.
One of the main reason why many shippers choose FOB than CIF as the term of sale is because it allows for greater control over the freight and the freight expenses. This greater control can help you have an upper hand in minimizing the overall import cost while providing you with maximum convenience as possible.
Most first-time importers usually use CIF to transport small quantities of goods because it also offers convenience by having the seller deal with all the shipping and freight details. However, choosing this agreement can only lead to higher freight cost at the end. This is because the seller can collaborate with their forwarder to increase the markup of the freight cost, allowing them to make a profit. As an importer, you can’t do anything to affect the invoice given to you by the forwarder.
When shipping FOB, you have the power to control the overall shipping process, allowing to make significant cost savings. You can select your own freight carrier, you can choose which route has to be taken, select your own agents to handle the shipments when it arrives, organize an insurance policy as well as set your own transit time.
Another benefit that FOB provides is the convenience and transparency of working with only one contact agency throughout the process. This means that whenever you have questions or issues regarding your freight, you don’t have to meddle with different entities just to get a clear answer and feedbacks. This also ensures that the carrier will be working with only your best interest in mind because their sole purpose is to deliver your goods to its destination.
Shipping CIF on the other hand, is more disadvantageous, especially if your goal is to save money from your shipping cost. It relinquishes you with any control over your shipments while also passing more responsibilities and risks to your part.
The seller can use their preferred shipper and their own transit times. Delayed shipments are also harder to resolve since transportation is beyond your control, and there are other parties that may be involved in different stages which make it harder to obtain information about the cargo. Another factor to consider is that since it was the seller who paid the carrier, there is no obligation to fulfill your needs.
From the buyer’s perspective, FOB offers greater control over the shipping process compared to what CIF does. Not only it provides greater flexibility, but also gives you control over the shipping cost, and subsequently, the overall cost of the cargos.
Contact Excelsior Worldwide Freight Logistics Corp. now and let us help you in your journey in the international trade this 2017 and beyond. Call us at (+632) 525-9775 or email us at wecare@excelsior.ph.
