Beware prepaid freight and shipments from China
Recently, I have joined an interesting discussion in LinkedIn concerning the “Chinese system of prepaid LCL Shipments”
I am sure the majority of you have experience with this system which cannot be called Chinese at all because it is also applied in India and all over the world where there is no transparency of cost.
Regrettably none of the participants of the discussion has spoken about one very important point.
Chinese freight market is in principle FOB market – which means driven by the consignees not the shippers.
Normally the deals in China are made on FOB terms. If any other terms of delivery are used – be careful.
If the Chinese supplier provides you and EXW rate for the products that they want to export that, in most of the cases, means that they do not have proper export license so when it comes to the export you need to “buy” such a license – which cost between 100-200 dollars. This is the easier part because normally the consignee gets the proposal from their forwarder and knows in front all the costs involved – from warehouse where the goods are loaded up to the warehouse where the goods need to be finally delivered.
The difficulties come with the CPT, CIF, C&F quotations. Than the buyer must be very aware of all the costs related to the delivery of the freight to them. And here the system of hidden costs come in full power. Chinese shipper goes to the forwarder and negotiates with them a very low rate – FCL, LCL, air – no matter the system is the same. This rate is under priced – 15 usd w/m obviously can not cover the cost of LCL filled 40′ container and is very very low rate which does not cover the service. The rate is normally to port or CFS and – now beware – “all local costs are for the account of consignee” The moment the buyer sees such a definition they should know that most probably the overall cost for getting the goods to their warehouse will be twice as high as the cost if the shipment has been moved FOB. Unless, the buyer has a clear quotation from his Chinese colleagues on DDU charges – my recommendation is – do not buy that “cheap” rate. Because it is not “cheap” at all.
Rarely, it appears, and we should admit this, that the shipper and consignee have agreed to split the transportation terms – this is done only between longterm partners who trust each other and who know – both sides – how much the cost is from door-to-door. But this situation has nothing to do with the unethical system of hidden costs.
How to avoid it. It is simple. Whenever you buy from China and India – never ask local forwarders for a quotation. Turn to a forwarder at your end and ask for proposal which includes not only the ocean freight or airfreight cost to the nearest destination port or airport. Ask them to quote you to your door. Then you will have a clear picture of what how much the delivery of the purchased goods costs.China, hidden cost, transportation