Differentiating between the different types of shipping terms is going to be an important piece of knowledge when you start negotiating with your suppliers.
There are many different types of shipping terms used worldwide, but here we will only list the most common ones used by retailers and explain the main differences.
Read Also: Types of Payment Terms
The Most Common Types of Shipping Terms
EXW (Ex Works)
Ex works simply means that the supplier will only prepare the goods for you to collect from their facility and start the shipping process on your own. This could be done through a freight forwarder that you commission to go and pick up the goods from the agreed upon place (usually the supplier’s warehouse).
You and your forwarder will be responsible for clearing the goods for export and from this point the supplier carries no liabilities over the goods.
You will cover all the costs of clearance, insurance and freight.
FOB (Free on Board)
Free on Board (FOB) means that the supplier will deliver the goods on the ship at the shipping port after clearing them for export. From this point onward all the risks and costs transfer to the buyer.
You can also use a freight forwarder from this point to deliver the goods all the way to your warehouse.
CIF (Cost, Insurance & Freight)
In CIF the supplier is responsible for all the costs & liabilities of transferring the goods until they reach the port of destination. From that point the buyer confirms receiving the shipment and only needs to handle the costs of customs clearance and duties at the destination port.
Why It Matters To Understand The Types of Shipping Terms
When you negotiate the price of each product with your supplier you should assume that the shipping price is already factored in the proposed price they are offering you.
Once you get quotes for prices from different suppliers, you want to compare the shipping terms they have included in order to be able to asses which price is a better deal for you.
Knowing the types of shipping terms will also serve as a negotiation point in itself. For example if the supplier doesn’t want to reduce the price further, you can offer to accept this price on the condition that the type of shipping term used will be CIF.
It should also be noted that in some cases choosing to go with CIF shipping term, even at higher price, might be more beneficial for you. You might find that you are not able to secure low shipping quotes from freight forwarders on your own, while the supplier is having better deals with shipping companies because of the volume he ships out regularly.
On the other hand, you might have good relationships with forwarders and can secure better prices than what the supplier is offering. In this case FOB might be more beneficial for you.
The key is to do the math and see how the total cost will be in both cases at the end and compare.
Understanding the different types of shipping terms will help the buyer or category manager know the real costs associated with sourcing products. Using this knowledge in negotiation every time will allow him to save a lot on the total costs of goods sold, and improve his overall margins.
Read more articles on Retail Buying.
Retailer & Founder of Retail Dogma, Inc.
Rasha has 12 years of retail & ecommerce experience. She has started an ecommerce business in 2008, and later worked at H&M, Bath & Body Works, Victoria’s Secret and Landmark Group. She has lived in 4 different countries, speaks 3 different languages and holds a master’s degree in Strategic Management & Marketing.