It’s time for our weekly Reader’s Question post! And this time I’m actually doing an update on an older post as it seems that many people are still confused about the various terms used when importing products from China!
CNF, CIF, FOB, Ex-Works – what does it all mean? And most importantly – which of these shipping methods is most cost effective?
Let’s find out!
My congratulations, your blog is very, very helpful (the most helpful information I have found in one blog so thank you for that!).
But I still have a couple of questions which I hope you’ll be able to help me with.
For about two months I’ve been dealing and negotiating with a Chinese fabric supplier. I’m going to order 500m from various designs and the final price we’ve agreed is $3.37/m CNF London. The price is good so I would like to proceed and organise shipping.
But I’m completely lost on where to start…
What exactly does CNF London mean?
Could you explain to me how it works, step by step, from beginning to end? First I pay for my goods, and then what happens after that?
The supplier suggested that we use a smaller price on the invoice than what I’m actually paying to lower the cost of import tax and duty. Do you think this is a good idea? To me it sounds like fraud but I wanted to get the advice of someone with as much knowledge as yourself.
I would need to pay $1685 for my 500m of fabrics. What about the rest of the costs? How much are taxes and duties in the UK? And when do I need to pay them?
Does CNF London mean I have to collect my goods from a port in London? I live in London so this won’t be a huge difficulty, I’m just confused about how it works.
I am sorry for asking so many questions but when I think about all of these things it turns into a bit of a nightmare! I hope you can help clarify some of it for me.
Kind regards and many thanks!
Okay, let’s start with the basics. When dealing with suppliers from China, you’ll often be offered 4 types of pricing:
FOB – Free on Board (or Freight on Board). This basically means that the cost of delivering the goods to the nearest port is included but YOU, as the buyer, are responsible for the shipping from there and all other fees associated with getting the goods to your country/address.
EXW (Ex-Works) – also sometimes referred to as the Ex-Factory price. This basically means the cost of the product and nothing else! No shipping costs or export fees in China are included in this price, never mind local port and custom fees or delivery to your door.
CIF – Cost, Insurance and Freight. In this case, the price also includes sea freight charges and insurance to deliver the goods to YOUR nearest port. But only to the port – from that point onwards, you take the shipment into your hands.
CNF – Cost & Freight (or Cost, no Insurance, Freight). Similar to CIF only this time insurance is not included.
If your supplier quoted you a CNF London price, this means that the price includes shipping of the goods via sea freight to London port. When the goods arrive, you’ll have to organise customs clearance and delivery to your home/office/warehouse.
While the CNF price can look very attractive, keep in mind that there will be other costs involved when your goods arrive in London, such as:
- Customs clearance fee
- Value Added Tax
- Import Duty
- Port security charge
- Fuel surcharge
- Docking charge
- Warehouse storage fee
So the CNF price is really just the tip of the iceberg and does not show you the true, FINAL price you’ll pay for the products you’re importing.
Also, as you’re new to importing, it will take extra time and be a lot of hassle for you to organise everything at London’s port.
If your supplier quoted you an Ex-Works price, this means that there will be LOTS of hidden charges in China + the actual freight charge + all the additional charges I already covered under CNF. This really is NOT the way to do business! You’ll never know for sure how much your import will cost in total, so please NEVER deal with Ex-Works prices!!!
A much better alternative to CNF, FOB, CIF and Ex-Works is to use a freight forwarding agent for your shipments from China. These companies will take care of EVERYTHING mentioned above and will deliver the goods to your door without you having to mess around with the customs clearance procedure.
You usually receive an invoice from them once your goods have arrived with all taxes, customs & port fees clearly listed.
I highly recommend you use such a company, at least for your first few importing deals. These freight forwarding companies are very affordable and can actually work out cheaper than if you try to do it all on your own.
My recommendation for UK customers is Woodland Global – a freight forwarder with great customer service, weekly shipments from China and very competitive prices. Get in touch with them to find out exactly how much your order will cost delivered to your door, after all the fees and taxes.
When contacting a freight forwarding company, make sure you ask for a Door to Door price. This is very important as otherwise you can end up with a host of additional charges when your goods arrive in the UK.
As for declaring a lesser value on the invoice to avoid/minimise taxes – BAD, BAD idea! It’s nothing but fraud, never mind the fact that you won’t even be able to get such a shipment through customs as you’ll have to provide a payment receipt to prove the value of your goods.
And furthermore, you wouldn’t be able to properly book such shipments from an accounting point of view as your payments to suppliers wouldn’t match the tax invoices you pay in the UK.
So just keep it safe and play by the rules!
To sum it up – when you deal with suppliers in China, ALWAYS ask for a FOB price! This means product’s cost + local charges in China to the nearest port.
Then you ask your supplier for order dimensions (weight & size) and contact a freight forwarder for a door to door quote. Lastly – don’t forget about insurance! It usually costs just £20-£30 and will protect your shipment against loss and damage.
Another top tip to helping keep the costs of your imports down is to research alternative money transfer providers that provide better exchange rates. Companies like TransferWise specialise in international payments and can help you save up to eight times on international payment fees compared to banks. Your money is always converted at the mid-market exchange rate ie. the rate you see on Google and the only fee you’ll pay is a small, upfront cost on the total value of the transfer.
With over 60 supported currencies and the ability to send global USD payments to China at very competitive prices, it’s worth checking them out to find out how much you could save:
Whilst they may not offer payment protection like PayPal, they’re FCA regulated and so are kept to the same stringent regulation as a bank and keep your money secure.