Trade Terms

Trade Terms

Trade terms are another important thing to know about before going into any negation with a potential supplier. These terms basically dictate the scope of your contract with your supplier. Some common ones are:

EXW (Ex Works) – This means the supplier/manufacturer will produce the goods, put them in cartons, and stack the cartons at their factory pickup location. You are responsible for hiring a freight forwarder to pick up the goods from the factory.

FOB (Free on Board) – This means the supplier/manufacturer will also ship the goods to the nearest seaport or airport using a local shipping service. Once the goods are loaded onto the ship or plane you will take ownership of the goods.

DDP (Delivered Duty Paid) – This means the supplier/manufacturer will also handle all of the freight forwarding work to deliver your goods to their designated location in the US or Europe (or wherever you are sending them). So they will look after the hiring of a freight forwarder, and all you have to give them is the final delivery address.

My preference when working with suppliers/manufacturers is to always work on EXW terms. I believe this approach offers the most transparency, as you can be confident that the quotes you receive will only be for producing the goods. That way when you are comparing quotes from different suppliers, you are comparing apples to apples. Instead of having one factory quote be better than the other factories simply because they are working with a more cost-effective freight forwarder.

I also avoid having suppliers book freight forwarders as it reduces your transparency on the freight leg of the supply chain. Having a direct line of communication with your freight forwarder allows you to ask more specific questions, or compare things like going on this boat vs another boat. Not to mention some freight forwarders can do sketchy things in terms of not paying duties for shipments, or under-declaring shipment values to pay less duties. You want total transparency when it comes to duties being paid, so you can verify you are complying with the custom laws of your destination country.
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