In our article we talked about ways to check suppliers and distinguish between manufacturers, trading firms and wholesalers. Now lets shift our focus to the following stage.

You may have come across trade terms such, as FOB, CPT and DAP. You might not grasp their definitions or which one suits you best.

Thats okay. We also provided insights on trade terms and advice, on requesting price quotes from supplier. The advice is designed to address any uncertainties.

Importance of trade terms

When asking for prices from suppliers, tell them what kind of delivery you need. You might want them to send to a certain port in China, your country, or have you pick up at their warehouse. Each choice affects what the supplier must do and how much they charge. That’s why they should give you prices for each way.

One delivery term you might hear is FOB (Free On Board). Some online guides say to always use FOB, but that’s not always right.

Especially for new online sellers, small businesses, or those using couriers like FedEx, FOB might cost more than needed.

Remember, there are lots of delivery terms besides FOB. Most online sellers and small businesses should just learn the basics and pick the best one for their needs. This keeps things simple and affordable without getting lost in confusing jargon.

Considering starting your own business?

Do you know what you need to pay attention to before starting your own business? & How to purchase goods at the best price and with the best quality?

Get my free ultimate guide on how to start your own business

FOB

The most important trade terms to remember is FOB (Free On Board). When a supplier quotes you a FOB price, it includes all costs. They are for delivering the product to the vessel at your seaport or to the aircraft at your airport.

It’s important to keep in mind that you can’t just ask for a FOB price, for a product. The FOB pricing should be linked to a seaport or airport like FOB Shanghai or FOB Ningbo. If you’re unsure about which seaport to choose you can discuss with the supplier, about their seaport. Request a quotation based on that specific location. This approach guarantees precise pricing agreements.

You’re buying from two suppliers. One is in Hangzhou near Ningbo, and the other in Wuxi near Shanghai. Each should give you an FOB price from their closest port.

Let’s say you want to combine products from both suppliers in one big shipment, using a container that’s about 68 cubic meters. In this case, ask both suppliers for FOB prices based on the same port to make things easier and cheaper.

For example, if you’re buying 40 cubic meters of fabric from the Hangzhou supplier, it’s better for the Wuxi supplier to send it to the Ningbo port. They should give you a FOB Ningbo price. This saves you extra shipping costs and simplifies combining the shipments.

Choose The Nearest Port
choose the nearest port

If you have your own freight forwarder who can manage shipping from any port in China to your destination country, it’s wise to request FOB pricing from supplier. This ensures consistent pricing and eliminates concerns about domestic transportation costs within China.

Furthermore, if you lack a warehouse in China and intend to consolidate product from multiple suppliers into a single shipment, it’s advisable to request FOB pricing based on the same port to facilitate smooth coordination and consolidation.

EXW

If you’re concerned about paying extra costs included in the FOB price that go directly to the supplier, then seeking an EXW price might be more suitable.

EXW stands for “Ex Works,” representing the manufacturer’s original product price without any additional services or domestic shipping costs included. In this arrangement, you’ll need to arrange for your own freight forwarder to collect the product directly from the supplier’s warehouse.

When comparing prices between different suppliers, it’s advisable to request EXW prices. This allows you to assess which supplier can offer the product at the lowest prices without additional costs.

Furthermore, if you’re not purchasing a large quantity of a particular product, opting for EXW pricing provides greater flexibility and transparency in cost assessment.

CIF

Another trade term is CIF, which means “Cost, Insurance, and Freight.” It’s important to know that the insurance part mainly coverslosing the whole shipment, not just damaged items.

If you don’t have someone to handle shipping from China to your country, or you don’t want to do it yourself, ask for a CIF price. This means the supplier will send the product to a specific port orairport in your country.

But remember, the shipping cost in the CIF price is only a small part of the total cost from the supplier’swarehouse in China to your warehouse. Most of the money goes to the import process and moving stuff from the port to your place.

For instance, while the sea freight costs included in the CIF price might be around $50 per cubic meter from China to a port in the United States, the total logistics and import/export costs for shipping from the supplier’s location to your home can amount to $200 to $300 per cubic meter.

So, don’t be shocked by the much higher cost from the US port to your warehouse – it’s way more than just the shipping cost in the CIF price.

DDP

DDP standing for “Delivered Duty Paid. With DDP pricing, the supplier quotes you a price that encompasses all costs associated with transporting the products from the Chinese supplier to your destination in your country. This includes expenses related to import/export processes and customs duties, which are covered by the supplier.

DDP pricing is ideal for importers who lack shipping resources or prefer not to deal with shipping and import/export complexities. If you’re conducting product research and need to ascertain the total importing cost from China, requesting DDP prices from supplier provides a clear picture of the overall expenses.

It’s worth noting that while DDP prices typically include import duty, some suppliers may still prefer the buyer to handle customs duty payment before product delivery. In such cases, it’s referred to as DDU, or “Delivered Duty Unpaid,” even though this term was eliminated in the Incoterm 2010. Despite its cancellation, DDU is still commonly used.

However, supplier may be unable to provide DDP pricing if they lack reliable resources for freight forwarders capable of handling shipping to your location. In such instances, alternative trading terms or shipping arrangements may need to be considered.

More trade terms please click.
CPT Incoterms Means
DPU Incoterms Means
DAP Incoterms Means

Consider quantity

Aside from understanding basic trade terms, there are several strategies you can employ to negotiate a better price with supplier.

If you’re flexible with the quantity you’re willing to purchase but want to explore pricing options, requesting a price list with quantity breakdowns is recommended. Most Chinese manufacturers or trading companies have minimum order quantities (MOQs) starting from $1,000, and they often offer discounts for larger orders exceeding $5,000 or $10,000. It’s crucial to inquire about the maximum discount available for increased quantities, as this can vary depending on the supplier and product. Typically, discounts range from 5% to 10%, reflecting the low-profit nature of the manufacturing industry. However, keep in mind that supplier may offer similar prices for larger quantities once they reach their lowest pricing tier.

Don’t agree on a low price for a huge amount (like 10,000 units) and then order way less (like 1,000 or less) while still wanting the discount. This can hurt your relationship with the supplier and make them not trust you. Always be honest and clear in deals to have a good, lasting partnership with the supplier.

Check the package and cost

When obtaining quotes from supplier, it’s essential to verify whether the prices includes packaging costs and what type of packaging is included.

Packed A Polystyrene Box With Carton
packed a polystyrene box with carton

Consider sourcing ceramic mugs from a supplier. The supplier quotes you a price of $2 per unit, indicating that each mug comes individually packed in a polystyrene box. However, upon receiving the shipment of 500 units, you find that the mugs are not individually boxed as promised, but are packed loosely in one carton.

Packed Loosely In One Carton
packed loosely in one carton

When you ask the supplier, they say the usual packing is cardboard boxes. To use plastic boxes instead would cost $0.25 more per mug, making the price go up 12.5%.

Also, if you want to put your company logo on the mugs, the supplier says they can do it. But they forget to tell you about the extra cost at first. So, after you order and pay some money, you find out there’s a surprise charge for the logo that you didn’t plan for.

Customizing The Mugs
customizing the mugs

To avoid such misunderstandings and unexpected expenses, it’s imperative to clarify packaging details and any associated costs with the supplier before finalizing the order.

Check the inventory or new products

The fourth aspect to check when obtaining quotes from supplier is to clarify whether the price offered is for inventory product or brand new market items.

When getting prices from suppliers, check if the price is for stuff they already have or for something new they’ll make.

Mostly, when you buy a lot, makers start making it after you order. But some suppliers might have extra stuff they want to sell cheap.

Know that prices for old stock might be very different from prices for new stuff. Like, if you want more of something they ran out of, the price could go up 20% to 30% or more. That’s because they’d have to start making it again at the regular price.

Inventory With Rust Products
inventory with rust products

When looking at prices from different suppliers, if one is way cheaper, find out if they’re selling old stuff. This might be extra things they’ve had in their storage for a long time, and might have dust, rust, or other problems.

Suppliers might not always say if the price is for old stock or new stuff, so ask about it before you decide. Knowing this ahead of time helps you make smart choices and avoid any trouble with buying old inventory.


I hope you have a very clear understanding of trade terms, and also learned what things need to pay attention to when trying to get quotes from suppliers. Any questions about trade terms or quotations, please leave them in the comment or contact us. In the next post, we will introduce to you some tips before placing the order with suppliers.

Get Wozo Monthly Report

Sourcing tips and insights

Get the trendiest products with Wozo's report, showcasing top picks from 1,000+ orders to find your winning product.