Hello everyone. Today, lets talk about a very practical issue:How to determine whether FOB costs are reasonable?In theForeign tradeIn work, the level of FOB costs is crucial for a companys cost control. Many friends have asked this question. Should we judge it by the ratio of FOB costs to the ex - factory price including tax? The answer might be a bit unexpected —It depends on the conscience of the appointed freight forwarder..

First of all, lets understand what FOB costs include. FOB costs refer to all costs before loading onto the ship at the export port, including the costs from the factory to the port, port miscellaneous fees, customs declaration fees, document fees, freight forwarder service fees, etc. Each item of cost will affect the total FOB cost, and among them, the most notable one istruckingthe freight forwarders service fee.Generally speaking, the appointed freight forwarder will charge a part of service fees, which is also the most likely part to fluctuate in FOB costs..

Different freight forwarders, different ports, and different types of goods will all affect the final FOB costs.Especially when the buyer appoints a freight forwarder, the transparency and rationality of the freight forwarders charging become very important — this directly affects the overall export cost of your products.When discussing FOB costs, we also need to consider a very important factor —

The difference between LCL and FCL.LCL (Less than Container Load).

• FOB costs are usually higher than those of FCL (Full Container Load). Because LCL goods need to be consolidated with other goods and share a container. This means that the freight forwarder needs to handle the goods of each consignor separately, and the splitting cost is also higher. Therefore, LCL costs include more operation, management, and consolidation costs.In contrast,
• the FOB costs of FCL transportation fluctuate less.Generally, the costs of FCL are more transparent and the prices are relatively stable. In the case of LCL, the FOB costs fluctuate greatly,and the main source of profit often comes from LCL.So, it is quite common to encounter high LCL costs. This is also why many foreign trade people think that it is more difficult to control costs for LCL.For example, there are two appointed freight forwarders. One charges more than 1600 yuan for LCL (2 cubic meters), while the other only charges 2600 yuan for a 45HQ FCL. From this example, we can see that the unit volume cost of LCL is indeed much higher. The main reason is the complexity of LCL operations and the different cost allocation.

The appointed freight forwarder is often the logistics partner appointed by the buyer. The buyers criteria for choosing a freight forwarder may be based on factors such as their own logistics control ability, comprehensive service level, and price. However, for the exporter,

the charging situation of the appointed freight forwarder is completely uncontrollable.This is why we often say that the charging of the appointed freight forwarder depends entirely on their conscience.The existence of the appointed freight forwarder makes the exporter lose the initiative in terms of costs, because the cost transparency is low and the right to choose is in the hands of the buyer. So, if you think the FOB costs are too high, a large part of the possible reason is that the appointed freight forwarder charges a high service fee in the middle. Especially in the case of LCL, the freight forwarders charging is relatively flexible, and due to the large number of consolidated goods, there is more content to coordinate, resulting in higher costs.

In addition to the choice of freight forwarder,

FOB costs also vary between different ports.For example, major export ports (such as Shanghai and Shenzhen) usually have relatively lower costs due to their large throughput and complete logistics facilities. While some secondary ports or special ports may have higher costs due to their small operation volume and less complete equipment and facilities compared to major ports.In addition, port costs are also affected by seasonal factors. For example, during the peak season, port congestion will lead to an increase in costs. At the same time, changes in the international situation, fluctuations in fuel prices, etc. will also lead to an increase in port operation costs, which will be reflected in the FOB costs.

After understanding these factors that affect FOB costs, lets return to the original question:

Refer to market quotations:How to determine whether FOB costs are reasonable?

• You can compare with other freight forwarders or industry peers to generally understand the market level of FOB costs. Especially in the case of FCL, the cost fluctuations are small and the market price is relatively transparent. At this time, you can compare multiple parties to see if the appointed freight forwarder is charging too much.: Pay attention to the rationality of LCL costs:
• In the case of LCL, due to the large fluctuations in FOB costs, it is recommended that exporters fully consider the possible high costs in the case of LCL when quoting prices, and communicate with the buyer to ensure that they understand the cost composition of LCL. They can even suggest that the buyer choose FCL transportation to reduce costs.: Understand the charging situation of the appointed freight forwarder in advance:
• When signing a contract with the buyer, you can try to ask for the information of the freight forwarder appointed by the buyer and communicate with the freight forwarder in advance to understand the possible charging items and standards, reducing subsequent cost disputes.: For foreign trade people, the most important thing is to understand the possible cost composition in advance, and through market comparison and full communication with the buyer, reduce unnecessary costs as much as possible.

Through the practical experience and skills shared in this article, you will be able to more accurately judge the rationality of FOB costs, avoid profit shrinkage caused by high costs, and ensure a smooth export process. I hope these suggestions can provide substantial help to your foreign trade business, enabling you to be more proficient in the international market. If you have any questions or need further support when evaluating FOB costs, please feel free to contact our professional team. We will wholeheartedly provide you with personalized solutions to help you achieve greater success in foreign trade!

What are the principles of compensation for international freight forwarders?