China Import Calculations for Buyers

Before you travel to China or commence your importing, you most do some homework and do your calculation for the different products you want to import, otherwise negotiations will be much more time consuming.

You already have a rough idea of the achievable buying price from your recent communications with the suppliers but of course, rough means not final. You should do some reverse calculating because you need an idea at what price you can sell larger quantities in your home country at the highest possible profit margin for your company.

Based on that price, you will do reverse calculation by taking under consideration all costs that apply and only then you can arrive at your ideal buying price.

If you want to negotiate better prices from your factories, you need to first decide which buying terms will apply.

The Incoterms most used by importers are FOB and CIF.

FOB  This stands for Free On Board and its terms are:

• Carriage to be arranged by the buyer
• Risks transfer from seller to buyer when goods pass the ship's rail
• Costs transfer from the seller to the buyer when the goods pass the ship's rail

CIF  This stands for Cost, Insurance, Freight and its terms are:

• Carriage and insurance to be arranged by the seller
• Risks transfer from seller to buyer when goods pass the ship's rail
• Costs transfer at the port of destination with buyer paying such costs as are not for the seller's account under the contract of carriage

Most importers will choose buying at FOB prices because it allows them more flexibility in choosing their own freight forwarder, insurance company, and a greater transparency of total costs.

Factories always want to reduce their own risk by calculating higher freight rates for their CIF price quotations to be on the safe side.

This has a negative impact on your landing cost and you have no way of really knowing the breakdown of costs. It is much better to negotiate FOB prices and control the freight rates by selecting the forwarder/shipping company of your choice.

Once you have built up a business relationship with your forwarder you can expect preferential treatment and receive early warnings. For instance, if there is an indication that the freight rates will go up in near future.

The same applies to the insurance costs, which you can reduce by negotiating better terms with insurance companies in your home country.

Here is a comparison of buyer and seller responsibilities for FOB versus CIF:

Services	Fob	CIF
Warehouse Storage	Seller	Seller
Warehouse Labor	Seller	Seller
Export Packing	Seller	Seller
Loading Charges	Seller	Seller
Inland Freight	Seller	Seller
Terminal Charges	Seller	Seller
Forwarder's Fees	Buyer	Seller
Loading On Vessel	Seller	Seller
Ocean/Air Freight & Insurance	Buyer	Seller
Charges On Arrival At Destination	Buer	Buyer
Duty, Taxes , Customs Clearance	Buyer	Buyer
Delivery To Destination	Buyer	Buyer

Simple Cost Calculation

As an importer, you should always keep complete cost calculations in mind. This requires more than only calculating the landed costs.

Below is a simple calculation scheme, which can be applied for various kinds of products but for some specific products, such as consumer electronics, extra charges may apply that have to be taken into consideration.

It is not recommend to buy products at ex-factory prices because you will be involved in organizing the local transport in China which is sometimes very difficult, depending on the region your factory is located. The factory already has the connections and can handle that much more efficiently than you.

Simple Calculation Scheme

EXW (ex-factory selling price)

+   FOB costs (outbound)

=   FOB

+   Ocean transport

=   CFR

+   Insurance

+   Finance

+   Provision for bad debts

+   Credit insurance

=   CIF (landed cost)

+   of equal importance for the importer's consideration:

+   Import duties

+   Inland transport

=   DDP

+   Importer's margin

+   Wholesaler's margin

+   Retailer's margin

+   VAT (UK and EU Only)

=    Consumer price

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