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Shipping costs are one of the most critical factors to consider when sourcing products internationally, especially for Amazon sellers. Efficient and affordable shipping keeps your products moving smoothly from supplier to warehouse and, ultimately, to your customers. When sourcing products from overseas, Incoterms (International Commercial Terms) become a guiding framework for shipping responsibilities and costs, defining which party handles which part of the shipping journey, from production to the final destination.
This article explains key Incoterms, including FOB (Free on Board), CIF (Cost, Insurance, and Freight), and DDP (Delivered Duty Paid), and discusses how each impacts shipping costs and responsibilities. We’ll also cover other factors that influence shipping expenses, helping Amazon sellers make informed decisions that align with their business needs.
Incoterms, created by the International Chamber of Commerce, are standardized terms used worldwide to clarify who is responsible for various parts of the shipping process. Each Incoterm represents a set of obligations, risks, and costs associated with the transport of goods.
Here are some of the most commonly used Incoterms relevant to Amazon sellers:
With FOB, the seller is responsible for all costs and risks up to the point where the goods are loaded onto the shipping vessel at the designated port.
The seller covers inland transportation to the port, export customs clearance, and loading costs. Once loaded onto the vessel, the buyer takes over costs and risks, including ocean freight, insurance, and import duties.
Buyers who want control over the shipping process from the moment the goods leave the supplier’s port.
Under CIF, the seller covers the cost of transporting goods to the destination port and provides basic insurance coverage during transit.
The seller pays for loading, freight, and insurance, but responsibility shifts to the buyer once the goods reach the destination port. The buyer is then responsible for import customs clearance, duties, and final delivery.
Buyers who want less responsibility for arranging sea freight but are comfortable handling import duties and last-mile logistics.
DDP is the most buyer-friendly Incoterm, as the seller takes responsibility for nearly all costs and risks, including transportation, import duties, and customs clearance, right up to the buyer’s doorstep.
The seller handles all costs, insurance, and customs duties. The buyer only needs to receive the goods, making it simple and hassle-free.
Buyers who want a hands-off approach to shipping and are willing to pay a premium for the seller to manage all logistics.
EXW places the highest responsibility on the buyer. The seller makes the goods available at their location, and the buyer handles everything from pickup to final delivery.
The buyer arranges and pays for all shipping, insurance, and customs costs.
Buyers who have a strong logistics network and are experienced in handling shipping and customs procedures.
With FCA, the seller delivers the goods to a specific location, often a shipping terminal or warehouse, where the buyer then takes over responsibility.
The seller covers costs up to the designated point, and the buyer takes over from there, including insurance and shipping.
Buyers who want flexibility in shipping arrangements, especially when multiple modes of transport are involved.
The choice of Incoterm directly affects shipping costs, responsibilities, and risks. Here’s a closer look at how each Incoterm impacts these factors for Amazon sellers.
Incoterms determine which costs the seller and buyer are each responsible for in the shipping process. By choosing the right Incoterm, Amazon sellers can optimize costs according to their preferences and logistical capabilities.
Buyers save money on inland and port handling costs but assume costs for ocean freight, insurance, and any issues once the goods are loaded.
The buyer has fewer upfront costs and avoids arranging ocean freight and insurance, but CIF rates may include a markup, leading to potentially higher shipping costs.
The buyer incurs no additional costs after purchasing, as the seller covers everything, but this premium service can be more expensive due to all-inclusive shipping.
The buyer bears all shipping costs from the seller’s location, including loading and transit expenses, making it the least costly for the seller but potentially high for the buyer.
This is flexible, as the seller covers costs only to the designated point, keeping costs lower. The buyer then manages and covers shipping costs, allowing them more control over cost optimization.
Incoterms clearly define where the transfer of risk occurs, influencing how much risk the buyer and seller each take on.
Once the goods are loaded onto the vessel, the risk shifts to the buyer. For Amazon sellers, this means taking on responsibility for the shipment after it leaves the supplier’s port.
The seller holds responsibility during transport until the goods reach the destination port. This reduces risk for the buyer up to a certain point, but the buyer must handle issues once the goods arrive.
The seller assumes all risk until the goods are delivered to the buyer. For the buyer, this is the safest choice, but it often comes at a premium.
The buyer assumes all risk and responsibility from the seller’s location, which may increase the buyer’s risks and responsibilities.
The seller is responsible until the goods are handed over to the carrier, after which the buyer takes on responsibility, allowing for shared risk.
Choosing the right Incoterm helps Amazon sellers decide how much risk and responsibility they’re comfortable with, allowing them to tailor shipping arrangements to their specific needs.
Shipping costs involve several factors beyond the Incoterm itself. Here’s an overview of cost-related elements to consider to calculate accurate shipping expenses:
Freight charges are the cost of transporting goods, typically either by air or sea. Freight costs depend on the shipping mode, route, and distance between the supplier and the Amazon warehouse. Air freight is usually faster but more expensive than sea freight, which is cost-effective but slower.
Ideal for smaller, high-value goods that need to reach the Amazon warehouse quickly. Costs are based on either actual weight or volumetric weight (space the goods take up).
Best suited for larger, bulky items or shipments that aren’t time-sensitive. Costs are typically lower, but sea freight involves longer transit times.
Insurance covers potential losses or damage to goods in transit. Incoterms such as CIF include insurance paid by the seller, but buyers can also purchase additional insurance for greater coverage. Insurance premiums depend on the value of the goods and the risks involved with the chosen shipping method.
Insurance can range from basic to comprehensive. Basic policies cover specific risks, while comprehensive policies offer broader protection, often at a higher cost.
Insurance costs vary based on the Incoterm and the value and nature of goods. Sellers using FOB or EXW might buy separate insurance to protect themselves, while CIF includes insurance in the purchase.
Duties and taxes can significantly impact shipping costs, especially when shipping internationally. These fees vary by country and are determined by the product’s value, type, and origin.
Calculated as a percentage of the product’s declared value. Duties vary widely depending on the product category and import country.
In certain regions like the EU, VAT applies to imports. VAT rates are determined by the product category and the country of import.
Customs brokers, who help clear goods through customs, often charge a fee for their services. Some Incoterms, such as DDP, include these fees in the total shipping cost.
Goods passing through ports incur charges for handling and storage. These fees cover the cost of unloading, inspecting, and storing goods until they’re ready for transport to the buyer’s destination.
Port fees include costs for loading and unloading goods, which vary depending on port location and volume of goods.
In cases of delayed pickup or clearance, storage fees accumulate at the port, adding to overall shipping expenses. Delays in clearance can increase these fees, so efficient customs handling is beneficial.
Port authorities may charge for documents required for customs clearance, especially if goods are subject to inspection.
Final mile delivery costs are often included in Incoterms like DDP but fall on the buyer with other Incoterms. Costs here depend on the final delivery point, distance, and delivery method.
This includes truck, rail, or even local courier costs, depending on the destination.
Certain deliveries may require additional services such as unpacking, which can add to final delivery costs. For Amazon sellers, these costs are critical when arranging direct delivery to FBA warehouses.
Understanding Incoterms and the associated costs helps Amazon sellers make smarter, cost-effective shipping decisions. Incoterms define responsibilities, risks, and expenses between buyers and sellers, influencing shipping costs and customs duties. For sellers, choosing the right Incoterm balances cost savings and convenience. Cost factors like freight charges, insurance, and customs fees also impact total expenses, helping sellers strategically plan their logistics.
1. What are Incoterms?
Incoterms (International Commercial Terms) are standardized terms that outline the responsibilities of buyers and sellers in international trade. They specify who handles transportation, insurance, customs duties, and other logistics from the seller to the buyer’s location.
2. What are the most common Incoterms used by Amazon sellers?
The most common Incoterms for Amazon sellers are:
FOB (Free on Board) – Seller is responsible until goods are loaded onto the vessel.
CIF (Cost, Insurance, and Freight) – Seller pays for freight and insurance until the goods reach the destination port.
DDP (Delivered Duty Paid) – Seller covers all expenses and risks to the buyer’s designated location.
EXW (Ex Works) – Buyer handles all transport and related expenses from the seller’s location.
3. How do Incoterms affect shipping costs?
Each Incoterm allocates different costs to the buyer and seller. For example, FOB puts ocean freight and insurance costs on the buyer, while CIF includes these costs but may lead to a higher upfront price. Choosing the right Incoterm helps buyers optimize costs based on their logistical preferences and risk tolerance.
4. What is FOB, and how does it work?
In FOB (Free on Board), the seller covers all costs up to loading the goods on the shipping vessel at the port of departure. The buyer assumes all costs and risks from that point, including ocean freight, insurance, and customs duties.
5. Who is responsible for customs duties and taxes in each Incoterm?
FOB: Buyer handles customs duties and import taxes.
CIF: Buyer is responsible for customs and import fees at the destination port.
DDP: Seller covers all duties and taxes, delivering the goods directly to the buyer’s address.
EXW: Buyer assumes all costs, including export and import duties.
6. Why might a seller choose DDP over FOB?
DDP (Delivered Duty Paid) provides a more comprehensive service by covering all costs and responsibilities, including customs duties, making it a good choice for buyers who prefer simplicity and less logistical management. However, it usually comes with higher costs.
7. What factors influence shipping costs beyond Incoterms?
Key factors include:
Freight Mode: Air freight is faster but more expensive, while sea freight is cost-effective but slower.
Insurance: Required for protection in transit; CIF includes basic insurance, while other terms may require separate policies.
Customs Fees: Duties, taxes, and brokerage fees vary by country and product.
Port and Handling Fees: Costs at the port for unloading, storage, and document processing.
Final Mile Delivery: Domestic transport to the final destination.
8. How does CIF differ from FOB?
CIF (Cost, Insurance, and Freight) includes the cost of freight and basic insurance up to the destination port, giving the buyer less responsibility for shipping arrangements. FOB (Free on Board) requires the buyer to handle ocean freight, insurance, and other expenses once the goods are loaded onto the vessel.
9. Which Incoterm gives the buyer the most control?
EXW (Ex Works) gives the buyer the most control, as they handle all logistics and costs from the seller’s premises onward. This option is suited for buyers experienced with logistics and customs clearance.
10. What are the risks involved with each Incoterm?
FOB: Buyer assumes risk once the goods are on the vessel, responsible for shipping issues beyond the seller’s port.
CIF: Buyer takes over risk at the destination port.
DDP: Seller assumes nearly all risks until delivery to the buyer’s location.
EXW: Buyer is responsible for all risks from the seller’s premises, including local pickup and export procedures.
11. How can Amazon sellers reduce shipping costs?
Amazon sellers can reduce costs by choosing the right Incoterm, negotiating rates with freight forwarders, using sea freight for larger shipments, consolidating orders, and monitoring customs fees and taxes specific to their product categories.
12. Do I need separate insurance if I choose CIF?
CIF includes basic insurance provided by the seller, covering minimal protection. Buyers can purchase additional insurance to cover greater risks, especially for high-value or fragile items.
13. Which Incoterm is best for a beginner seller on Amazon?
DDP is often recommended for beginners as it simplifies logistics. The seller handles all costs and paperwork, making it easier for the buyer. However, it may be more expensive due to the all-inclusive services.
14. How can I calculate the total shipping cost with different Incoterms?
To calculate total shipping costs, consider:
Freight charges (based on Incoterm and route)
Insurance (if not included in the Incoterm)
Customs duties and taxes (depends on product type and destination)
Port and handling fees
Final mile delivery costs (if not covered in the Incoterm)
15. What is the importance of understanding Incoterms for Amazon FBA shipments?
For Amazon FBA, selecting the right Incoterm helps sellers manage costs, avoid customs delays, and streamline product delivery. Understanding Incoterms allows sellers to choose options that minimize risks and reduce logistical challenges when sending inventory to Amazon warehouses.
