Imagine securing a hard-won order for construction equipment exports, only to see your profits evaporate due to unexpected costs during delivery. This scenario is not hypothetical—it's a real challenge many new exporters face. Exporting heavy machinery involves far more than simply shipping products overseas; it requires meticulous cost control and risk management.
1. Defining FOB Responsibilities: Establishing Clear Boundaries
Under Incoterms 2020, FOB (Free On Board) stipulates that sellers assume responsibility and costs until goods are loaded onto the vessel, after which liability transfers to buyers. However, disputes frequently arise regarding:
- Pre-port expenses (trucking, lifting, documentation)
- Booking agency designation and local payment obligations
To mitigate risks, explicitly confirm these three elements in writing:
- FOB Port: Specify exact departure port (e.g., FOB Shanghai)
- Booking Party: Designate either buyer's or seller's freight forwarder
- Cost Allocation: Define "on board vessel" as the seller's cutoff point
Without written confirmation, dispute resolution typically favors the more assertive party—often leaving sellers liable for unexpected charges.
2. Transportation Options: The Foundation of Cost Control
Three primary shipping methods determine cost structures:
2.1 Ro-Ro (Roll-on/Roll-off)
Best for:
Self-propelled equipment
Requirements:
Compliance with fuel levels, battery disconnection, and cleanliness standards
2.2 Flat Rack Containers
Best for:
Oversized machinery
Risks:
Frequent disputes over lashing costs and liability
2.3 Disassembled Containerization
Best for:
Smaller equipment with detachable components
Trade-offs:
Higher labor costs and increased risk of missing parts
3. Packaging: Creating Defensible Evidence
Proper packaging serves dual purposes: physical protection and legal documentation. For Ro-Ro shipments:
- Protect hydraulic rods with anti-rust coatings
- Seal operator cabins with moisture barriers
- Document all attachments with numbered inventories
- Record comprehensive video evidence of loading processes
Your packaging protocol isn't just about protection—it's building a litigation-ready evidence trail.
4. Freight Forwarder Negotiations: Transparency Essentials
Avoid comparing lump-sum quotes. Demand itemized breakdowns including:
- Factory-to-port transportation and lifting
- Export documentation fees
- Terminal handling charges (THC)
- Lashing material costs (for flat racks)
- Free storage periods and overdue penalties
5. Hidden Cost Analysis: Preventing Budget Overruns
Most FOB-related losses occur from unanticipated origin port charges:
5.1 Common Origin Costs (Typically Seller's Responsibility)
- Loading/Unloading fees
- Trucking to port
- Customs documentation
- Oversize surcharges
- Storage penalties for missed deadlines
5.2 Destination Costs (Buyer's Responsibility)
- Import duties and VAT
- Port storage fees
- Demurrage charges
- Quarantine inspections
Failure to disclose potential destination fees often damages buyer relationships when unexpected charges arise.
6. Building an Auditable Delivery Chain
Platform disputes require comprehensive documentation:
- Commercial invoices with detailed equipment specifications
- Packing lists (even for Ro-Ro shipments)
- Accurate HS code classification
- Serial number documentation with clear photographs
The successful execution of FOB terms requires transforming what appears to be a simple pricing clause into a comprehensive risk management framework. Only by solidifying four critical elements—cost structures, liability boundaries, grace period rules, and evidence chains—can exporters truly master international trade logistics while protecting profit margins.