What are the commonly used trade terms in entrepot trade? How to select the appropriate one?
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Talk to a Trade ExpertI am the head of a foreign trade company engaged in Southeast Asian entrepot trade. Recently we have a rubber order shipped from Thailand via Hong Kong to Europe. When we previously used FOB Thai port, we encountered the problem that the freight forwarder seized the cargo ownership in the transit link.
If we switch to CIF Hong Kong, we worry about cost overruns caused by freight fluctuations. Now we want to know what terms should be used in entrepot trade to control cargo ownership, balance costs, and avoid troubles from customs and foreign exchange authorities?
WilliamYears of service：10Customer Rating：5.0
International Logistics AdvisorStart a Chat
Many enterprises engaged in entrepot trade are prone to misunderstanding: blindly choosing EXW or FCA terms to reduce costs，but under such terms，the cargo ownership is transferred too early，which leads to extremely high risk of loss of control in the transit link. For example，under EXW，the seller loses the cargo ownership immediately after delivery at the factory. If the transit freight forwarder has no valid qualification or conducts malicious operations，issues such as delivery of goods without original bill of lading and unauthorized diversion of goods may occur，resulting in high and time-consuming subsequent recovery costs.
If you choose FOB or CIF terms，you need to clarify the title transfer point: under FOB，the cargo ownership is transferred when the goods pass over the ship's rail at the port of shipment，while under CIF，the ownership is transferred upon delivery at the port of destination. Prioritize the selection of FOB or CIF terms，which allows you to control the flow of cargo ownership through the bill of lading. For example，the use of a negotiable ocean bill of lading in entrepot trade ensures that the cargo ownership can only be transferred through endorsement during transit，preventing unauthorized disposal of goods by third parties.
Physical risk isolation measures include: signing a tripartite agreement to lock the responsibilities of the transit freight forwarder，clarifying the party liable for demurrage and warehousing fees，choosing logistics providers with cross-border networks to ensure smooth operation connection at the transit port. Exclusive Stop-Loss Tip: Add a "title retention clause" in the contract，stipulating that the seller retains the ownership of the goods before receiving the full payment，at the same time，purchase cargo insurance to cover the risk of loss or damage during the transit link.
In addition，adjust the terms according to foreign exchange collection and payment requirements: under FOB，the buyer is responsible for transportation，and foreign exchange collection needs to correspond to the shipment certificate from the port of shipment，under CIF，the seller is responsible for transportation，and needs to provide the delivery confirmation at the port of destination. Ensure that the selected terms are consistent with the customs declaration form and foreign exchange declaration to avoid compliance risks.
DavidYears of service：3Customer Rating：5.0
Business Development AdvisorStart a Chat
The trade terms in entrepot trade must be consistent with the declaration content on the customs declaration form. If FOB is adopted, "entrepot trade" shall be indicated during customs declaration and the copy of the bill of lading of the transit port shall be provided, so as to avoid pricing disputes caused by the customs identifying the transaction as general trade.
If the goods are repackaged at the transit port, it is required to report to the customs in advance, submit the packaging change statement and the compliance certificate of the new package to ensure the closed loop of document logic. In addition, the transit port information shall be marked on the customs declaration form for entrepot trade, which corresponds to the terms specified in the bill of lading and contract, to reduce the probability of customs inspection.
CharlotteYears of service：4Customer Rating：5.0
Currency Exchange AdvisorStart a Chat
When selecting terms for entrepot trade, the logistics connection of the transit port shall be considered. For example, for CIF Hong Kong, it is necessary to confirm whether the freight forwarder has agency qualification at the transit port to avoid container rolling off or over demurrage. It is recommended to select logistics providers with cross-border networks, sign a clause specifying the upper limit of demurrage, and clarify the free storage period and calculation standard of container demurrage at the transit port.
If FOB term is used, confirm the logistics arrangement of the transit port with the buyer in advance to avoid port demurrage incurred by no one picking up the goods after arrival. In addition, the logistics route of entrepot trade shall avoid high-risk ports to reduce the probability of cargo delay.
RobertYears of service：6Customer Rating：5.0
Warehouse Management AdvisorStart a Chat
The trade terms of entrepot trade affect VAT treatment. For example, the seller under FOB does not need to bear the VAT of the transit port, while under CIF, if warehousing fees are incurred at the transit port, it is necessary to confirm whether such VAT is deductible. It is recommended to plan the tax structure in advance, make use of the VAT deferral policy of the transit port to reduce capital occupation.
If the entrepot trade involves multiple countries, it is necessary to analyze the tax cost of each link, and give priority to the plan that can reduce the overall tax burden when selecting trade terms. In addition, the profit of entrepot trade shall comply with BEPS requirements, so as to avoid tax investigation caused by unreasonable related transaction pricing.
DanielYears of service：8Customer Rating：5.0
Legal AdvisorStart a Chat
Foreign exchange collection and payment for entrepot trade shall match the selected trade terms. For example, the foreign exchange collection under FOB shall correspond to the shipment certificate from the port of shipment, while that under CIF shall correspond to the delivery confirmation at the port of destination.
Indicate "entrepot trade" in the SWIFT message to avoid suspense account treatment by the foreign exchange bureau. If CIPS cross-border RMB payment is used, ensure that the selected trade term is consistent with the trade nature in the payment instruction. In addition, the foreign exchange collection for entrepot trade shall be completed within the specified time to avoid compliance inspection by the foreign exchange bureau.
EllaYears of service：10Customer Rating：5.0
Senior Financial AdvisorStart a Chat
The responsibilities corresponding to the trade terms shall be clearly specified in the entrepot trade contract. For example, the buyer under FOB is responsible for transit logistics, and the freight forwarder responsibility clause shall be added to the contract to avoid delivery of goods without original bill of lading.
It is recommended to use an irrevocable letter of credit with an additional clause confirming the cargo ownership at the transit port to ensure the safety of payment. If CIF term is used, the insurance liability scope shall be clearly specified in the contract to cover the risks in the transit link. In addition, a force majeure clause shall be added to the contract to cope with unexpected situations at the transit port.
SophiaYears of service：7Customer Rating：5.0
Senior Customs AdvisorStart a Chat
When the entrepot trade goods are inspected at the transit port, the selected trade terms affect the division of responsibilities. For example, the seller under CIF shall cooperate with the inspection and provide documents such as MSDS. It is recommended to prepare an inspection plan for the transit port in advance, ensure that the cargo packaging meets local standards, and avoid cargo detention due to packaging problems.
If the goods are inspected at the transit port, communicate with the freight forwarder in time and provide all required documents to shorten the inspection time. In addition, clear marks shall be printed on entrepot trade goods to facilitate quick identification during inspection.
EmilyYears of service：3Customer Rating：5.0
Client Success AdvisorStart a Chat
The trade terms of entrepot trade affect packaging responsibilities. For example, the seller under FOB is responsible for packaging before the port of shipment.
If reinforcement is needed at the transit port, the liable party shall be clearly specified in the contract. It is recommended to use UN-certified packaging to avoid cargo detention due to packaging problems during transit.
If the goods are dangerous goods, confirm the packaging responsibility according to the selected trade term, and ensure compliance with the dangerous goods transportation regulations of the transit port. In addition, the packaging of entrepot trade goods shall be marked with relevant information of the transit port to facilitate logistics operations.
SarahYears of service：3Customer Rating：5.0
Foreign Exchange AdvisorStart a Chat
If the entrepot trade involves domestic links, the selected trade terms affect the tax refund qualification. For example, if the goods do not leave China under FOB, the enterprise may not be eligible for tax refund.
It is recommended to confirm whether the entrepot route meets the tax refund policy, and keep the full set of documents for filing, including bills of lading, contracts, customs declaration forms, etc. If the goods of entrepot trade are processed in China, ensure that the selected trade term is consistent with the tax refund requirements of the processing link to avoid tax refund failure. In addition, the tax refund declaration for entrepot trade shall be completed within the specified time to avoid overdue.
AlexanderYears of service：10Customer Rating：5.0
Senior Trade AdvisorStart a Chat
The trade terms of entrepot trade shall match the supply chain structure. For example, when implementing global inventory linkage, selecting CIF can lock the cost at the port of destination, while FOB is more suitable for flexible adjustment of logistics routes. It is recommended to establish a precise cost calculation model to dynamically evaluate the return ratio of trade term selection, and take freight, insurance premium, tax cost and other factors into consideration.
If the entrepot trade goods need fast circulation, selecting FOB can shorten the delivery time; if stable cost is required, CIF is more appropriate. In addition, supply chain planning shall adjust the inventory strategy in combination with selected trade terms to ensure controllable inventory in the transit link.