Liga Asuransi – Indonesia as one of the largest importing countries in the world needs to control the amount of foreign exchange leaving (capital flight) so that our trade balance becomes better. This is done by increasing the portion of use of domestic resources, goods and services or what is often referred to as local content as much as possible.
One simple way that is very possible is to change the international trade system Incoterm which is more profitable.
Unfortunately, there are still many exporters and importers of goods and services in Indonesia who do not yet understand in depth the benefits of using incoterm FOB (free on board) and Cost Insurance and Freight (CIF). As a result, a lot of foreign exchange that could have been held domestically ended up flying abroad.
For imports, the best incoterm is in the form of FOB where you as the buyer will take care of the costs of transporting the goods starting from ship rental, insurance and other costs while the seller (seller) is only responsible for delivering the goods to the port where the goods will be loaded in their country of origin. .
For trading companies that import regularly, they usually have a partner forwarder company or logistics company that can arrange all transportation of imported goods. But for companies that only import occasionally and in small quantities, FOB arrangements may be less effective.
By using the term CIF (cost insurance and freight) the seller will arrange the shipment of goods from the time they depart from their warehouse until they arrive at the destination port in Indonesia. You just wait for the goods to arrive and then transport them to the warehouse or final destination. As a consequence, you may have to pay more for shipping costs.
Here are 7 reasons why it is better to use FOB to import goods:
- Advantages of FOB
For trading companies that are used to international trade, FOB is much more suitable. Usually they have partner forwarder companies and logistics companies in the country of origin of the goods. The seller is only responsible for delivering the goods to the nearest port or the agreed port. Before the goods arrive at the port, the ownership of the goods is still in the seller’s name, as well as the risks are still the responsibility of the seller.
- FOB Goods Ownership Status
After the goods arrive safely at the agreed port in the country where the goods originate, from that moment on the ownership status of the goods has transferred from the seller to the buyer. So from that moment on the risk has shifted from the seller to the buyer.
- Buyer negotiates shipping and insurance costs
In FOB, after the goods arrive at the agreed port, the buyer then takes care of shipping them to Indonesia. For companies that have experience in the import sector, this is not difficult because they already have a partner forwarder company that has representatives in that country. The main benefit of FOB is that the seller can negotiate with the forwarder to get the most efficient costs and the shortest delivery time to arrive in Indonesia. If you use CIF where the seller takes care of shipping costs, the buyer cannot negotiate shipping costs. It is possible that the costs charged by the seller are too high because they cannot find the right ship or it could be that the costs have been increased (top up) by the seller.
- Insurance fee
In FOB, where insurance costs are the responsibility of the buyer, therefore the buyer can negotiate with partner insurance broker companies in Indonesia to get more competitive premiums and wider guarantees. Usually for experienced importing companies they already have a special insurance program called Marine Open Policy (MOP).
- Marine Open Policy (MOP)
MOP is a special insurance program that applies automatically and with competitive premium rates. MOP is made based on the estimated number of goods transported in one year so the volume is relatively large. With large estimated shipping volumes, insurance companies are willing to provide very competitive premium rates and wider guarantees.
- Reduce Capital Flight
The use of FOB by importers really helps the country in terms of reducing the flow of funds abroad. Because shipping and insurance costs are carried out domestically. Meanwhile, with CIF everything is paid abroad. As well as supporting the development of the forwarder and logistics industry as well as the Indonesian insurance industry.
- FOB, it’s easier to handle Insurance claims
If an accident occurs which causes damage and loss of the goods being transported. By using FOB, the owner of the goods just needs to contact an insurance broker in Indonesia to process the claim. Because the insurance company is also in Indonesia, the process is easier. Imagine if the contract is CIF, if damage occurs, the buyer as the owner of the goods must contact the seller first, then the seller will contact the insurance company in their country of origin. After that, the insurance claim can be processed. There are differences in language, time and distance which will make the claims process long and complicated.
For companies that have just entered international trade or whose trading volume is relatively small, CIF may be more suitable. Because the seller is responsible for the delivery of goods from the initial location of the factory or warehouse, loading onto the ship, unloading and unloading at the port at the agreed destination. The seller pays the boat rental and insurance premiums. You just have to wait for the goods to arrive at the port.
In the world of international trade there is an agreement or rule of thumb which says “to buy FOB and to sell CIF”. To buy using FOB, to sell CIF is better. If this principle is implemented it can bring big profits to traders.
According to the National Statistics Agency (BPS) report https://www.bps.go.id, Indonesia’s import value in June 2020 reached US$ 10.76 billion or an increase of 27.56 percent compared to May 2020, but compared to June 2019 it decreased by 6. 36 percent. If only we could maximize the use of FOB for all imports, a lot of the country’s foreign exchange could be maintained. If transportation and insurance costs are 5% of total imports then there is USD 538,000,000 or the equivalent of Rp. 7,500,000,000,000 foreign exchange remains stuck in Indonesia.
To maximize this opportunity, we hope for the government, in this case the Indonesian Ministry of Trade, entrepreneurs who are members of the Chamber of Commerce and Industry (KADIN) and all importing entrepreneurs to work together to encourage the use of this FOB incoterm.
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