Responsibility Breakdown Between Buyer and Garment Exporter
Lesson Contents Overview
Learning Objectives
Comprehensive Technical GuidanceTextbook & Training SOP
1. The Operational Reality of Commercial Logistics
In export garment manufacturing, misinterpreting trade responsibilities leads to direct margin loss. The critical handoff checkpoints:
- Factory Floor: Packaging, labeling, cartoning (Exporter)
- Covered Van: Inland highway transit to Chittagong (Exporter)
- Chittagong Off-Dock: Unloading, inspection, container stuffing (Exporter)
- Feeder Vessel (On-Board): FOB legal boundary of risk transfer
- Mother Vessel (Ocean Transit): Managed by Buyer (or Seller under CIF)
- Buyer DC (Destination): DDP final delivery boundary
2. Itemized Cost Responsibility Allocation
A. Factory to Port Gate (Origin Costs)
- Covered Van Freight: Fixed per van (Dhaka/Gazipur to Chittagong ~BDT 22,000–35,000).
- VAT-6.3 & Tolls: Official tax and highway bridge tolls.
- C&F Agency Commission: Fixed handling charge per Bill of Export.
B. Off-Dock Depot Operations
- Unloading & Stacking: Off-dock manual labor charges.
- Stuffing & Lashing: Loading cartons into ocean containers and securing cargo.
- Customs Examination Fee: Paid to C&F agent for facilitating customs appraiser inspections.
C. Origin Terminal Charges (THC)
- Charged by the shipping line for moving the stuffed container from the private Off-Dock to the port jetty and crane-loading it onto the container vessel.
- Standard Allocation: Exporter pays origin THC under FOB/CIF/DDP; buyer pays under EXW/FCA.
3. Risk Mitigation Checklist for Commercial Managers
- Scrutinize Buyer Routing Orders: Ensure the buyer's appointed forwarder provides an explicit booking confirmation without unauthorized charge add-ons.
- Lock in Freight Rates in Writing: On CIF/CFR contracts, secure written validity from shipping lines covering the full shipment window.
- Verify Demurrage Free Time: Ensure your contracts stipulate at least 14–21 days destination free time to prevent buyer demurrage back-charges.
14-Point Cost & Operational Responsibility Breakdown: FOB vs CIF vs DDP
| Supply Chain Activity / Cost Item | FOB (Free On Board) | CIF (Cost, Ins, Freight) | DDP (Delivered Duty Paid) |
|---|---|---|---|
| Export Packaging & Barcode Labeling | Garment Exporter (Factory) | Garment Exporter (Factory) | Garment Exporter (Factory) |
| Factory Loading onto Covered Vans | Garment Exporter (Factory) | Garment Exporter (Factory) | Garment Exporter (Factory) |
| Inland Transport to Port / Off-Dock | Garment Exporter (Factory) | Garment Exporter (Factory) | Garment Exporter (Factory) |
| Export Customs Clearance & EXP Form | Garment Exporter (Factory) | Garment Exporter (Factory) | Garment Exporter (Factory) |
| Off-Dock Unloading & Container Stuffing | Garment Exporter (Factory) | Garment Exporter (Factory) | Garment Exporter (Factory) |
| Origin Port Charges & Origin THC | Garment Exporter (Factory) | Garment Exporter (Factory) | Garment Exporter (Factory) |
| Main Carriage Ocean / Air Freight | Foreign Buyer | Garment Exporter (Factory) | Garment Exporter (Factory) |
| Marine Cargo Insurance | Foreign Buyer | Garment Exporter (Factory) | Garment Exporter (Factory) |
| Destination Port Terminal Handling (DTHC) | Foreign Buyer | Foreign Buyer | Garment Exporter (Factory) |
| Destination Customs Import Duty & Tariffs | Foreign Buyer | Foreign Buyer | Garment Exporter (Factory) |
| Destination Import Clearance & C&F | Foreign Buyer | Foreign Buyer | Garment Exporter (Factory) |
| Destination Inland Transport to Buyer DC | Foreign Buyer | Foreign Buyer | Garment Exporter (Factory) |
| Unloading at Buyer Distribution Center | Foreign Buyer | Foreign Buyer | Foreign Buyer / Exporter (Per Contract) |
| Risk of Transit Loss on High Seas | Foreign Buyer (Borne by Insurance) | Foreign Buyer (Borne by Insurance) | Garment Exporter (Factory) |
Practical Commercial Flow
A UK buyer's appointed freight forwarder invoiced Apex Garments $1,800 for "Origin Terminal Handling Charges (THC) and Documentation Fees" on an FOB shipment. Apex Garments checked their sales contract, which explicitly stated: "FOB Chattogram including local transport and customs clearance; all origin forwarder handling and B/L fees for buyer's account." Commercial Manager presented the signed contract and Master L/C clause. The freight forwarder reversed the invoice and billed the UK buyer directly, protecting the factory's margin.
Factory Real-Life Scenario
Scenario: A US buyer requested air freight for a delayed order under CFR terms. A sudden spike in jet fuel surcharges caused the air freight rate to jump from $4.20/kg to $6.80/kg before booking.
Solution: Because the contract was CFR (where the seller contracts freight), the factory would have absorbed a $52,000 loss. The commercial team reviewed production records showing the delay was caused by the buyer's late approval of strike-offs and successfully negotiated a 50/50 freight cost split.
Impact: Saved the factory $26,000 in unanticipated logistics surcharges.
Commercial Officer Best Practice
Always request the buyer's nominated forwarder's local tariff schedule during pre-production to avoid unexpected local origin charges (e.g., FCR fees, BL fees, terminal entry fees) eroding your FOB profit margin.
Top Beginner Mistakes to Avoid
- Failing to specify who pays Origin Terminal Handling Charges (THC) in the Proforma Invoice.
- Assuming that freight forwarders nominated by the buyer work in the best interest of the exporter.
- Agreeing to CIF terms without locking in long-term ocean freight contracts during volatile market periods.
Important Commercial & Trade Terminology (3 Terms)
Charges levied by terminal and port authorities for handling containers at origin and destination ports (positioning, lifting, stacking).
💡 Note: Origin THC is typically paid by exporter under FOB.A non-negotiable receipt issued by a freight forwarder confirming that export goods have been taken into custody for shipment.
💡 Note: Commonly used under FOB buyer routing orders.A floating surcharge added to ocean freight rates to compensate shipping lines for fuel price fluctuations.
💡 Note: Borne by seller under CIF/CFR.Interview Preparation Questions & Answers (2 Questions)
Master these high-frequency interview questions for Commercial Officer, Merchandising, and Export Executive roles.
Under FOB Chattogram terms, the factory commercial team is responsible for: (1) Inland covered van transport from factory to Chittagong Off-Dock/ICD; (2) C&F agent service commission; (3) BGMEA/BKMEA UD verification fees; (4) Bangladesh Bank EXP Form processing fees; (5) Off-dock labor unloading, tally, and container stuffing charges; (6) Customs assessment and examination fees; (7) Origin Terminal Handling Charges (THC); and (8) Port gate-in and weighbridge toll charges.
Frequently Asked Questions (1 FAQs)
Clear, beginner-friendly answers to the most common questions about the Commercial Department.
Key Takeaways & Summary Points
Executive Lesson Summary
A precise contractual responsibility breakdown guarantees that all logistics and customs costs are accounted for during costing, preventing unexpected margin erosion.
Lesson Downloads & SOP Templates
Garment Costing: How to Calculate Garment Cost Step by Step
Comprehensive industry standard guide.
Read GuideHS 6203.42.10
Men's or boys' trousers, bib and brace overalls, breeches and shorts of cotton
View HS Code