Question

You have an e-commerce business and you sell the latest style in watches online. You operate...

You have an e-commerce business and you sell the latest style in watches online. You operate your business out of your grandma’s house 20 miles out of Los Angeles, CA. Your vendor imports from China, which deal would you take and why? Please include details regarding your decision.

The vendor from whom you purchase offers you a cash discount of 2/10 net 30 terms AND shipping terms of FOB China,

OR

The vendor from whom you purchase offers terms of FOB LA port of entry and no other discounts that would affect your net terms.

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Answer #1

The decision would be based on the final price at which we get the product. I would go with FOB LA port of entry option. In the first option, the vendor offers a cash discount of 2% given we pay in 10 days. however, this is FOB China which includes just the price of the product and China export and customs clearance. For getting the product to our warehouse, we will have to pay USA import duty and clearance and transportation cost from port of entry. The US import duties are much greater than 2% for products from China (See Trump's new direction on Chinese products). Hence, the final value of product under FOB China shipping terms would be much higher than FOB LA port of entry terms.

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