Since freight forwarding businesses are in charge of managing the global transportation of their customer’s goods, all professionals working in this field must have a strong understanding of the Incoterms. Do you know what Incoterms stand for?
Incoterms, also known as International Commercial Terms, are a set of instructions that rule all the cargo trade happening around the world. These terms dictate the division of responsibility between the Shipper (usually the supplier/consignor) and the Consignee (usually the buyer).
Said another way, the Incoterms define whether the shipper or the consignee will be the party responsible for the risks, costs, and liabilities associated with the shipment at each stage of an export or import operation.
There are several International Commercial Terms available, such as FOB, CIF, and CFR. In order to help you understand more about each one and define which is the most suitable for your logistics operations, we’ve created a basic Incoterms Guide for Freight Forwarders. Below, you can check out all you need to know about this matter!
What are the main Incoterms?
CFR (Cost and Freight)
The Cost and Freight terms englobe the cost of the goods being transported and the cost of the shipping process on the same invoice. Although CFR terms are highly used, this Incoterm provides limited control to the buyer over the shipping process and associated costs.
CIF (Cost, Insurance and Freight)
The “Cost, Insurance, and Freight” is very similar to the CFR. The only difference is that it also includes a marine insurance policy to be paid by the seller.
CPT (Carriage Paid To)
CPT shipping terms indicate full responsibility for the costs of transportation to the port of discharge to the seller. However, using CPT means that the seller’s responsibility ends once the goods are delivered to the carrier. CPT can be used for all modes of transportation, including air and sea.
CIP (Carriage and Insurance Paid)
CIP terms indicate the same seller responsibilities CPT (cost to the port of discharge, responsibility to delivery to the carrier) but with the additional inclusion of maritime insurance.
DAT (Delivered at Terminal)
Using DAT terms the seller is responsible for delivery to the named terminal at the destination port, and unloading ready for buyer/carrier collection – after which, the responsibility for the goods passes to the buyer. The seller is responsible for the goods export customs clearance. The buyer is responsible for all costs from the point of delivery, including import customs clearance, duties, and taxes. DAT can also be used for all modes of transportation.
DDP (Delivered Duty Paid)
This term indicates that the shipper/consignor is responsible for paying all duties and taxes at the agreed delivery point. DDP terms indicate that the seller is responsible for carriage and delivery to a named place, including clearing for import and all applicable taxes and duties. Can be used for all modes of transport. They maximize cost and risk for a seller and minimize them for the buyer. The buyer’s responsibility for the goods begins when they receive them for unloading at destination. Can be used for all modes of transport.
DAP (Delivered at Place)
Very similar terms to DAT, with the difference that the buyer is responsible for unloading the goods at the named place of delivery. Buyer assumes responsibility from the point of unloading the goods, including import customs clearance, duties, and taxes. Can be used for all modes of transport.
EXW (Ex Works)
EWX terms indicate that the buyer is responsible for collecting the goods from the seller and accepts all onward arrangements, including associated costs, risks,
FAS (Free Alongside Ship)
FAS terms require the seller to place the goods alongside the carrier vessel at the port of export with seller responsibility for export customs clearance and risk and cost up to that point. The buyer takes responsibility for the goods from loading onto the vessel onwards.
FCA (Free Carrier)
FCA terms indicate that the seller is responsible for the goods, including costs, up to delivery to the buyer’s chosen carrier at a named location –often a terminal or transport hub or forwarder’s warehouse. The seller is responsible for goods alongside after which the responsibility transfers to the buyer. If the named location is the seller’s place of business then they are responsible for the loading of the goods. At all other named locations, the buyer is responsible for loading. How to write a business travel policy.
FOB (Free On Board)
FOB terms indicate that the seller and the buyer have fairly equal responsibility for all the costs of a cargo transportation, including the risks and liabilities in the process. The seller is responsible up to the arrival of the cargo at the loading port. The buyer, on the other hand, is in charge from the moment of loading until the goods reach their final destination. FOB is the most popular and recommended choice for importers and buyers, as both parts share equal responsibilities.
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