Useful Guide

Incoterms

INCOTERMS 2010 were created primarily for people inside the world of global trade. Outsiders frequently find them difficult to understand. Seemingly common words such as "responsibility" and "delivery" have different meanings in global trade than they do in other situations. They were designed to create a bridge between different members of the industry by acting as a uniform language each can use.

Each INCOTERM refers to a type of agreement for the purchase and shipping of goods internationally. There are 11 different terms, each of which identifies the parties to a transactions rights, duties, responsibilities and liabilities during international transport.

INCOTERMS also deal with the documentation required for global trade, specifying which parties are responsible for which documents. Determining the paperwork required to move a shipment is an important job, since requirements vary so much between countries. Two items however are standard: the commercial invoice and the packing list.

In global trade, "delivery" refers to the seller fulfilling the obligation of the terms of sale or to completing a contractual obligation. "Delivery" can occur while the merchandise is on a vessel on the ocean and the parties involved are thousands of miles from the goods. In the end, however, Incoterms boil down to a few basic specifics:

Costs: who is responsible for the expenses involved in a shipment at a given point in the shipment's journey?

Control: who owns the goods at a given point in the journey?

Liability: who is responsible for paying for damages to goods at a given point in a shipment's transit?

It is essential for shippers to know the exact status of their shipments in terms of ownership and responsibility. It is also vital for sellers & buyers to arrange insurance on their goods while the goods are in their "legal" possession. Lack of insurance can result in wasted time, lawsuits, and broken relationships.

Often companies like to be in control of their freight during transport. That being the case, sellers of goods might choose to sell CIF, which gives them a good grasp of shipments moving out of their country, and buyers may prefer to purchase FOB, which gives them a tighter hold on goods moving into their country, this decision will depend on terms included in the contract of sale.

INCOTERMS are most frequently listed by category.

 - Terms beginning with F refer to shipments where the primary cost of shipping is not paid for by the seller.

 - Terms beginning with C deal with shipments where the seller pays for shipping.

 - E terms occur when a seller's responsibilities are fulfilled when goods are ready to depart from their facilities.

 - D terms cover shipments where the shipper/seller's responsibility ends when the goods arrive at some specific point. Because shipments are moving into a country, D terms usually involve the services of a customs broker and a freight forwarder. In addition, D terms also deal with the pier or docking charges found at virtually all ports and determining who is responsible for each charge.

EXW (EX-Works) One of the simplest and most basic shipping arrangements places the minimum responsibility on the seller with greater responsibility on the buyer. In an EX-Works transaction, goods are basically made available for pickup at the shipper/seller's factory or warehouse and "delivery" is accomplished when the merchandise is released to the consignee's freight forwarder. The buyer is responsible for making arrangements with their forwarder for insurance, export clearance and handling all other paperwork.

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FOB (Free On Board) One of the most commonly used and misused-terms, FOB stipulates that the shipper/seller uses his freight forwarder to move the merchandise to the port or designated point of origin. Though frequently used to describe inland movement of cargo, FOB specifically refers to ocean or inland waterway transportation of goods. "Delivery" is accomplished when the shipper/seller releases the goods to the buyer's forwarder. The buyer's responsibility for insurance and transportation begins at the same moment.

FCA (Free Carrier) In this type of transaction, the seller is responsible for arranging transportation, but he is acting at the risk and the expense of the buyer. Where in FOB the freight forwarder or carrier is the choice of the buyer, in FCA the seller chooses and works with the freight forwarder or the carrier. "Delivery" is accomplished at a predetermined port or destination point and the buyer is responsible for procuring insurance.

FAS (Free Alongside Ship) In these transactions, the buyer bears all the transportation costs and the risk of loss of goods. FAS requires the shipper/seller to clear goods for export, which is a reversal from past practices. Companies selling on these terms will ordinarily use their freight forwarder to clear the goods for export. "Delivery" is accomplished when the goods are turned over to the Buyers Forwarder for insurance and transportation.

CFR (Cost and Freight) This term defines two distinct and separate responsibilities - one is dealing with the actual cost of merchandise "C" and the other "F" refers to the freight charges to a predetermined destination point. It is the shipper/seller's responsibility to get goods from their door to the port of destination. "Delivery" is accomplished at this time. It is the buyer's responsibility to cover insurance from the port of origin or port of shipment to buyer's door. Given that the shipper is responsible for transportation, the shipper also chooses the forwarder.

CIF (Cost, Insurance and Freight) This arrangement similar to CFR, but instead of the buyer insuring the goods for the maritime phase of the voyage, the shipper/seller will insure the merchandise. In this arrangement, the seller usually chooses the forwarder. "Delivery" as above, is accomplished at the port of destination.

CPT (Carriage Paid To) In CPT transactions the shipper/seller has the same obligations found with CIF, with the addition that the seller has to buy cargo insurance, naming the buyer as the insured while the goods are in transit.

CIP (Carriage and Insurance Paid To) This term is primarily used for multimodal transport. Asit relies on the carrier's insurance, the shipper/seller is only required to purchase minimum coverage. When this particular agreement is in force, Freight Forwarders often act in effect, as carriers. The buyer's insurance is effective when the goods are turned over to the Forwarder.

DAT (Delivered At Terminal) This term is used for any type of shipment. The shipper/seller pays for carriage to the importing terminal, except for costs related to import clearance, and assumes all risks up to the point that the goods are unloaded at the terminal.

DAP (Delivered At Place) DAP term is used for any type of shipment. The shipper/seller pays for carriage to the named place, except for costs related to import clearance, and assumes all risks prior to the point that the goods are ready for unloading by the buyer.

DDP (Delivered Duty Paid) The DDP term tends to be used in intermodal or courier-type shipments. Whereby, the shipper/seller is responsible for dealing with all the tasks involved in moving goods from the manufacturing

Glossary

AES The Automated Export System (AES) is the system used by exporters to electronically declare their international exports.
Air Waybill Air Waybill (AWB) or air consignment note refers to a receipt issued by an international airline for goods and an evidence of the contract of carriage, but it is not a document of title to the goods
Air Cargo Agent An agent appointed by an airline to solicit and process international airfreight shipments.
Airport Code An airport code is a short code used to identify a specific airport.
Arrival notice A notice from the ocean carrier to the “notify party” indicating the vessel’s estimated arrival date; identifying shipment details.
Bonded Warehouse A Bonded warehouse is a building or other secured area in which dutiable goods may be stored, manipulated, or undergo manufacturing operations without payment of duty. It may be managed by the state or by private enterprise. In the latter case a customs bond must be posted with the government.
Break Bulk A shipping term for any loose material that must be loaded individually,i.e not containerised.
BSC Bunker Surcharge - also known as fuel surcharge or BAF, Bunker Adjustment Factor
Certificate of Origin(CO) A CO traditionally states from what country the shipped goods originate, but “originate” in a CO does not mean the country the goods are shipped from, but the country where their goods are actually made.
CFT Cubic Feet.
Chargeable Weight The shipment weight used in determining air freight charges. The chargeable weight may be the dimensional weight or for container shipments, the gross weight of the shipment less the tare weight of the container.
COD Cash on Delivery, Collect Freight Consignee pays to carrier when freight reaches port or ultimate destination.
Commercial Invoice The Commercial Invoice is important for the clearance process used by customs officials to classify merchandise so that duties & taxes can be correctly assessed.
Consignee In a contract of carriage, the consignee is the person to whom the shipment is to be delivered to whether by land, sea or air.
Country of Transshipment The country through which a shipment must pass and be re-sorted to reach its ultimate destination.
Courier A courier is a person or a company who delivers messages, packages, and mail.
Customs Broker Customs brokerage is a profession that involves the ‘clearing’ of goods through customs barriers for importers and exporters (usually businesses).
Customs Clearance International procedure of declaring goods at the Customs Office to gain authorized entry of those goods into a country.
Customs Invoice Certain countries require special invoices containing specific information for the Customs clearance and valuation of imported shipments
Customs Value The value of a shipment declared to customs
Dangerous Goods Dangerous goods, also called hazardous, are solids, liquids, or gases that can harm people, other living organisms, property, or the environment. They are often subject to chemical regulations
Declared Value Value of a shipment which is declared by the shipper and used to determine duty and carrier liability
Delivery Instructions or delivery orders A Delivery Order is a document from a consignor, a shipper, or an owner of freight which orders the release of the transportation of cargo to another party. Delivery Service Bringing goods to a destination on behalf of a shipper for a fee.
Demurrage The term demurrage originated in vessel chartering (notably voyage chartering) and refers to the period when the charterer remains in possession of the vessel after the period normally allowed to load and unload cargo.
DG Dangerous Goods
Dimensional Weight Used in shipping and freight, this is a billing technique which takes into account the XYZ axis dimensions of a package.
DTD Door to Door
DTP Door to Port
Dutiable Goods which are subject to import duty.
Duty A duty is a kind of tax, often associated with customs, a payment due to the revenue of a state, levied by force of law. It is a tax on certain items purchased abroad
ETA Estimated Time of Arrival
ETD Estimated Time of Departure
EX DEC Shipper’s Export Declaration.
Export Air bill A contract of carriage for exported goods.
Export Broker An individual or organization that unites buyer and broker for a fee.
Export License A Government authorization which allows a shipper to export specified goods to designated countries.
Express B/L Ocean Bill of Lading issued by the steamship line when cargo is consigned directly to the customer with the effect of cargo being immediately released.
F.O.B. (Free on Board) Incoterm - Free on board means that the seller delivers when the goods pass the ship’s rail at the named port of shipment.
FCL Full container load
Forwarding To ensure and facilitate the passage of goods from an origin to a destination.
Free Trade Zone A free trade zone (FTZ) is an area of a country where some normal trade barriers such as tariffs and quotas are eliminated and bureaucratic requirements are lowered in hopes of attracting new business and foreign investments
Freight Forwarder A freight forwarder, forwarder, or forwarding agent is a person or company that organizes shipments for individuals or other companies and may also act as a carrier.
Full Set Off B/L’s Usually means the issuance of the three original’s and three copies of the ocean Bill of Lading.
Gateway City Key cities regarding the entry/departure for international shipments,
Gross Weight Total complete weight of a shipment (includes goods and packaging)
Harmonized Code The Harmonized Commodity Description and Coding System (HS) of tariff nomenclature is an internationally standardized system of names and numbers for classifying traded products developed and maintained by the World Customs Organization (WCO)
HBL House Bill of Lading.
IATA (International Air Transport Association) The International Air Transport Association (IATA) is an international industry trade group of airlines headquartered in Montreal, Canada, where the International Civil Aviation Organization is also headquartered.
Import License An import license is a document issued by a national government authorizing the importation of certain goods into its territory.
In Bond A term applied to the status of merchandise admitted provisionally to a country without payment of duties, either for storage in a bonded warehouse or for transhipment to another point, where duties eventually will be paid.
Insurance Certificate A document which shows the amount of risk covered in a shipment
Insured Value Monetary value to which goods on a shipment are insured to
Integrated Carrier A freight company that can offer the integrated options of air, sea and road freight.
KGS Kilogram (2.2046 pounds).
L/C Letter of Credit
LBS Pounds
LCL Less than Container Load.
LTL Less than Trailer Load.
M/N Marks and Numbers
M3 Cubic Meters
Marine Cargo Insurance Marine cargo insurance covers the loss or damage of cargo between the points of origin and final destination and is applicable to all methods of transport.
NCV (No Commercial Value) Items such as documents or samples which have no commercial value.
Non-Conference Rate Rates given by independent shippers who are not part of a conference
Non-Dutiable Goods exempt from duty in a particular customs jurisdiction.
O/F Ocean Freight
OBL Ocean Bill of Lading
On-Board Courier Many companies who operate under a Just-In-Time or “JIT” inventory method often utilize on-board couriers. On-board couriers are individuals who can travel at a moment’s notice anywhere in the world, usually via commercial airlines.
On-Forwarding A shipment which stops at an intermediate stop and then needs to be shipped to its final destination.
Open Tops Usually used for oversized cargo where the top of the container is kept open
Oversized Pieces Shipments too large to fit on a standard pallet - out of gauge cargo.
Packing List A packing list is is a shipping document that accompanies delivery packages, usually inside an attached shipping pouch or inside the package itself. It commonly includes an itemized detail of the package contents and does not include customer pricing. It serves to inform all parties, including transport agencies, government authorities, and customers, about the contents of the package. It helps them deal with the package accordingly.
Palletised Cargo Cargo which is transported on pallets.
Perishable Items which will only remain fresh in the short term and need special freight conditions to maintain or pro-long their freshness and avoid decay. Good examples are fish and fruit.
Phytosanitary Inspection Certificates These are used in regards the transportation of plants, health of those plants, and conformity to local regulations in regards quarantine and disease control.
POD Proof of delivery
Point of Origin Where a shipment originally commenced.
POL Port of Landing
Postal Code A postal code (known in various countries as a post code, postcode, or ZIP code) is a series of letters and/or digits appended to a postal ad-dress for the purpose of delivering mail or freight.
Power of Attorney This is where freight forwarding companies are authorised to act as agents for Importers and Exporters by the importer or exporter.
PPD Prepaid Charges
Prepaid freight The shipper pays prior to their freight shipment being expedited
Pre-printed Air bill The shipping company, name, address, and account number are pre-printed on these air bills. This speeds up the whole process and helps to maintain accuracy in documentation.
Pro forma Invoice An invoice prepared in advance of a shipment and is often used by the shipper to obtain a letter of credit from his/her bank.
PTP Port to port
Reefer A refrigerated trailer or container that is commonly used for perishable goods.
Restricted Articles Articles, usually hazardous materials which need to be classified as dangerous goods when transported internationally by air.
Ro/Ro Roll-on/roll-off (RORO or ro-ro) ships are vessels designed to carry wheeled cargo such as cars, trucks, trailers, trailers or railroad cars that are driven on and off the ship on their own wheels.
Shipper’s Export Declaration (SED) Documentation showing that a particular shipment has been cleared for export by the relevant customs authorities. It will contain the particulars of the shipment.
Shipper’s Letter of Instruction The shipper normally gives this to the freight forwarding company which details how to deal with a particular shipment.
Single Access Document Customs document regarding goods entering or leaving the EU.
STC Said to Contain
Tare Weight Un laden weight, which is the weight of an empty vehicle or container
Tariff Rate The rate or price schedule for transporting different items to various countries.
Tariff A document issued by a carrier setting forth applicable rules, rates, and charges for the movement of goods. It sets up a contract of carriage between the shipper, consignee, and carrier
Telex Instant communication tool which has been superseded by e-mail
TEU Twenty foot unit (vessel)
THC Terminal handling charge
Third Party Billing Third party billing in regards to the transportation industry is the transference of transportation charges to a party other than the shipper or consignee.
Transmittal Letter is the document used to send shipping documents to a remitting bank for processing either a collection or payment/negotiation under a Letter of Credit
Transhipment Transhipment is the shipment of goods or container to an intermediate destination, and then from there to yet another destination. It often involves a change of transport in the intermediate destination.
TRC Terminal Receiving Charge
20 Footer 20 foot container