Guide to Incoterms 2020 and their usage
The most common area of confusion we get when dealing with clients is over the use of incoterms. Either the wrong ones are being used or not used at all. When dealing with international trade are on of the most important trade terms to understand and use. Incoterms clearly define where the shipper responsibility ends and the buyer responsibility begins. Incoterms internationally recognised avoids any confusion of the freight arrangements and if something unfortunately does happen to the shipment then who needs to resolve any issues is clearly defined.
The “INCOTERMS” word is the shorten version of International Commercial Terms. Created by the International Chamber of Commerce (ICC) following studies in 1923 and formalised in 1936. They only dealt with goods shipped by sea initially. Since then they have been revised to keep up with the development of more integrated supply chains. Incoterms 2020 are the latest version and consist of the 11 mean terms.
Ex-Works named named loading place (Applies to all modes of transport)
Ex-Works where the consignee pays for all the shipping costs from the shipper’s warehouse to the suppliers unloading place. We do not recommend this choice for first time shippers of LCL (part cargo) moving from most countries in Asia as there can be difficulties in issuing the correct export paperwork and often will involve a third party agent. This term can cause shipping issues as some shippers may load and secure the cargo at no extra cost and other shippers will expect to be paid for this action so the buyer to provide someone to undertake this. It pays to clarify exactly this point when agreeing the shipping.
FCA named place of handover
FCA is short for Free Carrier alongside. This is multimodal term and is valid where the place of delivery is an airport, rail or road terminal. The shipper is responsible for all the charges up to an including the delivery of the goods. This should be used instead of FOB named Airport. If you are a buyer then FCA may be a better choice than Ex-Works as the shipper is responsible for the loading and the export customs handling.
FOB named Loading Port
FOB stands for Free On Board and applies when shipping by sea or waterway., for example FOB Ningbo, China or FOB Houston, Texas. This is one of the most common incoterms used and the one we particularly recommend if you are buying from Asia. It means the shipper/supplier pays for getting the goods on board the vessel and any costs before this is their responsibility.
NOTE: FOB some airport is no longer a valid incoterm. It has been replaced with FCA
FAS Named Shipment Port
Free Alongside Ship is for waterway and sea movements only. The shipper is responsible only to get the goods to the port including custom cleared if required. The loading and stowage is the buyer’s responsibility.
CFR named Destination Port
Cost and Freight has the supplier / shipper paying to get the goods all the way to the named seaport or airport as agreed with the buyer. The buyer is then responsible for all the local charges and the freight. These include customs brokerage, handling charges, taxes,duties and deliveries. When shipping LCL this way beware of shippers hiding the freight charges in the local charges paid at the destination port. Very common when shipping from Asia.
CIF named Destination Port
CIF is Cost, Insurance and Freight. The responsibilities are identical to C&F with the addition the shipper pays for the goods to be insured to the named seaport or airport.
CIP – Carriage and Insurance Paid To Named Destination
CIP is a multimodal term of CIF. Suitable for road, rail, airfreight shipments. The shipper is not only responsible for delivering the goods to a named delivery point but they will insurance the goods as well in case of issues in transit
CPT – Carriage Paid to Named Destination
Carriage Paid to a named destination. This is multimodal term and therefore is valid for delivery to all modes of transport
DPU – Delivered at Place Unloaded Named Destination
The supplier/shipper pays for all the charges and assumes the risk to get the cargo all the way to the destination place mentioned. The only charge remaining for the consignee is to pay the duty and vat for the shipment.
DAP – Delivered At Terminal Named Destination
Here the shipper is responsible for the goods until it gets to named terminal destination. This can be sea, road, or rail.
DDP – Delivered Duty Paid Name Destination
Delivered Duty Paid a name place. The same the shipper pays the import duties/gst/vat payable on the goods. The shipper assumes all the risks of getting the shipment to the consignee. This is the exact opposite to EXW where the buyer has all the responsibility.
Project Cargo and Break-bulk
Project Cargo and Break-bulk can be shipped under a whole range of sub incoterms and it is essential you understand what you are being quoted or are quoting out. It is quite possible for you to end up taking charges of several thousand dollars because you did not correctly understand the incoterms being used. Feel free to contact us to discuss any shipment terms BEFORE you agree the shipment.