As many of you know, shipping products and commodities internationally can get complicated. Language differences only add to the confusion and even though English is the internationally recognized language of trade, small differences in the understanding and interpretation of different words can create problems in a business transaction carried out between parties of two different cultures or nationalities.
To minimize these types of misunderstandings related to shipping of goods across borders, the International Chamber of Commerce published a set of definitions called “INCOTERMS” in 1936, that were designed to be a uniform language of commerce. Today, there are 11 commonly used INCOTERMS that are used in the shipment of goods between different entities in all the countries of the world.
- EXW or Ex-works is probably the simplest of the designations. With this designation, the seller has the least responsibility as the buyer assumes ownership and responsibility for the commodity when they pick the material up at the seller’s place of business.
- FOB or Free on Board is the most common term used in transactions. With FOB, the seller uses their own freight forwarder to deliver the goods to the port. The delivery of the goods are accomplished when the seller’s freight forwarder releases the goods to the buyer’s forwarder.
- FCA or Free Carrier is a bit more complicated than the previous two. With FCA, the seller is responsible for the transport of the goods, but the buyer is responsible for the cost of that transport as well as other costs such as insurance.
- FAS stands for Free Alongside Ship. Under these terms the buyer pays for all costs involved and assumes all risks but the seller is responsible for clearing the goods for export.
- CFR or Cost & Freight is a complicated arrangement where the shipper has to get the goods to the port of destination, where the delivery or transfer of ownership happens. However, the buyer is responsible for insurance during the journey of the goods. In this arrangement, the shipper will choose the freight forwarder.
- CIF stands for Cost, Insurance & Freight. This arrangement is very similar to CFR except that the seller pays for the insurance.
- CPT stands for Carriage Paid To and is almost the same as CIF except that the seller pays for the cargo insurance but designates the buyer as the insured party.
- CIP or Carriage and Insurance Paid To. This term is focused on the insurance part of the transaction and is often used when goods are transported with more than one mode of transport. Basically, the freight forwarder is acting as the carrier and manages the insurance costs, which are then passed on as part of the shipping costs.
- DAT or Delivered at Terminal can be a term that applies to almost any shipment where the seller pays for transport to the terminal.
- DAP or Delivered at Place is similar to DAT. The shipper or seller only pays for delivery to the terminal, excluding import clearance costs, which are paid for by the buyer.
- DDP or Delivered Duty Paid is often used in courier shipments where the shipper assumes all the costs and risks associated with delivering the goods to the buyer’s or recipients door.
While these terms are used within the world of international business, they are often confusing or misunderstood by those who don’t deal with freight on a daily basis. If you are shipping goods internationally, let the professionals at Eagles Air & Sea half you understand and choose the right shipping terms that minimize your risks and maximize your cost savings when transporting goods around the globe.