When it comes to international shipping, it is important to understand the different responsibilities and obligations between parties. In any international shipping contract, the two parties involved – the buyer and seller – each have separate payment obligations, based on the kind of delivery taking place.
You should always know what you are responsible for organizing and paying for. And, in the unlikely event that cargo happens to arrive in less-than-ideal conditions, you should also know which party is responsible for providing insurance coverage for the damaged goods.
Using the correct incoterms is essential for all parties involved in the shipping process. Adhering to these guidelines can help guarantee a smooth delivery and provide better service to clients.
Here are the key international shipping terms you should know when dealing with overseas freight shipments.
Incoterms – What Are They?
Incoterms 2010 is the current set of 11 terms agreed upon and published by the International Chamber of Commerce.
These guidelines are not contract or govern law, but are used to provide clarity on the expectations and responsibilities between buyers and sellers during freight deliveries.
These terms are commonly used in sales contracts across the world, and should be considered before any delivery is negotiated.
Incoterms are accepted and understood by governments and authorities worldwide. Responsibility for cargo is laid out at each stage of delivery, along with how the goods should be delivered, who is responsible for covering certain payments, and who will have to load and unload cargo once it reaches its destination(s).
Some incoterms apply only to sea and inland waterway transport, whereas others apply to all forms of transport.
Rules Solely for Sea and Inland Waterway
Free On Board (FOB)
Free On Board is a term only used when transporting goods by sea. With FOB, the seller delivers the shipment on board the vessel that is chosen by the buyer at the named port of shipment, or procures the goods that have already been delivered.
With FOB, the risk passes from seller to buyer when the shipment is on board the vessel.
Free Alongside Ship (FAS)
The seller will deliver cargo to the buyer when the goods are alongside the ship, i.e. within the reach of a ship’s lifting tackle.
The risk passes to the buyer, who will arrange the main carrier and pay for all insurance beyond this point.
Cost and Freight (CFR)
With CFR, the seller pays for and ensures delivery, but the buyer holds and assumes the risk.
Like with FOB, the risk passes from seller to buyer once the shipment crosses the ship’s rails.
Cost Insurance and Freight
With CIF, the seller also pays for insurance to cover the delivery of goods to the named port of destination.
Because the seller is covering the buyer’s risk in this scenario, they may be inclined to have the lowest level of insurance possible. In this case, the buyer may wish to take out extra insurance coverage.
Rules that Apply to All Shipments
Delivered At Place (DAP)
The seller holds responsibility for cargo until it arrives at its final destination, and the seller is responsible for all costs, including: export fees, port charges, insurance, and carriage.
With DAP, the buyer is responsible for paying import fees and unload fees.
Delivered At Terminal (DAT)
The buyer is responsible for the goods once they are received and unloaded at the agreed upon point of destination. In this case, the seller is responsible for final unloading.
The seller is responsible for covering export fees, insurance, carriage, and destination port fees.
Ex Works (EXW)
The seller maintains the least amount of responsibility on the cargo, and agrees to deliver it to the seller’s premises. Once the goods have arrived at the destination, the buyer assumes all risk and responsibility.
Buyer is responsible for paying insurance, export fees from the seller’s facility, and the destination import fees.
With EXW, the buyer is responsible for arranging transportation of goods.
Delivered Duty Paid (DDP)
When working under DDP terms, the seller has the most responsibility for the cargo. Sellers are responsible for delivering cargo to the buyer (or another destination, if the buyer so chooses).
The seller will handle import and export dues, transportation, cargo, and insurance.
Free Carrier (FCA)
The seller will arrange and pay for fees up to the point of delivery. Buyer is responsible for import, export, and arranges transportation of goods.
Carriage Paid To (CPT)
In the case of CPT, the seller arranges and is responsible for paying shipment, but risk transfers to the buyer.
The buyer should pay for insurance at this point and beyond. The risk is assumed by the buying party after the seller arranges for the main mode of transport.
CIP (Carriage & Insurance Paid To)
CIP includes the same responsibilities that are involved with CPT arrangements, but in this case, the seller is also responsible for the insurance up to the point of destination.
The seller provides insurance that covers the buyer’s risk, along with paying for the main shipping carrier and transportation of goods.
Final Thoughts
As you can see, there is a lot to know when it comes to international shipping and incoterms. Luckily, you don’t need to worry about figuring everything out for yourself.
By working with a trusted freight forwarding company, you can be sure that your best interest is in mind at all times.
Contact us today to learn more about how we can help you navigate the world of international shipping.