incotermsincoterms in shipping industry
Incoterms is an abbreviated form of International Commerce Terms that refer to pre-defined commercial terms that are predefined. The international chamber of commerce publishes incoterms wherein the seller and the buyer agree to these terms in advance thereby helping determine the three objectives including:
Carriage: This is about deciding the mode of shipment from one point to another and it is an important consideration in the incoterms in shipping industry.
Cost: This again is a key factor as it affects the overall cost of shipment storage and moving.
Risk: Risk analysis is important for timely mitigation and better handling of unexpected obstacles.
Incoterms in logistics or shipping and other import-export businesses are all about the instructions that are used in goods’ global transportation. These terms define the responsibilities shared by the shipper/supplier/consigner and the buyer/consignee. The incoterms suggest which party is responsible for liabilities, costs, and risks that may be a part of the shipment at different stages during the shipping process. Let’s have a quick overview of the various terms used in incoterms in shipping and logistics industries.
1. Carriage Paid To or CPT: This indicates that the seller has to bear the transportation costs for moving goods to the port of discharge. The responsibility of the seller ends soon after the goods are delivered to the carrier at a named place. Carriage Paid To can be for all transport modes including sea and air as well.
2. Carriage & Insurance Paid or CIP: As the name itself indicates, CIP includes the same responsibilities of the seller as CPT (including the cost to the discharge port, and carrier delivery responsibility) plus maritime insurance.
3. Cost and Freight or CFR: The invoice of the seller includes the goods’ cost as well as the cost of transportation of goods to the port of discharge and this does not include local charges. While CFR terms may seem like a great option, the buyers have the least control over the process of shipping and the other associated costs.
4. Cost, Insurance, Freight or CIF: The terms are the same as the incoterms in shipping. CIF indicates that the charges that the seller pays cover CIF (costs, insurance, and freight) for the buyer’s order during the cargo’s transit. Cost, insurance, and freight apply only to goods that are transported through a waterway, ocean, or sea.
5. Delivered at Terminal or DAT: DAT includes the seller’s responsibility for delivering goods to the named terminal of the destination port. DAT also includes unloading for carrier/buyer collection post which the buyer becomes solely responsible for the goods. Goods’ customs clearance (export) is the responsibility of the seller whereas the buyer has to bear all the costs right from the delivery point that including customs clearance (import), taxes, and duties. DAT can be used for all transport modes.
6. Delivered at Place (DAP): Quite similar to DAT terms, DAP is different only in that uploading the goods at the named delivery place is also the buyer’s responsibility. Buyers are responsible for the goods’ uploading point (this includes customs clearance, taxes, and duties). DAP can also be used for all transport modes.
7. Delivered Duty Paid (DDP): DDP terms indicate the seller’s responsibility for carriage and its delivery to a named place. It includes import and other applicable duties and taxes clearance. DDP can also be used for all transport modes. While maximizing risk and cost for sellers, they minimize these for the buyers.
8. Free Alongside Ship or FAS: FAS terms indicate that the seller can place goods beside (alongside) the carrier vessel at the export port where the seller is responsible for customs clearance (export) as well as cost and risk up to that port. The buyer is responsible for goods from their loading onto the vessel and afterwards.
9. Free Carrier: Free Carrier of FCA terms indicate the seller’s responsibility for the goods and that includes costs up to the goods’ delivery at the destination chosen by the buyer.
10. Ex Works or EXW: EXW is an incoterm through which a shipped product’s buyer pays for the goods upon the goods’ delivery to a named location. Ex Works is amongst the most important incoterms in logistics and shipping industry.
11. Free On Board (FOB): FOB is an international term that indicates whether the liability of goods destroyed or damaged during the transit lies with the buyer or the seller. “FOB origin or shipping point” clearly indicates that the buyer is at risk after the seller has shipped the product.
To learn more about the incoterms in shipping industry, please feel free to speak to our experts.