When shipping goods internationally, the process can be quite overwhelming. Negotiating terms, determining shipping methods and obtaining best costs are difficult for all but the most experienced companies. This article will discuss two important topics that any new exporter/importer will find useful – Incoterms and Freight Forwarders.

INCO Terms

Incoterms are maintained by the International Chamber of Commerce (ICC) and used to clearly define seller and buyer obligations in international trade. These standardized terms are especially important due to the existence of language barriers and the possibility for misunderstandings – without clearly defined terms, the connotation of a term in one location could be easily misunderstood in another location. Incoterms are updated approximately every 10 years (if needed). The terms are specific to shipping practices and do not govern the ownership or transfer of title of goods.

To follow are the most recent Incoterms 2010 with definitions:  Source: ICC website. The full text of the 2010 edition of the Incoterms rules is available at http://store.iccwbo.org/.

Rules for Any Mode of Modes of Transport

– EXW Ex Works

“Ex Works” means that the seller delivers when it places the goods at the disposal of the buyer at the seller’s premises or at another named place (i.e.,works, factory, warehouse, etc.). The seller does not need to load the goods on any collecting vehicle, nor does it need to clear the goods for export, where such clearance is applicable.

– FCA Free Carrier

“Free Carrier” means that the seller delivers the goods to the carrier or another person nominated by the buyer at the seller’s premises or another named place. The parties are well advised to specify as clearly as possible the point within the named place of delivery, as the risk passes to the buyer at that point.

– CPT Carriage Paid To

“Carriage Paid To” means that the seller delivers the goods to the carrier or another person nominated by the seller at an agreed place (if any such place is agreed between parties) and that the seller must contract for and pay the costs of carriage necessary to bring the goods to the named place of destination.

– CIP Carriage And Insurance Paid To

“Carriage and Insurance Paid To” means that the seller delivers the goods to the carrier or another person nominated by the seller at an agreed place (if any such place is agreed between parties) and that the seller must contract for and pay the costs of carriage necessary to bring the goods to the named place of destination.

The seller also contracts for insurance cover against the buyer’s risk of loss of or damage to the goods during the carriage. The buyer should note that under CIP the seller is required to obtain insurance only on minimum cover. Should the buyer wish to have more insurance protection, it will need either to agree as much expressly with the seller or to make its own extra insurance arrangements.

– DAT Delivered At Terminal

“Delivered at Terminal” means that the seller delivers when the goods, once unloaded from the arriving means of transport, are placed at the disposal of the buyer at a named terminal at the named port or place of destination. “Terminal” includes a place, whether covered or not, such as a quay, warehouse, container yard or road, rail or air cargo terminal. The seller bears all risks involved in bringing the goods to and unloading them at the terminal at the named port or place of destination.

– DAP Delivered At Place

“Delivered at Place” means that the seller delivers when the goods are placed at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination. The seller bears all risks involved in bringing the goods to the named place.

– DDP Delivered Duty Paid

“Delivered Duty Paid” means that the seller delivers the goods when the goods are placed at the disposal of the buyer, cleared for import on the arriving means of transport ready for unloading at the named place of destination. The seller bears all the costs and risks involved in bringing the goods to the place of destination and has an obligation to clear the goods not only for export but also for import, to pay any duty for both export and import and to carry out all customs formalities.

Rules for Sea and Inland Waterway Transport

– FAS Free Alongside Ship

“Free Alongside Ship” means that the seller delivers when the goods are placed alongside the vessel (e.g., on a quay or a barge) nominated by the buyer at the named port of shipment. The risk of loss of or damage to the goods passes when the goods are alongside the ship, and the buyer bears all costs from that moment onwards.

– FOB Free On Board

“Free On Board” means that the seller delivers the goods on board the vessel nominated by the buyer at the named port of shipment or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel, and the buyer bears all costs from that moment onwards.

– CFR Cost and Freight

“Cost and Freight” means that the seller delivers the goods on board the vessel or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel. The seller must contract for and pay the costs and freight necessary to bring the goods to the named port of destination.

– CIF Cost, Insurance and Freight

“Cost, Insurance and Freight” means that the seller delivers the goods on board the vessel or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel. The seller must contract for and pay the costs and freight necessary to bring the goods to the named port of destination.

The seller also contracts for insurance cover against the buyer’s risk of loss of or damage to the goods during the carriage. The buyer should note that under CIF the seller is required to obtain insurance only on minimum cover. Should the buyer wish to have more insurance protection, it will need either to agree as much expressly with the seller or to make its own extra insurance arrangements.

Freight Forwarder

Freight forwarders are an extremely important part of international logistics as they act as an intermediary between the shipper and various transportation services. Their job is to arrange international shipments and use established relationships with carriers to negotiate favorable freight rates. They are also skilled with export compliance, complete the required export documentation and have extensive knowledge of the regulations, transportation costs and banking practices needed during the import/export process.

Some of the important documents that a freight forwarder can help prepare include:  Definition Source: Export.Gov – Basic Guide to Exporting

– Bill of Lading (BOL)

A contract between the owner of the goods and the carrier (as with domestic shipments). For shipment by vessel, there are two types: a straight bill of lading, which is not negotiable and does not give title to the goods, and a negotiable, or shipper’s order, bill of lading. The latter can be bought, sold, or traded while the goods are in transit. The customer usually needs an original bill of lading as proof of ownership to take possession of the goods.

– Commercial Invoice

A bill for the goods from the seller to the buyer. Many governments use commercial invoices to determine the true value of goods when assessing customs duties. Governments that use the commercial invoice to control imports will often specify the invoice’s form, content, and number of copies; language to be used; and other characteristics.

– Certificate of Origin

Required by some countries. A signed statement as to the origin of the export item. Certificates of origin are usually validated by a semiofficial organization, such as a local chamber of commerce. A certificate may be required even if the commercial invoice contains the same information.

– Inspection Certificate

Required by some purchasers and countries to attest to the specifications of the goods shipped. The inspection is usually performed by a third party, often an independent testing organization.

– Export License

A government document that authorizes the export of specific items (including technology) in specific quantities to a particular destination. This document may be required for most or all exports to some countries. For other countries, it may be required only under special circumstances.

– Export Packing List

Considerably more detailed and informative than a standard domestic packing list. It itemizes the material in each package and indicates the type of package, such as a box, crate, drum, or carton. It also shows the individual net, tare, and gross weights and measurements for each package (in both U.S. and metric systems).  Package markings should be shown along with references to identify the shipment. The shipper or forwarding agent uses the list to determine the total shipment weight and volume and whether the correct cargo is being shipped. In addition, U.S. and foreign customs officials may use the list to check the cargo.

Other services that a freight forwarder may offer are packaging advice to ensure the shipment arrives in good condition, inspection services at the port of origination or destination and labeling needed for import.  Until your company becomes more experienced in handling international shipments, the use of a freight forwarder can not only save time and effort but also ensure that the goods arrive on time and without incident.