What transport charges do I pay for?
It is important that any shipper are fully aware of terms of trade prior to shipment.
“Incoterms” are used to define for all international transport movements who pays for the different aspects of the journey, who is responsible to arrange that part of the movement, provide documents, effect insurance etc. these are usually a 3 letter acronym to represent the term. Incoterms are usually agreed between buyer and seller when making the sales contract, they also provide a basis of value for customs.
The International Chamber of Commerce (ICC) has defined 11 valid Incoterms, the most common of which are discussed below.
They are therefore some considerable importance to both forwarder and shipper, as “he who pays the piper calls the tune” and so it is important to understand who “controls” movement, quite apart from allocating a customs value.
The following 7 terms apply to any mode of transportation:
EXW – Ex Works (named place of delivery)
The seller makes the goods available at their premises. This term places the maximum obligation on the buyer and minimum obligations on the seller.
EXW means that a seller makes the goods ready for collection at their premises on the date agreed. The buyer pays all freight costs and also bears the risks for bringing the goods to their final destination. The seller doesn’t load the goods on collecting vehicles and does not clear them for export. If the seller does load the goods, he does so at buyer’s risk and cost. If both parties wishes the seller to be responsible for the loading of the goods on departure and to bear the risk and all costs of such loading, this must be made clear by adding explicit wording to this effect in the contract of sale or using “FCA sellers warehouse”.
FCA – Free Carrier (named place of delivery)
The seller hands over the goods, cleared for export, into the disposal of the first carrier (named by the buyer) at the named place. The seller pays for carriage to the named point of delivery, and the risk passes when the goods are handed over to the first carrier, remember the named place could be at the seller’s warehouse.
CPT – Carriage Paid To (named place of destination)
The seller pays for carriage up to the main port/airport of destination. Risk transfers to buyer upon handing goods over to the first carrier at the point of loading.
CIP – Carriage and Insurance Paid to (named place of destination)
The containerized transport and multimodal equivalent of CIF. Seller pays for carriage and insurance to the named destination point, but risk passes when the goods are handed over to the first carrier at the point of loading.
DAT – Delivered at Terminal (named terminal at port or place of destination)
Seller pays for carriage to the terminal, except for costs related to import clearance, and assumes all risks up to the point that the goods are unloaded at the terminal.
DAP – Delivered at Place (named place of destination)
Seller pays for carriage to the named place, except for costs related to import clearance, and assumes all risks prior to the point that the goods are ready for unloading by the buyer.
DDP – Delivered Duty Paid (named place of destination)
Seller is responsible for delivering the goods to the named place in the country of the buyer and pays all costs in bringing the goods to the destination including import duties and taxes. Often the seller will indicate that domestic taxes such as VAT etc. are excluded from this terms and only the actual duty is included. This term places the maximum obligations on the seller and minimum obligations on the buyer.
The following 4 terms apply to international trade where transportation is conducted entirely by water:
FAS – Free Alongside Ship (named port of shipment)
The seller must place the goods alongside the ship at the named port. The seller must clear the goods for export. Suitable only for maritime transport but NOT for multimodal sea transport in containers. This term is typically used for heavy-lift or bulk loose cargo.
FOB – Free on Board (named port of shipment)
The seller must load the goods on board the vessel nominated by the buyer. Cost and risk change from seller to buyer when the goods are actually on board of the vessel. The seller must also clear the goods for export. The term is applicable for maritime and inland waterway transport only but NOT for mulitmodal sea transport in containers. The buyer must agree with the seller the details of the vessel and the port where the goods are to be loaded.
CFR – Cost and Freight (named port of destination)
Seller must pay the costs and freight to bring the goods to the port of destination. However, risk is transferred to the buyer once the goods are loaded on the vessel. Insurance for the goods is NOT included.
CIF – Cost, Insurance and Freight (named port of destination)
Exactly the same as CFR except that the seller must in addition procure and pay for the insurance. Maritime transport only.
|In some cases, the “Any Mode” options overleaf may be more appropriate than the purely sea term for containerised traffic.
e.g. FCA may be more appropriate than FOB, CIP may be more appropriate than CIF etc.
Additionally, “EXW” and any of the “D” Terms may be also be used.
|In general terms, if the abbreviation begins with:
E – All transport charges are to be collected at destination from the buyer. Therefore the invoice price includes no transport costs at all.
F – Costs to point of loading onto ship/aircraft etc. are prepaid by seller, fromt hat point on the main freight charge is paid by the buyer. (remember the point of loading could be at the seller’s premises!)
C – Costs to main port/airport of destination are prepaid by the seller, remainder paid by buyer.
D – All charges prepaid to named destination by seller. This may or may not include Duty / Taxes. This is the exact opposite of “E” where the seller pays for nothing!