What Are Common Shipping Terms
Common shipping terms or incoterms are a set of internationally recognized rules that define the responsibilities of buyers and sellers in international trade transactions. They clarify who pays for and manages the shipment, insurance, documentation, customs clearance, and other logistical activities.
| Incoterm | Reference | Description |
|---|---|---|
| EXW | Ex Works | Seller makes the goods available at their premises. The buyer is responsible for all costs and risks of transporting the goods from the seller’s premises. |
| FCA | Free Carrier | The seller delivers the goods to a named carrier but is not responsible for any further transportation costs or risks. |
| CPT | Carriage Paid To | The seller pays for the carriage of the goods to the named place of destination but is not responsible for any insurance or import duties. |
| CIP | Carriage and Insurance Paid To | The seller pays for the carriage and insurance of the goods to the named place of destination but is not responsible for any import duties. |
| DAP | Delivered at Place | The seller delivers the goods to the named place of destination but is not responsible for any import duties. |
| DPU | Delivered at Place Unloaded | The seller delivers the goods to the named place of destination and unloads them from the means of transport. The buyer is responsible for any import duties. |
| DDP | Delivered Duty Paid | The seller delivers the goods to the named place of destination, pays all import duties and taxes, and unloads the goods from the means of transport. |
| FAS | Free Alongside Ship | The seller delivers the goods alongside the ship at the named port of shipment. The buyer is responsible for loading the goods onto the ship and for all further transportation costs and risks. |
| FOB | Free on Board | The seller delivers the goods on board the ship at the named port of shipment. The buyer is responsible for all further transportation costs and risks. |
| CFR | Cost and Freight | The seller pays for the goods’ carriage to the named destination port. The buyer is responsible for all insurance and import duties. |
| CIF | Cost, Insurance, and Freight | The seller pays for the goods’ carriage, insurance, and freight to the destination port. The buyer is responsible for all import duties. |
Reference: International Chamber of Commerce (ICC) – https://iccwbo.org/business-solutions/incoterms-rules/incoterms-2020/
What are the 4 Most Used Incoterms
The four most commonly used Incoterms are:
1. CIF (Cost, Insurance, and Freight): This is the most widely used Incoterm globally, especially for sea and inland waterway transport. Under CIF, the seller delivers the goods on board the ship at the named port of shipment, pays for the carriage and insurance of the goods to the named destination port, and provides the buyer with the necessary documents for import clearance. The buyer is responsible for all import duties and other charges at the destination.
2. FOB (Free on Board): This Incoterm is commonly used for sea and inland waterways and air and land transport. Under FOB, the seller delivers the goods on board the ship at the named port of shipment and is responsible for all costs and risks associated with transporting the goods to that point. The buyer is responsible for all costs and risks associated with transporting the goods from the port of shipment to the destination.
3. EXW (Ex Works): This Incoterm is often used for domestic and international sales where the buyer wants to take control of the transportation of the goods from the seller’s premises. Under EXW, the seller makes the goods available at their premises and is not responsible for any costs or risks associated with transporting them from that point. The buyer is responsible for all costs and risks of picking up the goods from the seller’s premises and transporting them to the destination.
4. DAP (Delivered at Place): This Incoterm is gaining popularity, particularly for land and air transport. Under DAP, the seller delivers the goods to the named place of destination (which can be a terminal, warehouse, or other location) and is responsible for all costs and risks associated with transporting the goods to that point. The buyer is responsible for any import duties and taxes at the destination.
The popularity of these Incoterms is due to their clarity, simplicity, and widespread international recognition. They provide an unambiguous framework for allocating responsibility for costs and risks between buyers and sellers in international trade transactions.
What is ETS and ETA
ETS and ETA are both commonly used terms in the shipping industry, but they refer to different things:
ETS: Estimated Time of Sailing
- Indicates the date and time when a vessel is expected to depart from a specific port.
- Used to estimate the overall shipping time and arrival date of goods.
- It can change due to unforeseen weather, port congestion, or mechanical issues.
ETA: Estimated Time of Arrival
- Indicates the date and time when a vessel is expected to arrive at a specific port or terminal.
- Used to plan delivery schedules and logistics for the goods.
- It can also change due to unforeseen circumstances like weather, port congestion, or customs delays.
It’s important to note that ETS and ETA are just estimates and not guaranteed. It’s best to check with the shipping company or track the shipment online for the latest updates.
What Are FOB Shipping Terms
FOB shipping terms (“Free on Board”) define the point in the transportation process where ownership and responsibility for the goods shift from the seller to the buyer. It clarifies who is liable for costs and risks involved in shipping, including transportation, insurance, and import duties.
There are variations and clarifications within each FOB term, depending on the specific agreement between the buyer and seller. Reviewing the contract carefully to understand all obligations and responsibilities is essential.
| Term | Description | Responsibility of the seller | Responsibility of the buyer |
|---|---|---|---|
| FOB Origin (FOB Factory/FOB Shipping Point) | The seller is responsible for delivering the goods to a designated carrier or location at their origin (factory, warehouse). | Delivers goods to designated carriers or locations at their origin. | Responsible for all costs and risks associated with transporting the goods from the designated point, including freight, insurance, and import duties. |
| FOB Destination | The seller is responsible for delivering the goods to the buyer’s destination. | Delivers goods to the buyer’s designated destination. | Responsible for any taxes or customs duties at the destination. |
| FOB Airport/Port | The seller is responsible for delivering the goods to the designated airport or port of shipment. | Delivers goods to the designated airport or port of shipment. | Responsible for all costs and risks associated with transporting the goods from the airport/port, including freight, insurance, and import duties. |
| FOB Vessel/Named Vessel | The seller is responsible for loading the goods on board the designated vessel at the port of shipment. | Loads goods on board the designated vessel at the port of shipment. | Responsible for all costs and risks associated with transporting the goods from the port of shipment, including freight, insurance, and import duties. |
What is FOB and CIF
FOB (Free on Board) and CIF (Cost, Insurance, and Freight) are both Incoterms, which are standardized international trade terms used in contracts to clearly define the responsibilities of buyers and sellers in international trade transactions.
- FOB (Free on Board) is an Incoterm that defines the point at which ownership and responsibility for goods shift from the seller to the buyer in a shipping transaction.
- CIF (Cost, Insurance, and Freight) is an Incoterm that extends the seller’s responsibility beyond delivering the goods on the ship.
Here’s a breakdown of the critical differences between FOB and CIF:
| Feature | FOB | CIF |
|---|---|---|
| Seller’s Responsibility | Deliver the goods on board the ship at the named port of shipment | Deliver the goods on board the ship at the named port of shipment, pay for the carriage and insurance of the goods to the named port of destination, and provide documents for import clearance |
| Buyer’s Responsibility | Pay for all costs and risks associated with transporting the goods from the port of shipment to the destination. | Pay for any import duties and other charges at the destination |
| Transfer of Risk | Occurs when the goods are loaded onboard the ship | Occurs when the seller provides the buyer with the bill of lading and other necessary documents |
| Commonly Used for | Sea and inland waterway transport | Sea and inland waterway transport |
| Incoterm Classification | E (Departure) | C (Carriage) |
Here’s a more detailed explanation of each term:
FOB:
- Under FOB, the seller’s responsibility ends once the goods are loaded onboard the ship.
- The buyer assumes responsibility for all costs and risks associated with transporting the goods from that point, including freight, insurance, and any import duties or taxes.
- This term is often used when the buyer wants control over the transportation of the goods or has their freight forwarding arrangements.
CIF:
- Under CIF, the seller’s responsibility extends beyond loading the goods on the ship.
- The seller also pays for the goods’ carriage and insurance to the named destination port.
- Additionally, they provide the buyer with all the necessary documents for import clearance.
- This term is often used when the seller wants to ensure that the goods are delivered safely and smoothly to the destination, and the buyer wants to avoid the hassle and risk of arranging their transportation and insurance.
What are the Delivery Terms
Delivery terms, also known as shipping terms or incoterms, are the agreed-upon conditions between a buyer and seller regarding the delivery of goods. They outline the responsibilities of each party in terms of the timing, location, and delivery cost.
Here’s a breakdown of the critical aspects of delivery terms:
1. Responsibilities:
- Seller: Typically responsible for preparing the goods for shipment, arranging transportation, and delivering them to a designated location.
- Buyer: Typically responsible for paying for the goods and any associated shipping costs, including insurance and import duties.
2. Key elements:
- Location: Where the goods will be delivered (e.g., seller’s premises, buyer’s warehouse, designated port).
- Timing: When the goods must be delivered (e.g., by a specific date, within a certain timeframe).
- Costs: Who pays for transportation, insurance, import duties, and other associated costs
- Risk of loss: Who is liable for any damage or loss to the goods during transport
- Documentation: What paperwork must be completed for customs clearance and other purposes
3. Common terms:
- Ex Works (EXW): Seller makes goods available at their premises. The buyer assumes all responsibility and costs from there.
- Free Carrier (FCA): Seller delivers goods to a named carrier. Buyer covers further costs and risks.
- Carriage Paid To (CPT): Seller pays for carriage to a named destination, excluding insurance and import duties.
- Delivered Duty Paid (DDP): Seller delivers goods to the destination, pays all duties and taxes, and unloads them.
- Free on Board (FOB): Seller delivers goods on the ship at the named port. The buyer assumes responsibility and costs from there.
4. Choosing the correct terms:
The appropriate delivery terms depend on the specific circumstances of each transaction, including:
- Nature of the goods: Size, weight, and value.
- Desired level of control: The buyer needs control over the delivery process.
- Cost considerations: Balancing cost responsibility between buyer and seller.
- Risk tolerance: Preferences for minimizing risk of loss or damage.
5. Importance of clarity:
Clearly defined delivery terms are critical for avoiding misunderstandings and disputes between buyers and sellers. Discussing and agreeing upon the terms in detail is essential before entering into a shipping agreement.
Remember, delivery terms can be customized to fit specific needs. Consulting with a logistics expert is recommended if you’re unsure which terms are best for your situation.
How Many Shipping Terms Are There
There are over 20 different shipping terms used in the international trade industry. However, the exact number can vary depending on the source and how they are categorized. Some sources may only consider the 11 standard Incoterms® (International Commercial Terms) as official shipping terms, while others may include additional terms specific to certain industries or modes of transport.
Here is a breakdown of the different categories of shipping terms:
1. Incoterms®: These are the most widely recognized and standardized shipping terms developed by the International Chamber of Commerce (ICC). They define the responsibilities of the buyer and seller in international trade transactions, including the transfer of ownership, risk, and costs. There are currently 11 Incoterms®, each with its specific meaning and application.
2. Carrier-Specific Terms: Different carriers may have specific shipping terms and conditions, which can vary from the standard Incoterms®. These terms may address particular aspects of the shipment, such as loading, unloading, storage, and insurance.
3. Industry-Specific Terms: Certain industries have developed unique shipping terms tailored to their needs. For example, the agricultural sector may use terms like “Free Alongside Store (FAS)” or “Cost, Insurance, and Freight to Store (CIF-S)” to account for the specific handling and transportation requirements of agricultural products.
4. Mode-Specific Terms: Different modes of transport (e.g., air, sea, road, rail) may also have specific shipping terms that reflect the unique challenges and considerations associated with each mode. For example, the term “Delivered at Place Unloaded (DPU)” is often used for sea freight, while “Free Carrier (FCA)” is more common for air freight.
5. Miscellaneous Terms: Many other miscellaneous shipping terms are used in various situations. These terms may be used to address specific aspects of the shipment or clarify the parties’ responsibilities.
It’s important to note that the specific shipping term used in a transaction should be clearly defined in the contract between the buyer and seller. This will help avoid misunderstandings or disputes about who is responsible for what.
Here are some resources where you can find more information about shipping terms:
- International Chamber of Commerce (ICC): https://iccwbo.org/business-solutions/incoterms-rules/incoterms-2020/
- United Nations Commission on International Trade Law (UNCITRAL): https://uncitral.un.org/
- International Trade Administration (ITA): https://www.trade.gov/
What Are the Four Categories of Incoterms
Incoterms are categorized into four groups:
| Group | Description | Examples |
|---|---|---|
| E (Departure) | The seller’s responsibility ends at the named location, typically their premises. | EXW (Ex Works), FCA (Free Carrier) |
| F (Main Carriage Unpaid) | The seller is responsible for delivering goods to a named carrier but not for further transport costs or risks. | CPT (Carriage Paid To), CIP (Carriage and Insurance Paid To) |
| C (Carriage Paid) | The seller pays for the carriage of the goods to the named place of destination but is not responsible for any insurance or import duties. | DAP (Delivered at Place), DPU (Delivered at Place Unloaded) |
| D (Arrival) | The seller delivers the goods to the named place of destination, pays all import duties and taxes, and unloads the goods from the means of transport. | DDP (Delivered Duty Paid) |
