International
Freight Terms and Corresponding Issues
Our
White Paper titled, “Legal Terms Surrounding The Transportation
Process That Have Significant Impact On How Business Is Conducted
And Where Responsibility Is Assigned” neglected to identify
that the terms were for domestic transportation. So, to
all of our readers who took the time to point this out, we thank
you.
In
order to best understand a subject and to effectively articulate
and communicate ideas, thoughts and issues, it is imperative that
we share definitions. In this connection, the international
transportation and foreign trade interests cried out for such
standards; the result of the process is Incoterms.
The
first published set of terms was complied by the International
Chamber of Commerce (ICC-not to be confused with the now defunct
Interstate Commerce Commission) in 1936 and has been updated and
continues to reflect current practices.
One of the unique
differences between the use of domestic
freight terms is that they stand alone when compared with international
terms. International terms (Incoterms) are compound and
include, or at least, suggest terms of purchase and terms of sale
along with the rules of engagement. On the other hand, the
domestic comparison would be the combined use of freight terms
and terms of sale. As an example, consider EXW, its domestic
counterpart could be “FOB named point, Freight Collect”—title
passing at time and place of pickup, without assuming the burden
of transportation.
Click here to read the entire paper
INCOTERMS-Definitions
EXW + location name – (Ex Works) – In its simplest
form, this term essentially states that the buyer takes possession
of the goods at a named location such as, the factory, warehouse,
address, etc. and that the seller bears no responsibility for
the loading of the freight or subsequent transportation and documentation.
The responsibility to deliver is the Shipper’s to the point that
goods are delivered at the Shipper’s premises. The Buyer is responsible
for all costs and risks associated with the loading and delivery
of the goods to the Buyer’s destination, and for clearing the
goods for export.
FCA + location name – (
Free
Carrier) – The sellers responsibility to deliver is achieved
by the seller delivering the goods, cleared for export,
to the buyer’s carrier. There are very typical issues that are
usually addressed when using this term. As an example, if
no location is designated by the buyer, the seller can reasonably
assume the responsibility to name the place where the carrier
will take the goods into his custody. As stated in our white
paper on Domestic Freight Terms and Terms of Sale/Purchase, it
is important to avoid, “silence speaking”. In international
passage of title and freight terms a great deal more exposure
can be incurred. As an example, should the buyer request the seller’s
assistance in connection with securing a carrier contract it is
commercially acceptable that, when the seller’s assistance is
requested in securing the contract with the carrier, the seller
would be acting at the risk and expense of the buyer.
If no precise point at the designated delivery location is mentioned,
the Shipper may choose the place at the Buyer’s location where
the Carrier will take over responsibility of the goods. (This
term can refer to any mode of transport, including intermodal).
Although the word, “carrier” is well know and understood
by all of us, FCA does allow for the imposition of a non-carrier
to become a carrier in the following instance.
Should the buyer nominate a party other than the carrier
to receive the goods, the seller is deemed to have satisfied his
obligation of delivery to the carrier.
FAS + port of export – (Free Along Side Ship) – The responsibility to deliver is the Shipper’s
to the point that goods are delivered along side the ocean vessel,
either at the quay (A
wharf or reinforced bank where ships are loaded or unloaded) or on a lighter
(A
large flat-bottomed barge, especially one used to deliver or unload
goods to or from a cargo ship or transport goods over short distances)
or directly onto
the cargo ship, at the designated port of shipment. The Buyer
assumes all costs and responsibilities for the shipment at that
point and must clear the goods for export. (This term is only
used for transportation by water).
FOB + port of export – (Free on Board) – The responsibility is the Shipper’s to clear the
goods for export and to deliver the goods over the threshold of
the vessel. The Buyer assumes all costs and risks from that point.
(This term is not appropriate for containerized cargo or for cargo
carried aboard a roll on/roll off ro-ro vessel to which FCA should
be used)
CFR + destination port – (Cost and Freight) – The Shipper
is responsible for clearing the goods for export and for the costs
to deliver the goods to the port of destination. Actual transfer
occurs when the goods are brought over the ship’s rail, and, from
the point that the goods cross the threshold of the vessel at
the port of embarkation, the risk of loss or damage to the goods
and any additional costs incurred while on the vessel are the
responsibility of the Buyer. (This term is not appropriate for
containerized cargo or for cargo carried aboard a roll on/roll
off ro-ro vessel to which CPT should be used)
CIF + destination port – (Cost, Insurance, and Freight) – The Shipper has the same obligations
as in CFR with the additional responsibility to provide at least
minimum insurance coverage to
protect the Buyer’s risk during ocean transport. The parties can
agree for the purchase of insurance coverage greater than the
minimum. (This term is not appropriate for containerized cargo
or for cargo carried aboard a roll on/roll off ro-ro vessel to
which CPT should be used)
CPT + destination place – (Carriage Paid To) – The Shipper is responsible for clearing the goods
for export and for all risk and costs incurred in delivering the
goods to their named destination. Additional costs incurred after
the goods are in possession of the Carrier are transferred to
the Buyer after the goods are in the possession of the Carrier.
The definition of Carrier under this term refers to any mode or
combination of modes used to transport the goods.
CIP + destination place – (Carriage and Insurance Paid to) – The Shipper has the same obligations
as in CPT with the additional responsibility to provide at least
minimum insurance coverage to protect the Buyer’s risk during
transport. As in CIF, the parties can agree to additional insurance
coverage.
DAF + named place – (Delivered At Frontier) – The Shipper is responsible for clearing
the goods for export and for delivering the goods to a named point
and place at the frontier, before reaching the Customs border
of the destination country. Because the term can refer to any
frontier, including the country of export, it is important to
be clear in naming a specific frontier point and place.
DES + destination port – (Delivered Ex Ship) – The Shipper is responsible for all risk and costs
of the goods until the goods are turned over to the Buyer on board
the vessel. The Buyer is responsible for all risks and costs in
bringing the goods to the destination port and in clearing the
goods for import. (This term can only be used for water transport)
DEQ + destination port – (Delivered Ex Quay or Duty Paid) – The Shipper is responsible for clearing
the goods for import and until the goods are made available to
the Buyer on the quay or wharf (see definition of Quay at FAS)
of the destination port. Unless stated differently, the Shipper
has responsibility for all duties, taxes and other costs in delivering
the goods.
NOTE: If the Buyer is to be responsible for clearing the
goods for import and for paying the import duties, the term “Duty
Unpaid” should be used instead of “Duty Paid.”
NOTE: If other charges, such as Value Added Taxes, are
to be excluded from the Shipper’s responsibility, the terms should
be clarified by adding “VAT unpaid” to the DEQ designation. (This
term can only be used for water transport)
DDU + place of destination – (Delivered Duty Unpaid) – The Shipper is responsible for the goods until
they are made available to the Buyer at the named place in the
destination country. The Shipper has responsibility for all costs
in export and in transporting the goods to that point. The Buyer
has responsibility for all duties, risks, taxes and other charges
involved in importing the goods.
NOTE: If the Shipper
agrees to accept responsibility for any of the import-related
costs, the additional obligation should be made clear by adding
specific responsibility, such as “duty unpaid, VAT paid” or other
agreed upon terms.
DDP + place of destination – (Delivered Duty Paid) – The Shipper is responsible for the goods until
they are made available to the Buyer at the named place in the
destination country. The Shipper assumes all risks and costs including
import licenses, duties, taxes and other Customs charges necessary
to clear the goods through the import process. This term should
not be used if the Shipper is unable to obtain the necessary import
licenses or other import documents.
NOTE: If the Shipper
agrees to exclude some of the import related costs, the limited
obligation should be made clear by adding specific responsibility,
such as “duty unpaid, VAT paid” or other agreed upon terms.
NOTE: If the Buyer
has responsibilities for all import charges, the alternative DDU
term should be used instead.
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Continuation
Please
consider this white paper as a beginning in this subject area,
succeeding white papers will address common issues and address
them with common solutions. We encourage our readers to
direct any specific questions or comments to
papers@transportgistics.com .
Disclaimer
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information presented above represents
the opinion of the author and not necessarily the opinion of TransportGistics,
Inc. nor is it presented as a legal position.
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