Businessed who want to ship their products to international markets should be aware of the rules and terms of international trade and freight transactions.
To help you get started, The International Chamber of Commerce has released a book of guidelines known as Incoterms 2010 (the earlier one being Incoterms 2000). Apart from definitions, this comprehensive guidebook also covers information regarding security clearances and custom duties.
To familiarize you on the process and related jargon, we’ve put together a list of 7 commonly used Incoterms applicable to any mode of product shipment or transport.
Here they are:
If one mentions ex-works terms, this essentially means that the least obligations are with the seller. The job, risks and costs included, of picking up the goods, transporting them, and distributing is entirely the buyers’. Business-wise, ex-works favours the seller and places larger onus on the buyer. This usually occurs if the buyer is a bigger, better established party. But it can work in other situations as well under any mode of transportation.
2) Free carrier (FCA)
The free carrier situation implies a situation in which the one selling, takes care of all export procedures and delivers the products at the venue suggested by the buyer. It offers a little more responsibility to the seller than an ex-works arrangement. If a place of delivery is not specified by a buyer, the seller may choose one convenient to him. However when making this contract with a carrier, the seller may act on behalf of the buyer but at the buyer’s expense and risk.
3) Carriage paid to (CPT)
The Carriage Paid To system simply means the cost of the freight holding the goods to be sold is borne by the seller and is to be delivered at the agreed destination. The seller is also required to take care of all export procedures. Post delivery, any loss or damage is to be incurred by the buyer.
4) Carriage and insurance paid to (CIP)
CIP is similar to CPT but with an added function for the seller. Apart from taking care of export, and freight costs, the seller is also required to secure insurance, on minimal coverage, against the buyer’s risk of any possible damage to the products while being transported. This protects the buyers’ side a little more than in the CPT system.
5) Delivered at terminal (DAT)
By ‘Terminal’, they mean either a warehouse, rail or air terminal, road, container yard, or quay. The only requirement under this condition is that the selected terminal or place of delivery should be mutually decided between seller and buyer. Once the seller duly delivers the goods at the decided terminal, the responsibility or risk of the material is shifted to the buyer. Other responsibilities such as cost of transportation, export procedures are the seller’s while the importer or buyer takes cares of import duties and costs. If the containment is moved to another location, away from the decided terminal, then the rules applicable to Delivery at Place (the next point) may apply.
6) Delivery at place (DAP)
DAP refers to a situation in which it the goods are considered to be delivered once they are on the chosen mode of transport, on their way to the buyer. The place of delivery is mutually decided as though the package may be considered delivered, the transfer of risk occurs only once it reaches its offloading destination. In this scenario, the seller should organise a contract of carriage which is in tune with the contract of sale. Also the seller is responsible for taking care of export formalities.
7) Delivered duty paid (DDP)
This system places all the responsibility with the seller – delivery to decided place, risks, costs, taxes, customs and duties till the goods are with the buyer.
Hence, these are the 7 primary methods used in international trade covering most modes of transport and destinations or ports. For more details and trade insights, you may conduct a thorough market research to advise you on your entry strategy, transport and distribution among other vital aspects of conducting international business.