Selling and Shipping International? What terms of sale should you use? Know your Incoterms

Gateway deals with a lot of first time international shippers. People looking to sell their goods overseas and looking for the costs involved to make the sale. It is always an educational lesson beyond logistics transportation to explain to people the basics of International sales contracts BEFORE calculating the costs in transportation. I always instruct these people to read up on the latest Incoterms. 

Incoterms or International Commercial Terms are internationally recognized standards used in sales contracts to define who is responsible for the goods at each stage of the sales delivery process. This includes who pays for what portion of the transportation and includes who pays for insurance, taxes and duty.

What I am providing below is a brief (very brief) interpretation of the latest Incoterms we use here at Gateway and in no way should be regarded as a definitive rule on the terms. For a full understanding of these terms and or changes to them visit www.iccwbo.org.

Let’s begin with the Incoterm that works best for anyone selling goods to a foreign entity

EXW

Exworks – In this sales contract term, the two parties are agreeing that full sale of the goods occurs when the buyer picks up the goods from the sellers shipping location. The buyer then is responsible for all costs associated with transportation, insurance risks, taxes and duties.

Here the seller has no obligations except for providing the buyer with the goods. The sales contract however should specify the location “EXW Tempe” if your facility is in Tempe, Arizona.

FCA

Free Carrier – In this sales agreement the seller provides the goods to the buyer’s carrier at a specific place but the seller has performed all obligations for export, “Cleared for export”

Here the seller may not have to cover by insurance the transport to the buyer’s carrier but does take all risk involved to that point.

CPT

Carrier Paid To – This sales agreement has where the seller pays for the transportation to the buyer’s destination overseas responsibility of the goods rests with the buyer once this is passed to the first carrier at its destination.

CIP

Carriage and Insurance Paid – For this sales agreement the seller is responsible for transportation and insurance to a specified location at the destination country. This term is mainly used when transporting goods by ocean container. When using this term the seller does pay for insurance to the named place.

Here the seller would be responsible for the goods until transfer to the customers named place “CIP Tokyo”

DAT

Delivered at Terminal – In this sales term the buyer takes ownership of the goods when they arrive at the named Terminal and is responsible for all costs involved in clearing the goods into the country. Under these terms the seller is not required to provide insurance to this point, but may.

DAP

Delivered at Place – This contractual sales term is very similar to DAT except for one important detail. Here the seller pays for transportation to the named place and like DAT the buyer pays the cost of importing the goods, duty taxes and fees. But the seller has responsibility for the goods until they are unloaded by the buyer

This is important because if the buyer does not clear the goods and unload them in a timely manner the seller may end up responsible for storage charges and fees.

DDP

Deliver Duty Paid – This sales term makes the seller responsible for the delivery of the goods to the buyer’s country and makes the seller responsible for all costs involved including duty tax and fees at the destination country.

FAS

Free Alongside Ship – This contractual sale term requires the seller to provide goods to the specified port the goods are to be shipped from. The seller must also make the goods ready for export but the Buyer is responsible for the cost and risk in loading the goods.

This sales term is primarily used for large, heavy or bulk shipments.

CFR

Cost and Freight – With this sale term the seller is responsible for the costs to the port and the buyer takes the risk and responsibility once it is loaded onto the ship.

CIF

Cost Insurance and Freight – use this sale term in the same manner as CFR except that the seller provides insurance coverage for the goods up until they are loaded on the ship.

These are the Incoterms mainly used today, there are a lot more terms you may find that had their place in commerce over the years DDU, DES, DAF and the likes have all but vanished from today’s commerce landscape.

I like to tell those starting their venture into International sales that they should become very familiar with these Incoterms before planning a shipment. These terms should be negotiated and agreed upon in the contract. Gateway provides our clients with the costs involved for each of the Incoterms provided so that they understand the true total cost of an international sale.

Find out which terms works best for your commodities and your business goals, whether you are the seller or the buyer, understanding your Incoterms when negotiating sales price will put you at a great cost advantage the next time you go to sell or buy goods with a customers overseas.

Gateway Crate and Freight is a 3PL located in Tempe, Arizona and is an IPPC certified WPM Export crating facility (US-20468) specializing in professional packing and shipping of large, fragile and valuable commodities. Visit www.gatewaycrateandfreight.com or www.gatewayot.com