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
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