fastlane
making sure nothing’s lost in translation
EXCEPT POSSIBLY FOR THE ECONOMY, NO RECENT
development has challenged the supply chain manager like
the growth in international shipping. As business has spun
out of its purely domestic orbit, transportation managers
have been caught up in the tumult. Their jobs have
changed; they need new tools, new services, and new skills.
For those new to the foreign trade game, one of the
biggest concerns is likely to be the delivery arrangements—in particular, how to make sure everyone’s clear
on who’s responsible for freight, insurance, damage in
transit, and the like. To simplify matters, the International
Chamber of Commerce has published a set of standard
terms of sale known as the International Commercial
Terms, or Incoterms. Designed to cut down on uncertainty arising from differing interpretations of such terms
from one country to another, these 13 internationally
recognized terms clearly define both the buyer’s and seller’s obligations in a number of common transactions.
Incoterms are sometimes divided into four groups,
based on where responsibility transfers from one party
to the other. For instance, the E term (there’s just one)
covers transactions in which the seller simply turns the
goods over to the buyer at the seller’s premises. The F
terms, by contrast, are used in cases where the seller will
deliver the goods to a carrier of the buyer’s choosing, and
the C terms apply to cases where the seller arranges for
transportation and assumes responsibility for the goods
until they reach the destination port. The D terms cover
arrangements in which the seller bears the costs and
risks of delivering goods beyond that destination port.
What follows is a short summary of the Incoterms.
; E Terms
Ex-Works means the buyer assumes total responsibility for the shipment. Delivery is accomplished when the
product is handed over to the buyer’s representative at
the shipper’s plant or DC. The buyer is responsible for
freight costs, insurance, export and import clearance,
and all customs charges.
; F Terms
FOB (Free on Board) means that the seller is responsible for getting the goods to a port. The buyer bears the
cost and responsibility from that point on.
FCA (Free Carrier) provides that the seller fulfills his
responsibility when he delivers the product to a carrier.
FAS (Free Alongside Ship) requires the seller to deliver
the product alongside a given vessel at a port.
; C Terms
CFR (Cost and Freight) deals with the cost of the merchandise as well as the freight costs. The seller is responsible for the product and the transportation costs to the
destination port.
CIF (Cost, Insurance, and Freight) provides that the
seller pays for insurance in addition to the product and
transportation costs.
CPT (Carriage Paid To) is similar to CIF, except that the
buyer pays for insurance. The seller, however, is responsible for export clearance.
CIP (Carriage and
Insurance Paid To). This
term is used primarily for
multimodal moves and is
the same as CPT, except
the seller must also purchase cargo insurance in
the buyer’s name.
; D Terms
DAF (Delivered at
Frontier). In this case,
delivery is accomplished
when products are
cleared for export at a
named frontier or border point. The buyer takes delivery here and is responsible for clearing customs into the
destination country.
DES (Delivered Ex Ship). The seller’s duties are discharged when the ship arrives at the destination. The buyer
assumes responsibility for unlading and import clearance.
DEQ (Delivered Ex Quay). This is similar to DES,
except the seller assumes responsibility for getting the
goods off the ship.
DDU (Delivered Duty Unpaid). The seller provides
transportation and risk assumption to the destination,
except the buyer must pay customs duties and taxes.
DDP (Delivered Duty Paid). This is the maximum obligation that can be assumed by a seller. The seller is responsible for all risk and charges up to the consignor’s door. ;
Clifford F. Lynch is principal of C.F. Lynch & Associates, a provider of logistics management
advisory services, and author of Logistics Outsourcing – A Management Guide and co-author
of The Role of Transportation in the Supply Chain. He can be reached at cliff@cflynch.com.
