Shipping Terms for International Trade (Explained Simply)

Importing

Two container cargo ships carrying imported international goods

International shipping can be confusing and daunting.

What do all the shipping terms mean, which party organises the carrier, who is responsible for the goods and when, who pays for cartage and insurance? Add in different governments’ requirements and language barriers between countries and you have the potential for misunderstandings and disputes.  

Enter the International Chamber of Commerce (ICC). They developed the Incoterms to clear up the confusion with a mini-dictionary of shipment terms. The terms ensure everyone is using the same shipping terminology around the world, which makes importing and exporting easier and less risky for everyone involved.
 

What are the Incoterms for International Shipping?

Incoterms are the pre-defined commercial terms from the ICC. They are three-letter abbreviations for trade terms for common contractual sales practices.

Incoterms were first published in 1936 by the ICC to eliminate disputes over who pays for freight, insurance and other shipping costs. There have been eight updates published. The current version is Incoterms 2010, published on 1 January 2011.

The ICC introduced these shipment terms to define costs, and risks relating to the transportation and delivery of goods in sales contracts worldwide. The terms remove the uncertainties around interpretations and have been accepted by governments, legal authorities, and contractors.  They are particularly important for defining the of transfer of risk - the point at which the risk of the seller passes on to the buyer when they take ownership of the goods.
 

Incoterms

There are 11 Incoterms rules used across 140 countries. The terms include:

EXW – Ex Works

Goods are made available at the place of the seller (or other named place) so the buyer incurs the risk and cost of loading and transporting goods to their destination. The seller doesn’t need to clear the goods for export.

FCA – Free Carrier (Named Place)

The seller delivers the goods ready for export to the carrier or another person nominated by the seller at an agreed place. the buyer nominates. Risk passes to the buyer at the agreed place.

CPT – Carriage Paid To

Seller delivers the goods to a carrier or another person nominated by the seller at an agreed place. The goods are considered delivered once the main carrier takes receipt of them.

CIP – Carriage and Insurance Paid To

The seller delivers the goods to the carrier or another person nominated by the seller at an agreed place between both parties. The seller is responsible for contracting and paying for the costs of carriage to send the goods to their destination. The seller is also responsible for the insurance cover against the buyer’s risk of loss or damage to the goods during carriage.         

DAT – Delivered at Terminal

The seller delivers the goods to a nominated port or place. The terminal may be a quay, warehouse, container yard, or road, rail, or air cargo terminal. The seller bears all risk in carrying and unloading the goods to the named port or place of destination.

DAP – Delivered at Place

The seller delivers the goods when placed at the disposal of the buyer on the arriving transport ready for unloading.

DDP – Delivered Duty Paid

The seller delivers the goods when they are placed at the disposal of the buyer, cleared for import and ready for unloading at their destination. The seller is responsible for the costs, risks involved in clearing the goods for import and export, pay for carriage, customs and duties.

FAS – Free Alongside Ship

The seller delivers when the goods are placed alongside the vessel on a quay nominated by the buyer. Risk of loss or damage passes to the goods passes when the goods are alongside the ship. The buyer accepts risk and costs from that moment.

FOB – Free on Board

The seller delivers the goods on board the vessel nominated by the buyer at the port of shipment. The carriage cost, risk of damage or loss to goods passes to the buyer once the goods are on board the vessel.

CFR – Cost and Freight

The seller delivers the goods on board the vessel or procures the goods already delivered. Risk of loss or damage to goods passes once the goods are on board. The seller is responsible for the costs and freight to move the goods to the named port of destination.

CIF – Cost Insurance and Freight

The seller delivers the goods on board the vessel or procure the goods already delivered. Risk of loss or damage passes to the buyer when the goods are on board the vessel. The seller must contract and pay the costs of the freight to move the goods to the named destination. The seller is responsible for minimum insurance cover.   

Two of the most common Incoterms are FOB and CIF.
 

Air Freight Terms

For smaller orders or urgent deliveries, the following air freight terms relate to airway bills.

MAWB – Master Airway Bill

Bill issued by the main carrier of goods on receipt of goods from a freight forwarder to deliver at the destination as per agreed terms.

HAWB – House Airway Bill

The bill is issued by a freight forwarder when goods are received from a shipper agreeing to deliver the goods at the destination.
 

Container Shipping Terms

The cost of shipping depends on whether the buyer fills the container or shares a container.

FCL – Full Container Load

The container is filled with the goods of one customer.

LCL -  Less than Container Load.

Goods of multiple clients are used to fill the container. Read more about FCL vs LCL here.
 

If you need assistance with product sourcing in China and international freight and shipping, contact Vara Allied on (08) 6115 0118 or contact us online.