Shipment Terms

When buying or selling in international markets it is critical that all parties Individuals involved in a sales transaction. In domestic sales: seller and buyer. In international sales: exporter and importer. In shipping: shipper and consignee. In letters of credit: beneficiary (seller) and applicant (buyer). exporter The person or company that sells or arranges to transport goods out of a country. and importer. In shipping: shipper and consignee An individual or company to whom cargo is shipped or consigned. . In letters of credit: beneficiary The person or company due payment in the letter of credit. Usually the exporter (seller). (seller) and applicant The party (generally buyer/importer) for whose account a letter of credit is established. (buyer). exporte The person or company that sells or arranges to transport goods out of a country. r and importer. In shipping: shipper and consigne An individual or company to whom cargo is shipped or consigned. e. In letters of credit: beneficiar The person or company due payment in the letter of credit. Usually the exporter (seller). y (seller) and applican The party (generally buyer/importer) for whose account a letter of credit is established. t (buyer). know and understand the terms of sale There are many different terms of sale or payment, ranging from prepayment of cash to permitting the customer considerable time within which to pay for the goods after received. . For example, a seller might think that it has quoted a price to a buyer exclusive of the freight costs. If the buyer thought the price included the freight charges, then a misunderstanding that could delay payment, cause the customer to short pay the invoice Document which shows the terms of a sale. Includes a full description of the goods, sale price, charges, and discounts. , or permanently damage the relationship between the buyer and seller may occur.

The International Chamber of Commerce has developed a set of trade terms that are used worldwide. A complete list of international commerce terms and their definitions is provided in Incoterms 1990, available from the International Chamber of Commerce a www.iccwbo.org.

The following are brief descriptions of the more common terms of sale and the obligations of the seller and buyer.

EXW (Ex Works The seller's minimum obligation and financial risk. ...named place)

The term EXW means that the seller fulfills his or her obligation to deliver when he or she has made the goods available to the buyer at the seller's premises. The seller is not responsible for loading the goods on the vehicle or for clearing the goods for export, unless otherwise agreed. The buyer bears all costs and risks involved in taking the goods from the seller's premises to their intended destination. This term should not be used when the buyer cannot carry out the export formalities, either directly or indirectly. In such circumstances, the term FCA should be used.

FCA (Free Carrier Any company that may transport goods for payment, such as an ocean vessel, aircraft, truck, train, or courier service. ...at the Named Point)

The term FCA has been designed to meet the requirements of modern transport particularly such multi-modal transportation devices as container or roll-on/roll-off traffic trailers and ferries. It is based on the same principle as FOB Free On Board. The goods are placed on board a ship by the seller at a port of shipment named in the sales contract. The risk of loss of or damage to the goods is transferred from the seller to the buyer when the goods pass the ship's rail. except that the seller fulfills its obligations when it delivers the goods into the custody of the carrier at the named point. If no precise point can be specified at the time of the contract of sale, the parties should refer to the place or range where the carrier should take the goods into his or her charge. The risk Conditions in which the decision maker has to estimate the likelihood of certain outcomes. of loss or damage to the goods is transferred from the seller to the buyer at that time the carrier takes possession of the goods. The term "Carrier" means any person by whom, or in whose name, a contract of carriage by road, rail, air, sea or a combination of modes has been made. When the seller has to furnish a bill of lading Document signed by a transportation company ("carrier") to show receipt of goods for transportation from and to the points indicated. , waybill or carrier's receipt, it does so by presenting such a document issued by a carrier.

FAS Free Along Side. Shipping terms in which the seller will deliver goods to a point within reach of the ship's loading equipment. The seller is responsible for the merchandise and all shipping costs to the vessel at the named port. Shipping terms That part of a contract of sale that specifies who, between the buyer and the seller, is responsible for each aspect of shipping the goods. in which the seller will deliver goods to a point within reach of the ship's loading equipment. The seller is responsible for the merchandise and all shipping costs to the vessel at the named port. Shipping term That part of a contract of sale that specifies who, between the buyer and the seller, is responsible for each aspect of shipping the goods. s in which the seller will deliver goods to a point within reach of the ship's loading equipment. The seller is responsible for the merchandise and all shipping costs to the vessel at the named port. (Free Along Side...named port of shipment)

The term FAS means that the seller fulfills its obligation to deliver when the goods have been placed alongside the vessel on the dock or quay at the named port of shipment. The buyer bears all costs and risks of loss or damage to the goods from that moment forward. FAS term requires the buyer to clear the goods for export.

FOB (Free on Board...named port of shipment)

The term FOB means the goods are placed on board a ship by the seller at a port of shipment named in the sales contract. The risk of loss of or damage to the goods is transferred from the seller to the buyer only when the goods pass over the ship's rail. The buyer pays all costs from that point forward, including freight and insurance. All risks from that point are borne by the buyer.

C&F or CFR (Cost & Freight…named point of destination)

The term C&F means that the seller must pay the costs and freight necessary to bring the goods to the named destination. However, the risk of loss of or damage to the goods as well as any cost increases is transferred from the seller to the buyer when the goods pass the ship's rail in the port of shipment. This term can only be used for sea and inland waterway. When the term "ship's rail" does not apply, such as with roll-on/roll-off traffic, then the term CPT is more appropriate. For air shipments, the term CPT should be used. However, in letter-of-credit usage, the C&F term is typically used for both sea and air shipments.

CIF Cost, insurance and freight. Shipping terms under which the seller pays all expenses involved in placing merchandise on board the carrier and prepays the freight and insures the goods to an agreed-upon destination. (Cost, Insurance and Freight...named port of destination)

The term CIF is basically the same as C&F but with the addition that the seller has to produce marine insurance against the risk of loss or damage to the goods in transit. The seller must contract with an insurer and pay the insurance premium. This term can only be used for sea and inland waterway. When the term "ship's rail" does not apply, such as with roll-on/roll-off traffic, then the term CIP is more appropriate. For air shipments, strictly speaking, the term CIP should be used. However, in letter of credit A financing instrument issued by a bank in favor of an exporter that substitutes the bank's creditworthiness for that of the importer. instrument A right to the payment of mone A medium of exchange; coined or stamped currency. y such as agency notes, commercial pape The unsecured promissory notes of large, financially sound corporations. r, T-Bills, certificates of deposit (CD's), banker's acceptances and repurchase agreements. issued by a bank in favor of an exporter that substitutes the bank's creditworthiness for that of the importer. exporter that substitutes the bank's creditworthiness for that of the importer. usage, the CIF term is typically used for both sea and air shipments.

CPT (Freight Carriage Paid To Shipping term included in a contract of sale (abbreviated as CPT) meaning that the seller agrees to arrange and pay for transportation of the goods to the named destination, such costs being included in the price of the goods. ...named place of destination)

Like CFR, CPT means that the seller pays the freight costs to deliver goods to the named destination. However, the risk of loss or damage to goods in transit, as well as of any cost increases is transferred from the seller to the buyer when the goods have been delivered to the custody of the first carrier and not at the ship's rail. CPT can be used for all modes of transport including multi-modal operations and container or roll-on/roll off traffic by trailers and ferries. When the seller has to furnish a bill of lading, waybill, or carrier's receipt, it fulfills this obligation by presenting such a document issued by a person whom it has contracted for carriage to the named destination.

CIP (Freight Carriage and Insurance Paid To Shipping term included in a contract of sale (abbreviated as CIP) meaning that the seller agrees to arrange and pay for transportation and cargo insurance over the goods to the named destination, such costs being included in the price of the goods. ...named place of destination)

The term CIP is the same as CPT but with the addition that the seller has to procure transport insurance against the risk of loss of or damage to the goods in transit. The seller contracts with the insurer and pays the insurance premium. CIF is used for goods carried by sea, while CIP is used irrespective of the mode of transport.

DAF (Delivered at Frontier...named place)

The term DAF is used typically when goods are being moved overland, and delivery of the goods will take place at the frontier of an adjoining country. The seller is responsible for getting the goods to the frontier, but before the customs National government authorities that control imports, inspect imports, and collect duties levied on both imports and exports border. The frontier must be clearly named. For example, goods being shipped from the U.S. to Mexico might have Laredo, Texas, named as the frontier. The shipper Indemnity given by the beneficiary of a letter of credit to the negotiating bank to induce payment despite any discrepancies that may exist in the documents. Compensation paid for damage or loss sustained or anticipated. given by the beneficiary of a letter of credit to the negotiating bank After the seller presents the required documents to this bank for review, it will notify the issuing bank that terms of letter of credit have been met. to induce payment despite any discrepancies that may exist in the documents. beneficiary of a letter of credit to the negotiating bank to induce payment despite any discrepancies that may exist in the documents. negotiating ban After the seller presents the required documents to this bank for review, it will notify the issuing bank Also known as the opening bank. It issues its commitment to the seller in the form of a letter of credit. opening ban The account party's bank that issues or opens the credit. k. It issues its commitment to the seller in the form of a letter of credit. that terms of letter of credit have been met. k to induce payment despite any discrepancies that may exist in the documents. is responsible for delivering the goods to Laredo, while the buyer is responsible for bringing the goods across the border into Mexico and clearing Mexican customs.

DES (Delivered Ex-Ship...named port of destination)

The term DES means that the seller shall make the goods available to the buyer on board the ship at the destination named in the sales contract. The seller has to bear the full cost and risk involved in bringing the goods there.

DEQ (Delivered Ex Quay [Duty A tax on imported goods imposed by customs authorities in a given country. Paid]...named port of destination)
DDU (Delivered Ex Quay [Duty Unpaid]...named place of destination)

The term "Ex Quay" means that the seller makes the goods available to the buyer on the quay (wharf) at the destination named on the sales contract. The seller bears the full cost and risk involved in doing so. There are two Ex Quay contracts in use: "DEQ Ex Quay (duty paid)" and "DDU Ex Quay (duty unpaid)" in which the obligation to clear the goods for import To bring goods into a country whose origin is in another country. The importer is usually the buyer or their agent. is done by the buyer instead of the seller. To avoid confusion, parties should always use the full description of these terms, namely Ex Quay (duty paid)" or "Ex Quay (duty unpaid)."

DDP (Delivered Duty Paid...named place of destination)

The term DDP means that the seller must arrange and pay for the costs (excluding insurance) of delivering the goods to an inland destination. While the term "Ex Works" signifies the seller's minimum obligation, the "Delivered Duty Paid ," when followed by the words naming the buyer's premises, denotes the seller's maximum obligation. The term "Delivered Duty Paid" may be used irrespective of the mode of transport.

Incoterms - Summary of Seller's and Buyer's Responsibilities

Edited by Michael Dennis. Mr. Dennis is the author of "Credit and Collection Handbook" available at www.aspenpublishers.com