CIF (Cost, Insurance, and Freight) This Incoterm is different from CFR because it stipulates that the seller is responsible for the cost of insuring the goods when they are in transit. ARE THE RULES EASY TO USE? “Incoterms are a specialized body of knowledge,” says Andy Dyer, president of transportation management for AFS Logistics. “The buyer and seller must agree to the terms, so if either party does not have the same interpretation of the rules, there can be con icts.” Another factor that adds to the complexity of using Incoterms is that the sales contracting process typically involves different parties within a company than the ones who will be responsible for abiding by the terms. No one is required to use Incoterms and some companies choose not to do so. In that scenario, “It’s all good until it isn’t,” says Radhika Mulastanam, director of international services for AFS. Many aspects of global shipping can go awry, including not having adequate labor at the port for loading and unloading cargo, late deliveries by transportation providers, or even damage to the cargo or vessel in transit. “That is why it is important to have terms in place to navigate unexpected issues or con icts,” says Dyer.
DPU (Delivery at Place Unloaded) When cargo arrives at its destination, the seller is responsible for providing resources to unload goods for the buyer. Once all the goods have been unloaded, the buyer is responsible for import duties, taxes, and customs clearance fees. DDP (Delivery Duty Paid) This Incoterm makes the seller responsible for delivering the goods to the buyer. The seller is also responsible for delivering the goods to the port or shipping terminal, overseeing the goods being unloaded, paying export fees and international shipping fees at the port of origin, and ensuring the goods are cleared through customs when they arrive at the destination port. The seller pays import and customs clearance fees, delivers the goods, and is responsible for all risks involved in the transaction to this point. FAS (Free Alongside Ship) The seller is responsible for all charges and risks associated with transporting the goods from their location to the ship’s loading bay. After delivery, the buyer is responsible for the risk, cost of loading the goods, and essentially everything else associated with the shipment. FOB (Free on Board) The seller is responsible for all risks and costs associated with transporting the goods from their location to the shipping terminal. The seller also must make sure the goods are loaded onto the ship as well as handle export clearances and associated costs. CFR (Cost and Freight) This Incoterm states that the seller takes responsibility for all risks and costs of transporting the goods to the international carrier, arranging for the goods to be loaded, and acquiring and paying for export clearances. The seller is also responsible for the cost of transporting the goods to the buyer’s destination port. Responsibility only transfers to the buyer once the goods arrive at their port of destination.
HOW INCOTERMS IMPACT SHIPPING COSTS When choosing Incoterms for a contract, an old adage holds true: You get what you negotiated. For example, buying goods under the Ex-Works or (EXW) rule or the Delivered at Place Unloaded (DPU) can result in very different costs for the buyer and seller. Another aspect that is important for sellers and buyers to analyze is the distribution of transportation costs and duties to be performed, like loading, unloading, and packaging of goods. The combined cost of trucking, ocean, and rail can have a signi cant impact on the overall cost of the cargo being transported. While a seller or buyer may pay less for an international shipment based on the allocation of transportation costs, deciding which party is best prepared to organize fast, safe, and cost-ef cient transportation can have impacts beyond cost savings. The goal is that the product being shipped globally reaches the end consumer on time and is undamaged. Rules can provide a framework, but not the expertise to select the best providers to ensure cargo gets to the port of origin and is ready to be processed at the destination port.
Incoterms rules hold universal meaning for buyers and sellers around the world, and facilitate trillions of dollars in global trade each year.
48 Inbound Logistics • March 2023
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