The exporter''s selling terms will define the point at which responsibility for transport and ancillary charges transfers to the buyer. These terms, which are detailed in INCOTERMS 2010, are accepted the world over as a record of buyer''s and seller''s responsibilities under a sales contract and are recognised by customs authorities and courts in the main trading nations, but they are not given statutory force by individual nations.
Historically, export terms such as ''Ex-works'', FOB, CIF and ''DDP have become widely known, and now, INCOTERMS 2010 is seventh revision of the terms and gives new clarity covering the precise point of handover between buyer and seller. INCOTERMS 2010 also removes ambiguity by defining who meets unloading and loading terminal handling charges of buyers and sellers and places less emphasis on the point at which goods pass over the ship''s rail than in the past by focusing on wider use of intermodal transport and the requirement to deliver at any point in the transport chain.
INCOTERMS 2010 has 11 different sales terms, each with a three- letter code, now in this latest revision divided into two groups: Those that relate to any mode of transport and those that apply to the sea freight mode only.
Rules for any mode or Modes of Transport:
EXW - Ex Works
The seller''s minimum obligations.Delivery by the seller is deemed to be when goods are placed at the buyer''s disposal (i.e. works or warehouse). Goods are not cleared for export and are not loaded onto any collecting vehicle. The buyer then incurs the costs and responsibilities in taking the goods from the seller.
FCA - Free Carrier
Seller delivers export cleared to carrier nominated by the buyer at the named place. If the seller''s premises are chosen then the seller is responsible for loading. If at any other place the seller is not responsible for unloading.
CPT - Carriage Paid to
Seller clears goods for export, delivers to buyer''s nominated carrier and pays the cost of carriage to named destination. Buyer bears all risks after delivery. If subsequent carriers are used the risk passes on delivery of goods to first carrier.
CIP - Carriage and Insurance Paid to
Seller clears goods for export and delivers to the nominated carrier, paying the costs to bring the goods to the named destination. Seller also obtains and pays for insurance against the buyer''s risk of loss or damage to cargo during carriage on minimum cover. Risk passes when goods delivered to first carrier. Buyer bears all additional costs and risks after goods are delivered.
DAT - Delivered at Terminal
The seller delivers the goods to the named terminal and unloads them from the arriving means of transport placing them at the disposal of the buyer at the port or other agreed place of destination. The seller bears all the risks in bringing the goods to and unloading them at the named terminal
DAP - Delivered at Place
The seller delivers when the goods are placed at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination. The seller bearing all risks to this point.
DDP - Delivered Duty Paid
Seller''s maximum obligation involving delivery of goods to the buyer, all costs and risks in bringing the goods to that point, cleared for import and paying duties, but not unloaded from arriving means of transport at place of destination. Contract of sale to state if the seller is to excused from any costs payable in connection with import. Not to be used if the seller is unable to obtain the import license.
Rules for Sea Freight Shipments only
FAS - Free Alongside Ship
Delivery is deemed to have taken place when goods are placed alongside the ship or inland waterway vessel at the named port of shipment. Seller clears goods for export. Thereafter the buyer incurs all cost and risk.
FOB - Free on Board
The seller delivers the goods on board the vessel nominated by the buyer at the named fort of shipment. The risk passes to the buyer when the goods are loaded on board the vessel and the buyer bears all cost from that moment onwards.
CFR - Cost and Freight
Seller clears goods for export, delivers to nominated carrier and pays costs and freight to bring them to the named port of destination. Seller delivers when goods pass the ship''s rail. Risk and additional costs pass to buyer after time of delivery.
CIF - Cost Insurance and Freight
As ''CFR'' above, with the additional obligation that the seller is required to obtain and pay for minimum cover marine insurance for goods during carriage.
The choice of terms will have an impact on the organisation especially if they are frequent traders. Selling using a delivered price (or buying FOB) implies some means of directly managing their supply chain. ''The issue rests on the quality of management maintained in their international distribution function and may require in-house specialists to support this. This might question the role and positioning of international distribution in the organisation. This is often satisfied by positioning this responsibility in marketing/ customer service (or latterly production/procurement) but may lead to the establishment of an expanded logistics role. Another consequence of choice will be the involvement of financing - usually embracing collection (e.g. letters of credit) and insurance.
Inevitably, expertise lies with a specialist or general forwarder and there is a tendency to duplicate this skill both in-house and in the third party provider. Historically traders have used their own knowledge to set-up carrying businesses in their own right or had sufficient business to justify a separate company serving a group. However, the current fashion for core business focus is encouraging organisations to review the aspect of outsourcing and many of them are using forwarders to take over all aspects of shipping (and in some cases customer service) management.