If you’re new to the world of import and export, then shipping products globally can be challenging for you. For both buyers and sellers to define their responsibilities, there are a total of 11 internationally followed rules. We call them incoterms.
Let’s understand 5 most common incoterms used in your cargo shipment needs.
5 Most Common Incoterms
Generally, the five incoterms are mostly used in logistics. These are:
1. Ex Works (ExW)
ExW puts greater responsibility and cost on you if you are a buyer. In this case, the seller’s job is to hand over the goods to the buyer. You will receive your goods at their store, exporting site, or manufacturing factory. After that, your time starts to deliver it to the final location.
If you are doing trade at the domestic level, it is easy for you to deliver your cargo to its final place. However, for international trade, you first have to deliver your cargo to the exporting location.
Then, you have to pay for its loading, customs, cargo handling, freight (air, ocean, rail, or road), unloading, and customs again. Subsequently, contact another delivery agent to deliver the cargo to your place.
2. Cost, Insurance, & Freight (CIF)
CIF applies when the goods are transported through ocean freight or inland waterways. According to it, it’s the seller’s duty to deliver the cargo to the destination port. The seller has to pay for moving cargo to the departure port, pay for loading, clear export tariffs, and bear the cost of sea freight. Moreover, cargo insurance is also covered by them.
Once the consignment reaches the destination port, the buyer will handle the rest. If you are a buyer, you have to pay for unloading and clearing import tariffs. After that, you have to deliver the shipment to the final location.
3. Delivered Duty Paid (DDP)
As a buyer, it is very beneficial for you to work under DDP Incoterm. You only need to give an order to the seller and wait for your shipment. The seller will do and pay for everything from loading to importing goods to another country and handling customs. He is responsible for delivering the cargo at your given location, not the entrance port.
However, you have to pay the higher cost for the products purchased. This incoterm will save you from the headache of shipping.
4. Free On Board (FOB)
Under FOB, the seller will pay for transferring cargo to the export site and load it on the vessel. He will also pay for export clearance. Afterward, all the rest will be on the buyer. He will pay the ocean freight and other logistic charges. Generally, it is economical for buyers.
There are basically two forms of this mode.
- FOB Origin: In this scenario, the more responsibility is on the shoulders of the buyer. As soon as the products leave the seller’s point, they are now in your possession and you will have to bear all the risks and prices associated with that shipment.
- FOB Destination: If you are doing FOB Destination, then the seller is the person who will take care of everything in a cargo from the point of departure to the point of buyer’s final delivery. He also pays for all the import and export duties. But in this method, the purchaser has to pay slightly more money.
5. Free Carrier (FCA)
The seller has to move the goods to the carrier’s place. The carrier is appointed by the buyer to receive the goods. When the cargo is reached to the carrier, the buyer will be paying all the next shipping costs.
In this case if you’re a seller, you should also pay for the taxes, clearing customs and export duties. Let’s see an easy example of FCA incoterm.
Suppose a person named Henrik is in China. He is selling roofing material to another man whose name is Shane and he is living in the USA. However, Shane has good business relations with another guy named Leizi in China who is a shipper.
Now, Henrik will transport that roofing material purchased by Shane to Leizi’s location and his job will end. The rest will be done by the shipper and the costs and other things to import these products to the United States will be managed by the buyer who is Shane in this case.
FAQs
How To Choose The Right Incoterm?
You have to consider various factors to choose the right incoterm for your business. These factors include the cost, type of cargo, and logistic responsibilities. The most important thing that decides the incoterm is the means of transportation you choose.
What Are The 11 Incoterms In Shipping?
The eleven incoterms are divided into 2 categories.
- 7 out of eleven incoterms are used for all means of transportation. These include Ex-Works (ExW), Free Carrier (FCA), Carriage Paid To (CPT), Delivered Duty Paid (DDP), Delivered at Place and Unloaded (DPU), Carriage And Insurance Paid To (CIP) and Delivered At Place (DAP).
- The remaining 4 incoterms are used in ocean shipping. These are Free Alongside Ship (FAS), Free On Board (FOB), Cost, Insurance And Freight (CIF) and Cost And Freight (CFR).
Conclusion
We hope now you have got a pretty good understanding of the top 5 most common incoterms applied in shipping products worldwide. In case you need any help in transporting your cargo from China to anywhere else, you can contact us directly. We have more than 10 years of freight forwarding experience.
