One of the most important parts of the export process is to ensure that you and your customers understand their shipping and delivery responsibilities.
As with all business transactions the best way to do this is have them written down clearly on the commercial invoice.
To make this easier the International Chamber of Commerce has produced a set of internationally recognised three-letter terms known as Incoterms.
They are used across the globe to clearly define the obligation of cost, risk and responsibility of the transportation of goods between a buyer and seller.
They are super important and they’re what keeps the entire global supply chain moving by avoiding unnecessary confusion between a business and their customers.
When you are negotiating your contract with your customer you’ll need to think about, discuss and agree on the following:
- Where the goods will be delivered to
- Who is going to arrange transport
- Who is going to handle and pay for any insurance
- Who is going to handle the customs procedures
- Who is going to pay any taxes and duties on the goods
- Payments, how much, when payment will be due and in what currency (more on this in the GF Academy here [INSERT LINK to next article How do I get set up for export payments?]
Incoterms you should know about
The latest version of Incoterms came into effect in 2020 and includes 11 different terms and below is a brief explanation of the most commonly used ones.
- Ex Works (EXW) – the seller/exporter makes the goods available at the seller’s location.
- Free Carrier (FCA) – the seller/exporter is responsible for delivering the goods to a named carrier.
- Free Alongside Ship (FAS) – the seller/exporter agrees to place their goods alongside the ship at a named UK port. The buyer/customer bears all risk and costs from that point onwards.
- Free on Board (FOB) – the seller/exporter is responsible for all costs up until the goods are loaded at a named UK port.
- Cost and Freight (CFR) – the seller/exporter agrees to pay the costs to send the goods to an agreed port of destination.
- Cost, Insurance and Freight (CIF) – same as CFR however the seller must also obtain and pay for insurance through to door delivery.
- Carrier and Insurance Paid to (CIP) – the seller/exporter agrees to pay for the carriage and insurance of goods to a named destination point but then responsibility and risk passes once handed over to the first carrier.
- Delivered at Place Unloaded (DPU) – the seller/exporter arranges transportation and delivery of goods at a named destination. The seller is required to unload the goods but then customs clearance must be completed by the buyer.
9. Delivered Duty Paid (DDP) – the seller/exporter agrees all responsibility for delivering the goods to a named destination of the buyer and pays all costs in transporting the items to that place.
Still not sure what trade term you should be selling under, get in touch with the Global Freight team for some friendly expert advice on 01952 270699 or email sales@global-freight.co.uk.
