International trade transaction comprises specific commonly used freight terms to ease the process of going business. As we know, import or export transactions essentially require paperwork or documentation, so that the flow of information can be shared among the related parties smoothly. In fact, it is the transfer of vital information among the related agencies in advance with help of the internet and EDI that makes trade transactions convenient. Accordingly, there is a set of popular international freight terms or words that smoothens and standardizes trade across the world.
Such commonly used freight terms are known as INCOTERMS (International Commercial Terms) published by the International Chamber of Commerce. INCOTERMS is a specific set of standard terms of trade that denotes the rights and obligations of the agencies involved in the exchange. Shipping and trade industry uses several terms during the trade that you can check here. Further, INCOTERMS are divided into four sub-categories namely E, F, C and D. Let’s understand the meaning of commonly used freight terms for an international trade transaction.
This term occurs when goods are ready for departure from the facilities after the seller has fulfilled his or her responsibility. It consists of only one INCOTERMS namely,
It is evaluated as the most basic and simplest shipment arrangements requiring minimum responsibility on the seller, whereas the buyer’s responsibility is considerably greater.
It contains FCA, FAS, and FOB terms. In this category, the seller is entitled to pay for the prior carriage cost at the initial point and the primary carriage along with the destination expenses are borne by the buyer.
FCA (Free Carrier)
In this transaction, the seller is primarily responsible for the arrangement of transportation to the buyers. When delivery is accomplished on a predetermined port, transportation, unloading charges as well as insurance will be borne by the buyer.
FAS (Free Alongside Ship)
After the seller completes the explorer formalities and delivers the shipment, all the risks and costs of insurance and transportation switched to the buyer.
FOB (Free on Board)
It is the most commonly used term. The responsibility of inland transportation, export clearance, delivery of cargo on the ship will be borne by the seller. Once onboard the vessel, all the risks and responsibilities shift to the buyer side, who pays the insurance, transportation and destination charges.
Under this category, the terms deal with shipments where the seller gives money for shipping.
CFR (Cost and Freight)
The seller pays the cost of transportation from the origin to the destination port. The risk and insurance are on the buyer side the moment the seller delivers the goods on board.
CPT (Carriage Paid To)
The seller bears the transportation expense. Insurance and risk go to the buyer’s wallet the monument cargo left the board or during the transit period.
CIP (Carriage and Insurance Paid To)
Similar to CPT, the seller pays the transportation cost along with buying cargo insurance. Only the risk passes to the buyer after the seller delivers cargo.
CIF (Cost, Insurance, and Freight)
The seller bears the transportation and insurance cost, but risk shifts to the buyer’s side as soon as the goods are delivered on the ship.
In this group, terms cover the shipments, when the goods arrive at a particular point and the seller is responsible till the cargo is delivered properly.
DAF (Delivered at Frontier)
Until the cargo is delivered to the entry point of destination, the seller is accountable. After that responsibility and risk are transferred to the buyer.
DES (Delivered Ex Ship)
In this transaction, the seller’s responsibility exists until the cargo reaches the destination port. After delivery, the buyer is responsible for onwards.
DEQ (Delivered Ex Quay)
Seller takes the accountability to deliver goods, import clearance, and customs duty. The buyer only needs to arrange for customs clearance.
DDU (Delivered Duty Unpaid)
The responsibility of the seller to deliver cargo to the destination. Afterwards, the buyer is responsible for import clearance, duties and further delivery.
The seller is responsible until the goods reach the destination. Customs clearance and duties paid and deliver goods at the buyer’s dockyard.
These are the most commonly used freight terms that help in the smooth flow of international trade. They specify the accountability of the seller and buyer by defining the various costs and transactional aspects related to customs duties, carriages, trade guidelines, insurance, etc.