Shipping Essentials Archives | Unicargo

Incoterms in 2023

YanaiG — Mon, 21 Aug 2023 08:41:29 +0000

Introduction

The rights, obligations, expenses, and Risks related to shipping and delivering goods in international commerce transactions are defined by a set of rules known as Incoterms or International Commercial Terms. They provide a common language and framework for buyers and sellers to negotiate and agree upon the terms of their trade, making it transparent to all parties involved in their transactions. The International Chamber of Commerce is the publisher of Incoterms in 2023 (last updated in 2020), reflecting changes in global trade norms. They are widely used in contracts and provide clarity and consistency in determining various aspects of a transaction, including the point of delivery, transfer of risk, allocation of costs, and documentation requirements.

Incoterms 2023 specifies the following critical elements of a transaction:

Point of Transfer (transfer of Risk): They establish when the buyer assumes the risk and when the vendor has fulfilled their responsibility to deliver the products to the agreed location
Transport (Costs involved): They specify who is responsible for transportation costs, including insurance, and which party arranges for the main carriage of the goods.
Customs and documentation: They clarify the responsibilities of each party regarding export and import clearance procedures, as well as the provision of necessary documents.

Incoterms and their Meaning

There are several Incoterms in 2023, each represented by a three-letter code. The most recent update to the Incoterms was in 2020, and it is effective till date with the following terms:

1. EXW (Ex Works): The buyer is responsible for all transportation and risks after the seller makes the products available on their premises.

2. FCA (Free Carrier): The seller delivers the goods to a carrier or a nominated party specified by the buyer at a named place. The buyer assumes responsibility after the goods are delivered to the carrier, or the nominated party

3. CPT (Carriage Paid To): At a designated location, the seller delivers the items to the carrier or a nominated party established by the seller. The seller is responsible for the costs of transportation to the named destination, while risk has been transferred at origin port- to the buyer!

4. CIP (Carriage and Insurance Paid To): Similar to CPT, but the seller is also responsible for insuring the goods during transportation.

5. DAP (Delivered at Place): The seller delivers the goods to a named place, ready for unloading by the buyer. The seller is responsible for the risk until the products are prepared to be unloaded, while the buyer is resposnible for customs clearance.

6. DPU (Delivered at Place Unloaded): It’s the same as DAP, but includes unloading at buyer’s destination, on sellers’s costs and risk.

7. DDP (Delivered Duty Paid): The products are cleared for import and delivered by the vendor to the customer, ready for unloading.

8. FAS (Free Alongside Ship): The seller unloads the items alongside the vessel at the designated location at origin port. The buyer assumes responsibility once the goods are placed at the designated location. .

9. FOB (Free on Board): The seller delivers the goods on board the vessel at the named port of shipment. The buyer assumes responsibility once the goods are on the ship.

10. CFR (Cost and Freight): It’s the same as CPT, only for Ocean Freight, as the responsibility to the buyer is transferred onboard of the vessel.

11. CIF (Cost, Insurance, and Freight): Similar to CFR, the seller is also responsible for insuring the goods during transportation.

Buyers and sellers need to agree on the appropriate Incoterm to use for their transaction, as it defines each party’s respective obligations and costs.

Why are Incoterms Vital for International Trade?

Incoterms® in 2023 are vital in international trade for several reasons:

1. Clarity and Uniformity: Incoterms® provide a standardized set of terms and definitions that facilitate clear communication and understanding between buyers and sellers across different countries and legal systems. They make sure that both parties are aware of the expenses, risks, and obligations associated with the transaction.

2. Allocation of Costs and Risks: Incoterms® define which party (the buyer or the seller) is in charge of particular expenses, including shipping, insurance, customs duties, and taxes. They also decide when responsibility for the items passes from the seller to the buyer. Incoterms® assist in preventing misunderstandings, disagreements, and significant financial losses by precisely identifying these features.

3. International Legal Framework: Incoterms® in 2023 are recognized and accepted internationally. They provide a framework for resolving disputes related to the interpretation and application of trade terms. In the event of a disagreement or conflict, Incoterms® can be referenced to determine the intent and obligations of the parties involved.

4. Efficient Logistics and Supply Chain Management: Incoterms® aid in streamlining logistics and supply chain operations by precisely specifying the duties and obligations of each participant. They assist in determining the necessary documentation, such as commercial invoices, transport documents, and insurance certificates. This clarity and efficiency contribute to smoother transportation, customs clearance, and overall trade operations.

5. Risk Management and Insurance: Incoterms® play a crucial role in determining the point at which the responsibility in case of loss or damage to goods transfers from the seller to the buyer. This information is essential for both parties to arrange appropriate insurance coverage for the goods during transit.

6. International Trade Compliance: Incoterms® help ensure compliance with international trade regulations and customs requirements. They assist in determining the responsibilities and obligations related to export and import documentation, customs declarations, and other regulatory compliance measures.

Overall, Incoterms in 2023 provides:

A globally recognized framework for international trade.
Promoting clarity and efficiency.
Fair distribution of costs and risks between buyers and sellers.

Changes in Incoterms 2020

In the Incoterms® 2020 edition, there are several notable changes compared to the 2010 edition, which is effective today. These changes include:

Renaming of DAT to DPU: The term “Delivered at Terminal” (DAT) has been renamed to “Delivered at Place Unloaded” (DPU). This change reflects the flexibility of unloading the goods at a place other than a terminal, allowing for greater versatility in choosing the place of delivery.
FCA allowing for Bills of Lading after loading: In the previous edition, FCA required the seller to obtain a Bill of Lading before the goods were loaded onto the carrier. However, in the 2020 edition, FCA allows for issuing Bills of Lading after the goods have been loaded, providing more flexibility in the loading process.

The post Incoterms in 2023 appeared first on Unicargo.

What Is a Commercial Invoice and Packing List?

YanaiG — Sun, 21 May 2023 12:01:41 +0000

To allow your shipment to clear customs when it arrives in the USA, it needs to be accompanied by a properly completed commercial invoice and packing list.

What is a shipment’s commercial invoice?

Your shipment’s commercial invoice is part of the documentation you need to supply to make a customs declaration when importing goods to the USA. It shows the number of products you are shipping, as well as their value.

What is shown on a commercial invoice?

The name and address of the supplier or manufacturer of the goods.
The name and address of the company or individual who is buying the goods contained within the shipment, detailing whether or not this person is also the importer.
The name and address of the company or individual that the goods in the shipment are being sent to.
The shipment’s country of origin – where the goods in the shipment were manufactured.
The number of individual items of each different type of product in the shipment.
A short, detailed description of each product, which tells customs officers what the product is, what it is made from, and what it is used for or intended for. For instance, just describing a product as a child’s toy is not enough – a better description would be “plastic building brick toys for children aged 4-7.” The item’s SKU itself is not counted as a product description.
The value (per unit) of each product in the shipment. This information should be supplied in both US dollars, and the currency used by the initial supplier or originator. Every item in the shipment must have a stated value – so you cannot indicate a value of zero for the purposes of clearing customs. If you aren’t paying for the goods within the shipment for any reason, use the average market value for each product instead.

What is a shipment’s packing list?

A packing list is used as part of a customs declaration to document the number of items within your shipment, along with their dimensions and weight, and the number of cartons that the goods are shipped in.

Both the commercial invoice and the packing list make up an important part of your customs declaration, and it is important that the information used on each of these documents matches the other – for example, when it comes to the number of items of each type of product within the order.

If you aren’t quite sure how to create or fill in your packing list or commercial invoice, get in touch with us and we’ll help you out.

The post What Is a Commercial Invoice and Packing List? appeared first on Unicargo.

What Is the Difference Between FOB and EXW?

YanaiG — Sun, 21 May 2023 12:01:19 +0000

Introduction

When it comes to international trade and shipping, understanding the various terms and abbreviations used in contracts is crucial. FOB and EXW are two of the different Incoterms that can be used for international shipments. To decide whether FOB or EXW is the most appropriate Incoterm to use and to ensure that you understand what is covered by them, you first need to know the difference between FOB (Free On Board) and EXW(Ex Works) and what these terms mean.

If you use the FOB Incoterm, the seller or originator has to get your goods loaded onto your chosen ship before responsibility for the shipment passes to you. If you use the EXW Incoterm, all the seller or originator has to do is provide you with a pickup location, and make the goods available for you to collect, load and transport yourself.

FOB (Free On Board)

FOB stands for “Free on Board,” and this Incoterm makes the seller of the goods responsible for all associated costs and risks up until the point that the goods are loaded onto the ship. When the goods are then appropriated to the contract or clearly set aside or otherwise identified as the contract goods, the seller’s responsibilities end. The key characteristics of FOB include:

Risk and Cost Responsibility: With FOB, the seller is responsible for the goods and their associated costs (including transportation, insurance, and customs duties) until the goods are loaded onto the vessel or other specified mode of transportation at the named port of shipment. Once loaded, the responsibility and risk shift to the buyer.

Shipping Point: FOB is followed by the name of the port where the goods will be loaded.

Freight Charges: The buyer is responsible for arranging and paying for the transportation of the goods from the named port of shipment to their final destination.

This places the responsibility on the seller of the goods to get them onto the buyer’s ship in accordance with the departure port’s normal procedures, and to arrange clearance for export.

When that is done, responsibility for the shipment falls to the buyer – including the bill of lading fees, insurance, shipment and onward transport costs, export clearance, unloading, and everything else after that point.

EXW (Ex Works)

EXW stands for “Ex Works” and this Incoterm requires the originator or seller of the goods to make them available to their buyer at a named place – like the seller’s own warehouse or factory.

The buyer then has to arrange their collection and onwards transit. This Incoterm places the minimum responsibility on the seller of the goods, and the maximum responsibility on the buyer.

If you’re not sure which Incoterm is the most appropriate or cost-effective for you, let us know and we’ll provide you with the advice you need to make the right decision.

Choosing Between FOB and EXW

The choice between FOB and EXW depends on various factors, including your business goals, your familiarity with the supplier, and the nature of the goods being shipped. Here are some considerations to help you decide:

Buyer’s Experience: If you have a good understanding of the local shipping and logistics in the seller’s country, EXW may be a suitable option. However, if you are less experienced in international trade, FOB could provide more security and predictability.

Risk Tolerance: FOB places a significant portion of the risk on the seller until the goods are loaded on the vessel. If you want more control over the shipping process and are comfortable with taking on more risk, EXW might be preferable.

Cost Management: FOB often requires the seller to manage and pay for the logistics until the goods are loaded on the ship. If you want to have more control over shipping costs, EXW allows you to negotiate and manage transportation expenses directly.

Supplier Relationships: If you have a strong, established relationship with your supplier and trust their handling of the goods, you may be more inclined to choose EXW. FOB can be a better option if you are less certain about the supplier’s capabilities.

Conclusion

FOB and EXW(Ex works) are important international shipping terms that define the division of responsibilities and costs between buyers and sellers in international trade. Choosing between these terms should be based on your specific needs, risk tolerance, and familiarity with the supplier. Understanding the differences between FOB and EXW can help you make informed decisions and ensure a smoother international trade process.

The post What Is the Difference Between FOB and EXW? appeared first on Unicargo.

An Easy Guide to Incoterms

YanaiG — Sun, 21 May 2023 12:00:45 +0000

Incoterms are a set of internationally recognized agreements that determine who is responsible for the physical handling and payment of costs for a shipment of goods, right the way through from the seller or manufacturer’s premises to their buyer’s destination.

Each of the different Incoterms provides a framework that outlines whether the buyer or seller of a shipment is responsible for its handling and costs at each stage of the shipping process. This helps to avoid misunderstandings between people who may speak different languages, or have different local customs and working practices.

The word “Incoterms” stands for “International Commercial Terms,” and the Incoterms framework is managed and updated when necessary by the International Chamber of Commerce.

Knowing the meaning of each individual Incoterm is important for anyone importing or exporting goods internationally, and will enable you to compare the costs involved for shipments offered by different sellers and make the right choice.

The set of Incoterms in current use is called Incoterms 2010, and we’ll provide a short explanation of each of the eleven Incoterms that make up the Incoterms 2010 framework below.

EXW or Ex Works

EXW or “Ex Works” requires the originator or seller of the goods to make them available for collection by the buyer at a named place – usually the seller’s own premises, like a warehouse or factory.

The buyer is responsible for collecting the goods and arranging their onwards transit. This Incoterm places the minimum responsibility on the seller or originator, and the maximum responsibility on the buyer.

FCA or Free Carrier

FCA or “Free Carrier” requires the seller or originator of the goods to clear them for export and deliver them to a named place provided by the buyer.

If this named place is controlled by the seller, they are responsible for loading and unloading. If the named place is not controlled by the seller (such as the buyer’s own premises or another place of their choosing) loading and unloading is the responsibility of the buyer.

FAS or Free Alongside Ship

The FAS or “Free Alongside Ship” Incoterm applies to water shipments only. FAS makes the seller responsible for clearing the goods in the shipment for export and delivering them alongside of the buyer’s chosen ship at a named port.

As soon as delivery alongside has been completed, all responsibility passes to the buyer.

FOB or Free on Board

Like FAS, FOB or “Free on Board” applies to water shipments only. However, there is an exception to this in the USA (and certain other common law countries) that means that FOB can be applied to any method of inland transport, not just water freight.

This Incoterm makes the seller responsible for the risks and costs associated with every stage of the process up to and including loading the goods onto the ship. When the goods are “clearly set aside or otherwise identified as the contract goods” or “appropriated to the contract,” the seller’s responsibilities end, and pass over to the buyer.

CFR or Cost and Freight

CFR or “Cost and Freight” is another Incoterm that can be used for shipment by water. CFR places the responsibility for getting the shipment to its port of departure on the seller, as well as the cost of onward transport to its destination port.

However, while the cost of transport to the destination port falls to the seller, the risk passes to the buyer at the point that the goods have been loaded onto the ship – and the seller is not under obligation to insure the shipment.

CIF or Cost, Insurance and Freight

The CIF or “Cost, Insurance and Freight” Incoterm is very similar to CFR, with one exception – the seller or originator of the goods must insure the goods to their port of destination at 110% of their contract value.

CPT or Carriage Paid (To)

CPT or “Carriage Paid To” makes the seller or originator of the goods responsible for paying for their carriage (including customs clearance fees) to a named destination. However, as soon as the goods pass into the hands of the carrier, the risk for the shipment pass to the buyer.

CIP or Carriage and Insurance Paid (To)

CIP or “Carriage and Insurance Paid To” is similar to CPT, with the exception that the originator or seller must insure the goods for their journey at a rate of 110% of their contract value.

DAT or Delivered at Terminal

DAT or “Delivered at Terminal” makes the seller or originator responsible for delivering and unloading the goods at a named terminal. This includes covering all associated fees for transit, export, and everything else, as well as holding the risk.

After the goods are unloaded risk and responsibility falls to the buyer, including covering import duties and customs fees.

DAP or Delivered at Place

DAP or “Delivered at Place” places the risk and cost with the seller up until the point that they make the goods available to the buyer at their named destination. This includes covering any delay or demurrage charges.

The buyer then takes on the risk and responsibility for the shipment from the point of unloading onwards, including covering customs and import duties.

DDP or Delivered Duty Paid

DDP or “Delivered Duty Paid” makes the seller or originator responsible for delivering the goods and paying all associated costs (including taxes, customs fees, and shipping) to a named place in the buyer’s destination country.

Risk and responsibility only passes to the buyer once the goods are safely delivered to their destination.

Knowing which Incoterm to choose can be confusing if you’re new to the business. We can help you to decide on the best Incoterm to use for your shipments and advise you on comparing the costs and risks involved for each different option. Contact us now for advice and guidance.

The post An Easy Guide to Incoterms appeared first on Unicargo.