sign in sign up
<<
Home , Incoterms

IT-3 TRANSPORTING GOODS INTERNATIONALLY. INCOTERMS.

INTRODUCTION is needed to carry raw materials, semi-finished and finished goods from suppliers to customers, and to carry employees to places of work. An efficient transport system can increase the standard of living of many people because it can, for example, allow countries to obtain the benefits of specialization.

When a firm has to decide which form of transport to use to carry goods, it should consider, for example whether the goods are bulky, heavy, expensive, fragile, perishable or urgent. The quantity of goods to be carried, their destination and the cost of transport must also be taken into account.

Road transport is particularly suitable for short distances and for part deliveries which can involve own fleet operations. Rail is more suitable for bulk cargoes carried over longer distances. Road and rail are forms of inland transport, while sea and air are mainly used for overseas deliveries.

There are many types of specialist vessels used in sea transport such as liners, tramps and bulk carriers, and these are used for non-urgent deliveries. Air is used for items which need to be delivered quickly or which need particular protection from theft or damage. Other features of transport include pipelines for carrying, oil and gas and, containers.

Importers and exporters seek for the successful movement of goods. The delivery terms are a key part in any price quotation and importers should look for the mode of transport, speed of delivery, reliability and overall costs that best meet their needs.

Transport modes are Road, Rail, Sea, Air and any freight movement that involves the use of more than one mode.

Methods of By Sea By Air By Rail By Road transport Advantages -Good for very -Very fast. -Fast -Door to door. long -Fairly fast distances. over land. -Inexpensive. -Not -Cost is expensive calculated by volume. Disadvantages -Slow. -Expensive -Fairly -Accidents -Goods must -Goods must expensive. and theft be taken to be taken to - Goods must more and from port and from be taken to common. airport. and from -Delays at station. frontiers

1 outside EU. Main - -Air - -Consignment Transport note and Note and SAD Document Single for Customs. Administrative Document (SAD) for Customs. Typical goods -Most things. -Ideal for -Ideal for -Most things carried perishable large except ve ry items, such quantities of large as food, and heavy goods. quantities and goods of high oversize value. goods.

INCOTERMS

International trade terms, international commercial terms and international shipping terms are some of the titles used interchangeably in international commercial transactions involving transportation and trade logistics. These terms generally describe buyer and seller rights and duties in international transportation documents, practice and procedure.

International trade industry officials organized under the International Chamber of Commerce (ICC) was founded in 1919. One of the missions of the ICC has been to increase efficiencies in international trade transactions by standardizing international trade terms to reduce confusion among contracting parties.

The 2010 revision introduces two new terms: Delivered at Terminal (DAT) and Delivered at Place (DAP). It eliminates the DAF, DES, DEQ and DDU designations.

For both new terms – Delivery at Place (DAP) and Delivery at Terminal (DAT) – delivery takes place at a named destination. With DAP, delivery takes place when the goods have been placed at the buyer’s disposal and are ready for unloading, while with DAT, delivery occurs when the goods have been placed at the buyer’s disposal, unloaded and at a terminal (port, warehouse, station)

The modes of transport are divided into two groups, namely Rules for Any Mode of Transport – which includes Ex Works (EXW), Free Carrier (FCA), Carriage Paid To (CPT), Carriage and Paid To (CIP), Delivered at Terminal (DAT), Delivered at Place (DAP), and Delivery Duty Paid (DDP) – and Rules for Sea and Inland Waterway Transport, which includes Free Alongside Ship (FAS), Free on Board (FOB), Cost and Freight (CFR), and Cost, Insurance and Freight (CIF).

Although Incoterms were traditionally used in international of sale, they had to take into account the proliferation of trade blocs. As a

2 consequence, Incoterms now also have national application, as the subtitle, ICC Rules for the Use of Domestic and International Trade Terms indicates.

With reference to terminal handling charges (THC) – under terms CPT, CIP, CFR, CIF, DAP, and DDP – the seller must make arrangements for the carriage of the goods to the agreed destination. It is possible that the THC could become payable twice – as a consequence, the Incoterms 2010 rules clearly allocate the costs.

EXW = EX WORKS It refers to the days when places of business were known as “Works”. It means that the goods are available at your location for the buyer to pick up and transport. As exporter you are expected to have the goods packed and suitable for shipping, probably on a shipping pallet, banded and labelled, available for pickup at the time agreed.

FCA = FREE CARRIER As exporter you add to your responsibilities of preparing the goods, loading them on board the truck or other carrier that the customer sends to make the pickup. As importer your final price will be increased.

FAS= FREE ALONGSIDE SHIP If as customer you have made arrangements for ocean shipment of your goods but would like the seller to transport them to the port, you will be charged extra for that service. If the goods are damaged during their way to the port you -exporter- are responsible for the extra cost as they are your goods until they are received at the port by an agent or representative of the importer.

FOB= FREE ON BOARD When your customer requests that you make the actual arrangements for shipping by ocean it will entail more responsibility and your price will be higher. You have to pay for two new expenses: the terminal receiving charges (or wharfage) for loading the goods on board the vessel and, the ’s bill. It is crucial that you protect yourself from surprises by getting the written quotation of estimated charges from a freight forwarder before you prepare the quotation for your customer in the FOB terms.

CFR=COST AND FREIGHT If your customer requests the ocean freight included in the quotation you must follow the steps already mentioned in the previous Incoterms and also pay for that. You, as exporter, are now undertaking to pay the ocean freight on a “ Prepaid” basis rather than shipping “ Ocean Freight Collect”.

CIF= COST, INSURANCE AND FREIGHT Essentially this is the same as CFR except that you (exporter) are taking out a policy. As an importer you should avoid accepting a CIF quotation, the exporter is arranging the freight including insurance, but as

3 buyer you are ultimately paying for it. When asking for a pro-forma, ask for the weight and dimensions as well. This enables you to go to your freight forwarder and enquire about freight rates yourself.

CPT= CARRIAGE PAID TO Freight paid to inland point of destination. CIP= CARRIAGE AND INSURANCE PAID TO Freight and insurance paid to inland point of destination. DDP= DELIVERED DUTY PAID Named place of destination including duty at Customs.

MEANS OF TRANSPORT: INTERNATIONAL ROAD TRANSPORT Road transport to and from the UK with Continental Europe, the Middle East and North Africa has increased with The Channel Tunnel. The ro/ro between Europe and Africa and other destinations have also enabled sea crossings to undertaken without any serious hold-ups. The Ro/Ro refers to the roll on /roll off capability of containerized cargo, which is the foundation of Intermodalism. The concept makes use of the most efficient and cost- effective methods to move goods.

There are two means of international transport, driver-accompanied operations and unaccompanied ones. The second usually involves a tractor and a trailer. They are generally cheaper than accompanied services as there is no tractor to take up shipping space and no driver to transport. However, the goods may suffer damage during movement between transport modes and there is a risk of pilferage.

INTERNATIONAL RAIL TRANSPORT Europe and UK are linked by the Tunnel, in Spain the links are Barcelona and Valencia. The movement of international shipments via container using sequential transportation methods is the system of the future; Intermodal operations consist of combining different methods of transport to carry the goods from their place of origin to destination. This method of transport is a consequence of improvements in technology and the use of containers, which eases the process of loading and unloading different ways of transport and avoids delays with customs procedures.

The increasing development of multimodal transport is due to the large terminals built at ports linking production and consumption centres by motorways and rail stations.

Intermodal operators are in charge of buying and selling container space and providing a door to door service to their final customer either manufacturer or shipper.

INTERNATIONAL AIR TRANSPORT Air freight plays an important part in the movement of perishable goods as flowers and soft fruit as well as for light, compact, high value goods. Spare Parts which are required urgently may also be transported by air.

4

The main advantages are the savings on stock levels, reduction of transit times, and the speed and safety of goods. On the other hand, airfreight rates are nearly always higher than shipping rates and you should also consider the size and weight of the cargoes.

The document required for air transport is the Air Waybill, it is not negotiable and that means it is not a document of title and cannot be transferred or negotiated. The number of copies prepared is 12, the first 3 are known as originals.

Air usually contain most or all of the following:

1.- Date and place of execution. 2.- Departure and destination airports by name. 3.- , and first carrier’s name, address and account numbers. 4.- Description of the goods. 5.- Number of packages with the dimensions, weight and markings for each one. 6.- Freight charge details. 7.- Declared values of goods and carriage for customs purposes. 8.- Date of flight and other flight details including those for any additional carrier. 9.- Signature of the shipper, ex. The exporter or his agent. 10.- Signature of the carrier (airline) or his agent.

INTERNATIONAL OCEAN FREIGHT The largest volume of international cargo, by far, is moved by ocean freight. Other than the ability to handle huge weights and volumes, the only advantage is cost, but that is a huge advantage. Steamship services are either scheduled, non-scheduled, or charter. Nonscheduled lines are usually cheaper but less reliable.

The world’s merchant ships include the general cargo ships, the specialised and the ships. General cargo ships are vessels that carry a variety of , they are also known as tramps and do not follow fixed routes.

Specialised vessels are used for carrying one kind of cargo such as oil or bananas, or iron and known as bulk cargo, bulk carriers or tankers.

The passenger ships can either be liners which follow regular and specific routes or cargo boats and holiday cruises with accommodation for and routes prepared in advance, respectively.

CHARTERED VESSELS AND CONFERENCES Chartered vessels do not follow fixed routes but go wherever they are needed. When companies apply for a chartered vessel both shipowners’

5 broker and charterers’ agent negotiate the price and the terms of the charter. The final price and terms depend on the market. If there are a lot of ships and few charterers the price will be low. If there is a big demand for ships and not many ships available the price will be higher. The signed is called a Charter Party.

Many chartered ships do not visit their owners’ countries, but their owners receive money for their services in distant waters. Most ships chartered are tankers and other bulk carriers.

Cargo liner companies run regular services on fixed routes all over the world. They are called Conferences because they hold meetings to agree to routes, timetables and freight rates. They also have to decide on the right prices to charge exporters for sending their goods by sea (freight rates).

Most shipowners provide transport services to exporters and importers. But some traders, notably the oil companies, have their own ships for carrying their goods. Another shipowner is the state. Several countries such as and Italy have government-owned shipping services which compete against the conference and general cargo carriers. There are general cargo rates, specific commodity rates, and container rates. The general rates are usually quite high, but fortunately there are specific commodity rates for most kinds of cargo.

PARTIES INVOLVED IN THE OCEAN FREIGHT Propietario del buque shipowner Owner of the ship although he does not deal with the transaction.

Armador, naviero o Shipowner or carrier Person who deals with the portador transaction hired by the exporter.

Fletador Charterer Person who hires the transport in a vessel.

Capitán Master, shipmaster Person in charge of the vessel.

Cargador Shipper In charge of handling the goods to the charterer or carrier in the port of loading.

Consignatario de buques Ship’s agent Represents the shipowner and is in charge of the vessel requirements in the port.

Consignatario de carga o Consignee or receiver Person to whom the goods receptor are handled on destination.

6 Corredores de buques y Shipbrokers or In charge of contracts corredores de cargas. cargobrokers between shipowner and charterer.

Estibadores, contratistas In charge of loading and de carga y descarga unloading at ports.

Transitarios Forwarders Coordinate multimodal . Organise and deal with insurance and documentation at customs.

FREIGHT DOCUMENTS The BILL OF LADING (B/L) relates to the between the shipper and the shipowner. It is the most important document in shipping because it is a document of title, i.e. it gives ownership of the goods to the person named on it. If the words To order are written on it, this means that it is a negotiable document and can be traded. In this case it will be endorsed on the back (the exporter will sign it) and if the endorsement is blank, it means there will be no restrictions to ownership.

A shipped B/L means that the goods have been loaded on the ship. Sometimes the words Shipped on board are used and mean the same. In CIF and CFR transactions the words Freight prepaid are used meaning that the cost of shipping have been paid; if, on the other hand, the words Freight collect or freight payable are used, it means that the costs will be paid at destination. Bills are also marked clean to indicate that the goods were taken on board in good condition, or dirty/clause/foul to indicate that on inspection, there was something wrong with the consignment, e.g. packing, damaged goods, etc.

Three copies are prepared, one for the exporter, one for the importer and one for the shipping company; all of them are known as originals.

Bills of Lading usually contain most or all of the following:

1.- Name of shipper, usually the exporter or his agent. 2.- Name of the ship. 3.- Complete description of the goods including package number, contents, dimensions, gross weight and package markings. 4.- Marks and numbers with the goods to which they relate. 5.- Shipping port. 6.- Discharge port. 7.- Details of freight charges and when and where they are to be paid. 8.- Consignee’s name. 9.- Contract of carriage terms. 10.- date goods received for shipment and date loaded on the ship. 11.- Name and address of the person to be notified about the arrival of the ship at the port of destination. This is usually the importer and/or his agent.

7 12.- Number of B/L relating to the consignment signed by the ship’s master or his agent as the for the goods. 13.- Signature of the ship’s master or his agent.

The PACKING LIST is a simple document that shows how many boxes there are in a shipment, how to identify each, and what is in each. If a box is missing, one can determine from the packing list which one it is and it contains. This document itemizes your product material indicating the weights, measures and numbers of each package and how it is carried.; i.e. box, crate, drum, etc. It should be duplicated in the language of your foreign destination. From it, your buyer should be able to determine the total shipping weight and volume and the contents of your cargo. It should include shipping marks and references of the shipper and buyer and must refer to the letter of credit, if applicable. Everything on it must conform to the conditions of sale.

If the exporter is responsible for insuring the shipment, he or she will fill out an insurance request and obtain an INSURANCE CERTIFICATE . If you export c.i.f. under a letter of credit, the insurance certificate will have to be included in the package of documents you present to the bank for payment. It is a negotiable instrument upon signature and certifies the amount of insurance coverage provided on the shipped goods.

PACKING AND LABELLING Breakage, theft, and moisture damage are constant worries exporters face when shipping goods overseas. Goods travel long distances and are susceptible to frequent transfers along their journey. Importers must take care to ensure that their suppliers correctly pack and label any goods so that they are delivered without any problems arising from package failures or misleading labelling. Packages must protect a product from external damage, mishandling and the weather. The package must also be capable of being lifted, stacked or moved either with other packages or alone. It may have to withstand being fork-lifted on a pallet, hoisted on a ship or manhandled. Packaging is not only the covering under which goods are protected but also the whole process of conditioning and protection. It can seriously affect the cost so it is important to check with the supplier the use of unnecessarily expensive packaging materials and, while being secure, can be assembled and opened reasonably quickly. Packages, especially outer packaging, should help to limit pilfering attempts. A package also may be required to have a resale value or be suitable for recycling.

The packing materials you select will depend on the size, shape, weight, fragility, and contents of the product; whether the product will ship by air or sea; and the time, conditions and inland transportation at destination.

Until a few decades ago, most products moved overseas in individual boxes or barrels. This was known as Break Bulk Shipping.

8 When several boxes are put together to make one unit, perhaps with steel straps or plastic shrink-wrap, you are dealing with Unitized Cargo. Because units can easily become too large and heavy to handle easily, they are often put on wooden platforms made so that forklift trucks can pick them up. These platforms are Pallets and the cargo is said to be Palletized.

The revolution in export packing came with containerization . A container is a large metal box that can be loaded with cargo. There are various sizes but the most common for shipment are 20s and 40s. A typical 40 is 8 feet wide, 8 1/2 feet high, and 40 feet long.

Export shippers can own or rent containers or can use “boxes” that belong to steamship companies. A container is cleaned and checked for soundness (no water leaks, etc) packed, locked, sealed and sent to its destination.

There are specialized types of containers, the most common of which is the Reefer , or refrigerated container, especially for carrying fresh produce. Containers are also used for airfreight.

AFTER YOU PACK IT, MARK IT Incorrect or illegible labelling could mean delay, loss of sale, penalties or fines. Customs regulations regarding labelling are strictly enforced, so careful and detailed attention to labelling packages is essential.

Labelling must be specific to satisfy shipping regulations, assure proper handling, conceal content identity, and help the receiver identify shipment. There are several kinds of marks, usually printed or stencilled on boxes in black and with waterproof ink. Shipping boxes are usually marked “ Made in ”. They also give the gross and net weight and outside dimensions in both metric and English systems. If there is more than one box, each one is numbered . Often a box bears the exporter’s and importer’s name, address, and order number.

For cargo that is especially subject to pilferage (cameras, watches) there is a system of Blind Marks .

There are also Cautionary Marks on shipping boxes. Perhaps the most common are: “Handle with care”, “Glass”, “Use no Hooks”, “This side up”, “Fragile”, “Keep Dry”, “Open Here”. Finally there is an even more extensive set of Symbols for marking boxes that contain hazardous materials: explosive, flammable, water-reactive, radioactive, poisonous, corrosive.

9