Freight Matters Canada Incoterms

Second Review Business Analysts

Copyright©2009Second Review Business AnalystsSept.15 2009

INCOTERMS

A FREIGHT MATTERS CANADA EXCERPT



INCOTERMS



•Incoterms Introduction

•Ex Works , FCA & FOB

•CIF, CFR, CPT

•DDU, DDP

•Incoterms for Special Loads

•Incoterms Wall Chart

INCOTERMS Index



INCOTERMSIntroduction

Trade Terms are key elements of international contracts of sale. They tell the parties what to do with respect to carriage of the goods from buyer to seller, and export & import clearance.

They also explain the division of costs and risks between the parties. It is highly recommended that Sellers and Buyers understand the meaning of the shipping terms.



INCOTERMSIntroduction

USA/Canada transactions tend to be either Ex Works (Freight paid by buyer) , DDU (Freight paid by shipper to Door excluding Clearance, Duty and Tax) or DDP (Freight paid by shipper including Clearance and Duty but not Tax)

Asian transactions tend to be FOB port and European transactions gravitate towards Ex Works, CIF, DDU and DDP.

Australasian /South American transactions will tend towards Ex Works, FOB, FCA, CIF, DDU, DDP



INCOTERMS/ EXW, FCA, FOB

The most common are:

EXW – EX WORKSThe seller places the goods at the disposal of the buyer. Normally all costs occurring from the sellers loading platform are for the account of the buyer, who is responsible for selecting the carrier, mode of transport, carriage, insurance, export and import clearance and all other risks and costs, after the goods have crossed the exporters dock. Read article on Selling Ex Works:

FCA -FREE CARRIER (…NAMED PLACE): The seller delivers the goods, cleared for export, to the carrier nominated by the buyer at the named place and assumes the cost. Normally, the named place is a port, terminal or hub .

FOB- FREE ON BOARD (…NAMED PLACE)- The goods are delivered by the seller to the port or airport . All fees and risks up to the

point of passing the ship’s rail, or on board any other conveyance is for the exporter including export clearance, port/terminal/airline fees, security, Advance manifesting, documentation, packing, and carriage to the named place.

- The term FOB is not sensible if there is no named place. Again, it’s recommended that a port/airport/inland terminal or hub is this named place.

Link to Selling Ex Works Article



INCOTERMS – CIF/CFR/CPT

CIF – COST, INSURANCE AND FREIGHT (…NAMED PLACE/PORT)Transfer of risk and costs are when the seller ensure the goods are passing the ship’s rail (for sea freight) or cross the unloading point at the airport/terminal at destination. The seller pays and is responsible for all costs, export clearance, carrier selection, documentation, freight and surcharges to the named place, but does not assume responsibility for arrival charges, or any other fee after the cargo has touched ground at the named place. Insurance is part of the sellers obligation, and they are required to have the appropriate cargo policy in place.

CFR – COST AND FREIGHT (..NAMED PLACE /PORT)Transfer of risk and costs are when the seller ensure the goods are passing the ship’s rail (for sea freight) or cross the unloading point at the airport/terminal at destination. The seller pays and is responsible for all costs, export clearance, carrier selection, documentation, freight and surcharges to the named place, but does not assume responsibility for arrival charges, or any other fee after the cargo has touched ground at the named place. Insurance is NOT part of the sellers obligation.

CPT - CARRIAGE PAID TO (…NAMED PLACE/PORT)The seller has only to ensure that the goods are delivered to the name place. The Risks and costs are of course for the seller as is the responsibility for the export clearance up to that named place. In some cases, this is debatable dependant on the agreement between the two parties. The buyer therefore assumes all costs and responsibility for documentation, port fees, security, manifesting from that place onwards.



INCOTERMS – DDU, DDP

DDU –DELIVERED DUTY UNPAIDThe seller delivers the goods to the buyer, not cleared for import, and not unloaded from arriving means of transport at the named place of destination. The seller bears all costs and risks involved in bringing the goods to the named place other than “duty” (which includes the responsibility for customs formalities and payment of those formalities, duties and taxes) for import into the country of destination. The buyer is responsible for payment of all customs, duties and taxes.

DDP – DELIVERED DUTY PAIDUse this term when there is maximum obligation to the seller, however if the seller is unable to obtain the import license, DDP would not be appropriate since the seller would be unable to carry out their obligation.

• Similar to DDU except that the seller also will bear all costs and risks and responsibilities of carrying out customs formalities, the payment of duties, and customs fees.

• Value added taxes, such as the European VAT and Canadian GST would still be for the account of the buyer, unless the seller elects to pay for these upfront and includes these taxes in their cost price.

The buyer in this case does not want involvement in the carriage and/or Customs clearance at destination.

Link to Selling DDP to Canada



INCOTERMS for Special Loads

DAF – DELIVERED AT FRONTIER (…NAMED PLACE):• This term means that the seller delivers when the goods are placed at the disposal of the buyer on the

arriving means of transport not unloaded, cleared for export but not cleared for import, at the named point and place at the frontier – but before the customs border of the adjoining country. To be used when delivering to a land frontier.

• DES – DELIVERED EX SHIP (…NAMED PORT OF DESTINATION):Seller delivers when goods are placed at the disposal of the buyer on board the ship, not cleared for import at the named port of destination. The seller bears all costs and risks in bringing the goods to the named port before discharging. This term can only be used when the goods are to be delivered by sea.

• DEQ – DELIVERED EX QUAY (…NAMED PORT OF DESTINATION):This term is the same as DES with the exception that the seller is responsible to place the goods at the disposal of the buyer, not cleared for import, on the quay (wharf) at the named port of destination. Seller bears all costs and risks as in DES plus discharging the goods on the quay. This term can only be used in sea transport.

• FAS – FREE ALONGSIDE SHIP (…NAMED PORT OF SHIPMENT):This term means that the seller delivers when the goods are placed alongside the vessel at the named port of shipment. The seller is required to clear the goods for export. The buyer has to bear all costs and risks of loss or damage to the goods from that moment. This term can be used for sea transport only.



INCOTERMS WALL CHART

SellerBuyer

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Author : Gloria Rubaine, logistics consultant and founder of Second Review Business Analysts.

Based in Toronto, Canada, Ms Rubaine has served the logistics industry for over 30 years as Trade, Business and Customer Service Manager for major global logistics companies.

Current activities are freight procurement, consulting, information and resource development as well as publishing articles, resources and videos for the international transportation community.

INCOTERMS

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