Why I hear you cry?! The reason for this seemingly odd state
of affairs is quite literally so that everyone, regardless of
race or creed is “speaking the same language”, hence,
“incoterms” were born.
For instance, should you wish to apply for a quote for a non-
English or English speaking country and you wanted to know
what the cost per Kg was to get the item to the overseas port
for shipment then this would be expressed on your contract as
FOB (Free On Board). This means the exporter is responsible
and pays for everything up to departure port, including
export charges.
You and your shipper assume full responsibility from that
point. Should you require the same goods’ cost per Kg,
including sea freight then you would write on the contract:
“C/F” (Cost and Freight), which means the exporter has
included cost of goods, the freight and the export charges.
Thus, if you wanted the cost to Sydney, Australia, then you
would write “C/F Sydney, Australia”.
With the incoterms, there can be no doubt to what has been
requested. It really is a total No Brainer!
* Ex-Works – You are responsible for all costs once
merchandise leaves the supplier’s door.
* CIF – (Cost, Insurance & Freight) Supplier pays to send the
goods to the port
of destination and arranges the minimum cover marine insurance.
* DDU – (Delivered Duty Unpaid) The supplier pays for all costs
to deliver to the buyer’s door, with the exception of duties.
* DDP/CARRIAGE PAID – (Delivered Duty Paid) The supplier delivers
to the buyer’s door and pays all of the costs including duties.
The most common shipping quote is FOB – or ‘Freight on Board’.
This means that freight costs to the point of loading are
included in the price – you negotiate the terms you want.
A Word of Warning
‘FOB factory’ has a very different meaning altogether.
“Freight on Board Factory” means that you pay onward costs to
the local port or airport and this can increase the price
considerably – particularly if the company is situated inland.
A better quote to get is ‘CI&F’ or Cost, Insurance and Freight.
This means that in addition to the FOB
price, you’ve been quoted insurance and freight costs. This is
ideal as it means you can budget much more effectively. Or,
if you are extremely fortunate, DDP, where you pay the price
of the product delivered to your door.
The site Export 911 has a great information area for
people new to import/export.
You’ll find detailed descriptions of each stage of the process
and importing terms and requirements. Just remember that this
site is aimed at exporters rather than importers (although
many terms and processes are the same), and the goal of the
site is to get you to use their services, hence processes are
in those terms.
Shipment size
The cost of your shipment will depend on the weight or volume
you ship. You will either need a Full Container Load or a
Lesser Container Load. For a full container load, the
standard container sizes are 20 foot and 40 foot in length
and can accommodate whatever mixture of products you choose.
The shipping cost includes the use of the container, although
you can buy a container if you are making very frequent
purchases.
If you are purchasing from one supplier, the container is
taken to their premises, loaded on site, sealed and collected
for onward shipment to your country. For multiple suppliers,
you can arrange to have all goods delivered to your freight
agent who will load all the goods at their premises.
Full Container Loads are the most efficient way to ship as
cost savings can be made on packaging and less labor is
required. Apart from the obvious advantage of the lower
freight cost, the additional Export/Import processing and
Handling & Haulage costs are all more economical as
processing a full container is calculated as a single
transaction.
If you are not importing a full container load, then your
shipment will be consolidated along with other company’s
goods traveling to the same destination. The rates applied
to a Lesser Container Load are calculated by the volume your
goods take up in cubic meters. Lesser container loads are not
as economical as full container loads because they require
more packaging and more labor loading and unloading at both
ends.
Invoices and Forms
When you have negotiated a deal with a seller, including the
shipping terms, price of goods, and the packaging they’ll be
shipped in, the seller will send you a Pro Forma invoice,
which you pay according to the arrangements you have
negotiated. A pro forma invoice is basically an advance copy
of the final invoice. If you need to apply for a letter of
credit (L/C) and/or foreign exchange (import) allocation,
you will need your pro forma invoice…
