Freight terms can be so confusing, so we've given you a breakdown to make things a little easier to understand
Freight Basics - INCO Terms
When negotiating an international sales contract the Terms of Sale can be just as important as the sale price. Language barriers could complicate this point. Since 1936 the INCO Terms created by the International Chamber of Commerce (ICC) have been used to breakdown these barriers.
International Commerce Terminology (INCO Terms) defines exactly the shipping responsibilities of both the buyer and the seller. This table illustrates the cost responsibilities for each party:
What does this all mean?
Here is a simple explanation of the most commonly used terms:
EXW – Ex Works
Buyer will pay all freight charges from the seller door to the door at destination. The seller needs to ensure the freight is ready for shipping and provide all the correct documents i.e. commercial invoice and packing declaration. The buyer will have full control of the freight.
FOB – Free on Board
Seller will arrange through their freight forwarder the movement of the goods up to the origin port. The goods will then be the buyer’s responsibility. Their nominated forwarder will take control from here. Freight and destination costs will be charged to the buyer.
CFR – Cost & Freight
Costs from the seller’s door to the destination port will be paid by the seller. Given the seller is responsible for transportation, they also nominate the forwarder. The buyer will take care of the destination charges.
DAT – Delivery at Terminal
All charges up to the nominated terminal will be paid for by the shipper. Delivery, Customs Clearance and Customs import charges will be paid for by the buyer. The seller will arrange freight to the terminal through their freight forwarder; the buyer can have their own customs and delivery agent takeover from the terminal.
DAP – Delivery at Place
All charges as well as delivery to the buyer facilities will be arranged by the seller. Customs clearance cost can be arranged by either the seller or the buyer depending on the agreement at the time of the freight booking. Import Duty and Taxes will be paid by the buyer at destination.
DDP – Delivered Duty Paid
The seller will arrange and pay for all freight charges to the buyer’s door including customs clearance, duty and taxes at destination. The seller has full control of the shipment.
Choosing the right terms
Each option has its own benefits and risks for both the buyer and the seller.
Freight Control – Working on tight time frames or stock control it is essential to know where your freight is the majority time
Buyer – EXW, FOB, CFR/CIF Seller – DAT, DAP, DDP
Cost Control – Knowing the cost of the freight will help you work out the true cost of your products
Buyer – EXW, FOB, CFR/CIF Seller – DAT, DAP, DDP
Lack of visibility – Stock control
Buyer – DAT, DAP, DDP Seller –EXW, FOB, CFR/CIF
Unexpected costs – Not having the ability you nominate your forwarder can incur additional costs that you haven’t taken into account, resulting in loss of profit
Buyer – CFR/CIF, DAT Seller – FOB
People and Places
ATD/ATA - Actual Time of Departure / Actual Time of Arrival
ATF - Approved Transitional Facility
Has site approval and an accredited MAF person to received and inspect import containers
AQIS - Australian Quarantine Inspection Service
Boarder control in Australia
CFS - Container Freight Station
Container freight handling depot
CNOR/CNEE - Consignor/Consignee
Seller / Buyer
CY - Container Yard
Referring to the shipping lines container storage yards, they are likely to be inland ports
ETD/ETA - Estimated time of Departure / Estimated Time of Arrival
IATA - International Air transport Association
An international organisation of airlines that regulate conditions of operation, safety, schedules and pricing for international air transport - We are ranked No. 1 in New Zealand
NVOCC - Non-Vessel Operating Common Carrier
Acts like a shipping line but doesn't own its own vessels
POL/POD - Port of Loading / Port of Discharge
AMS - American Maritime Security
Compliance costs associated with USA border security laws and procedures
BAF - Bunker Adjustment Factor
Fuel Surcharge on a shipping vessel
CAF - Currency Adjustment Factor
Charged to cover currency fluctuation
CABAF - CAF and BAF charges combined
FAF - Fuel Adjustment Factor
Fuel charges on road units or on airfreight
GRI - General Rate Increase
Used by shipping lines to label general increase in ocean freight rates on particular trade routes
ISPS - International Ship & Port Facility Security
To cover security handling at the origin and destination ports/depots
SCA - Sea Cargo Automation Fee
Applied by Australian Customs to the computer system that coordinates and controls the reporting and delivery of import sea-cargo in Australia
Freight Basics - Abbreviations
The freight industry uses a huge amount of abbreviations, for everything from units of measure to pricing structures and modes of travel. We've gathered some of the most common ones here to help you navigate these terms.
CBM/M³ - Cubic Metres
Height×Width×Length to work out the cubic metre of a shipment
KG - Kilograms
R/T - Revenue tonnes
A billing unit used in the international freight industry.
W/M - Weight or Measure
Billing will be based on whichever is greater based on the conversion factor
AWB / HAWB - Air Waybill / House Air Waybill
A waybill is a document issued by a carrier or forwarder giving details and instructions relating to the shipment
B/L or BOL - Bill of Lading
A document issued by the carrier to the shipper as a contract of carriage, it must be presented at destination in order for the goods to be released it is a document of title for the goods
D.O. or D/O - Delivery Order
A document which orders the release of the freight to another party, do not mistake this for delivery instructions or a document of title for the goods
L/C - Letter of Credit
This is a document issued by a bank to another bank to serve as guarantee for payments made to a specified person under specified conditions
MSDS - Material Safety Data Sheet
Provides procedures for handling Dangerous Goods (DG) in a safe manner. It will confirm how the goods can travel and if they can be loaded with other Dangerous Goods
SLI - Shippers Letter of Instruction
A document filled in by the shipper providing all the details related to the shipment - Shipper and Consignee, dimensions and weight, description of the goods and shipping terms