Inco Terms

Freight Basics - INCO Terms﻿﻿When 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.

INCO Terms 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 WorksBuyer 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 BoardSeller 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 & FreightCosts 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 TerminalAll 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 PlaceAll 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 PaidThe 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 termsEach option has its own benefits and risks for both the buyer and the seller.

BENEFITSFreight 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

RISKSLack 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 profitBuyer – CFR/CIF, DAT Seller – FOB
People and Places

ATD/ATA - Actual Time of Departure / Actual Time of Arrival
ATF - Approved Transitional FacilityHas site approval and an accredited MAF person to received and inspect import containers 

AQIS - Australian Quarantine Inspection ServiceBoarder control in Australia
CFS - Container Freight StationContainer freight handling depot 
CNOR/CNEE - Consignor/ConsigneeSeller / 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
Surcharges:AMS - American Maritime Security Compliance costs associated with USA border security laws and procedures
BAF - Bunker Adjustment FactorFuel 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 IncreaseUsed 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 FeeApplied by Australian Customs to the computer system that coordinates and controls the reporting and delivery of import sea-cargo in Australia​

Freight Basics - AbbreviationsThe 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. 
Dimensions:CBM/M³ - Cubic Metres
Height×Width×Length to work out the cubic metre of a shipmentKG - KilogramsR/T - Revenue tonnes
A billing unit used in the international freight industry. 
W/M - Weight or MeasureBilling will be based on whichever is greater based on the conversion factor
Documents:AWB / HAWB - Air Waybill / House Air WaybillA waybill is a document issued by a carrier or forwarder giving details and instructions relating to the shipment 
B/L or BOL - Bill of LadingA 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 OrderA 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 CreditThis 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 SheetProvides 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 InstructionA 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

Glossary

Inco Terms