Clear communication is a must in business, but especially so in importing and exporting. Confusion causes chaos, and chaos usually means delayed delivery, extra costs and a host of other potential consequences. Perhaps the most critical issue that needs to be made clear is who pays for what.
When it comes to dealing with overseas suppliers, there is an acute need to have every aspect clearly understood. After all, with the different logistical elements involved, the process of getting a consignment of goods from its place of manufacture to its destination can be complicated. And if things go wrong, finger-pointing is not going to solve anything.
Where Problems Can Arise
The core of the problem lies in your sales contract. If, for example, an importer wants to bring 5,000 t-shirts into Australia out of Vietnam, you begin by placing an order for those items from a manufacturer or supplier. Obviously, the importer and supplier have to agree the number of items and the price per unit, but more questions remain. For example:
- Who arranges and pays for their transport to the port?
- Who covers the freight from the port of origin to port of destination?
- Who pays for Marine Insurance coverage?
- Who is responsible for getting export clearance at the port of origin?
- Who is responsible for getting customs clearance at the port of destination?
- Who pays customs and duty fees?
- Even, who deals with charges for loading and unloading the cargo onto and from their vessel?
Unfortunately, these are agreements that your freight forwarder is not involved in. A forwarder simple follows the agreed procedure as set down by their customer – the importer, or buyer. It is up to the buyer to ensure everything is clear, so that the forwarder can collect, transport and deliver their cargo with ease.
How To Avoid The Problem
The good news is that the problems that typically arise are very easy to avoid, but central to the remedy are Incoterms. At International Cargo Express, we implore all of our customers to know the Incoterms inside out, and to use them all the time, every time.
Incoterms were first introduced in 1936 by the International Chamber of Commerce (ICC) as a means to avoid the ambiguity that frequently affected international trade. As a common global trading language, clear agreement as to the responsibilities of the supplier and the importer can be more easily reached.
The Key Incoterms To Know
EXW (Ex Works) – the buyer has to pay for loading the delivery vehicles at the place of manufactureFCA (Free Carrier) – the supplier pays for transport from their place of manufacture to their warehouse. The buyer has to pay from the warehouse. Be sure to clearly state the delivery place. The seller must also clear the consignment for export.FAS (Free Alongside Ship) – the supplier is responsible to getting the cargo to the port up to the point of loading. This generally means that the goods are delivered to the container depot for loading into the container. The seller must also clear the consignment for export.FOB (Free On Board) – this is not often used anymore but responsibility for any incurred fees must be clearly agreed if goods are left waiting in the container port for a period of time before being loaded for shipping – especially with bulk cargo. The seller must also clear the consignment for export.CFR (Cost and Freight) – this means that the seller arranges the cost of transport to the port of destination. So, if your cargo is travelling going from Hong Kong to Sydney, the buyer covers the cost of unloading the container and onwards.CIF (Cost, Insurance and Freight) – this is similar to CFR, with the critical difference being that the supplier covers the cost of Marine Insurance.CPT (Carriage Paid To) – the supplier covers the cost of freight to a specified destination, but be aware that all risks from EXW onwards are accepted by the buyer, so the buyer needs to be covered by Marine Insurance. When transportation involves several modes of transport, sellers sometimes only accept responsibility for the first carrier, so be sure to clarify if this is the case.CIP (Carriage and Insurance Paid to) – similar to CPT but this time the supplier also agrees to cover the insurance costs.DAT (Delivery At Terminal) – this means that the supplier has successfully delivered the cargo once the cargo has been placed in a terminal at the port of destination. It’s then up to the buyer to arrange to collect the cargo consignment, from which point the buyer accepts all costs and risks.DAP (Delivered At Place) – this is similar to DAT, but involves one or two stages beyond the port terminal. It means the supplier is also responsible for unloading the cargo, and may extend to delivery to the buyer’s premises. This needs to be clarified in advance.DDP (Delivered Duty Paid) – similar to DAP, but this time the supplier accepts all costs incurred, including customs clearance and tax duty. It may also mean delivering the consignment to the buyer’s premises too, but this needs to be clarified in advance.
Trust Your ICE Team Advice
International Cargo Express has been tailoring solutions for individual customers for the past 25 years, so we are extremely knowledgeable in the best ways to get your cargo to you. Our ICE Team is only too happy to advise you on the right Incoterms to you, and to explain why. Simply contact the ICE Team and we’ll answer whatever questions you might have.
For more information on Incoterms, you can read a previous article in ICE News explaining Incoterms, or check out the Wikipedia page.
