Sea Air & Land Forwarding LTD
Short for "international commercial terms”, incoterms are standardised contract terms to be added to a contract of sale that will involve an international freight shipment. The terms define the buyer and seller’s responsibilities and the risks that they are assuming. They are managed and periodically updated by the International Chamber of Commerce (ICC) since 1936. It is almost impossible to arrange an international freight movement if an incoterm is not included in the contract of sale. Excepting EXW, they are grouped by their first letter into F terms, C terms or D terms.
Responsibility & Risk (Liability)
Responsibility defines which of the two parties – buyer or seller – will arrange and pay for different stages of the shipment. For instance, who will book the pickup truck and pay the local carrier. One of the parties will need to be responsible for each step – from trucking to ocean/air, customs and insurance.
Liability defines which of the two parties – buyer or seller – must resolve issues if something goes wrong at a particular stage. Who, for instance, will call the local trucking company if the truck doesn’t turn up for pickup, or will hound in insurers if the cargo is damaged and the insurers contest the claim.
At some point in the shipment’s movement this legal layer of responsibility and risk will change hands from the seller to the buyer. For incoterms that start with "C”, responsibility and risk change hands at different points.
Named Place | Named Place Of Delivery | Named Place Of Destination
This term comes up when trying to figure out who’s responsible when things go wrong. The sales contract will define at which point the seller completes his contractual obligation, and liability shifts to the buyer. The point is called the Named Place Of Delivery (‘delivery’ here is legal jargon and doesn’t refer to the actual shipment delivery point).
As noted above, liability and responsibility is handed over at different points for incoterms that begin with "C”. For these terms, liability is handed over at the named place of delivery, but the point where responsibility is handed over is defined as the Named Place Of Destination. Again, the word ‘destination’ is legal jargon, and should not be confused with the shipment’s actual destination.
Containerized Freight | FCL | LCL
Most freight shipments uses containers, or the pallets, crates and boxes that fit into containers or airplane holds. There are seven incoterms dedicated to this type of cargo. A full container load (FCL) is where the shipment is to be the only one in a container. Smaller ocean freight shipments, that will be consolidated with other shipments in a container, are called less than a container load (LCL). Ocean containers are never used in air freight (although they would fit into an Anatov 225).
A terminal is a facility that can receive the shipment, such as a sea port, airport, or inland freight interchange (e.g. Denver). This clearly includes quays and airport gates, but also nearby container yards and warehouses.
Main Stages In An International Shipment
One way to think of the following stages, is as an international passenger flight. So, Pickup is the taxi ride to the airport, Forwarder Handling is your group tour operator, Terminal Handling is checking in, security and grabbing a coffee, Customs is passport control.
Pickup covers the first stage from when a truck arrives, is loaded, and the shipment is delivered, either to a forwarder’s warehouse or directly to the export terminal.
Forwarder Handling (Export) is an intermediate step between pickup and terminal handling, that happens at a forwarder’s warehouse. LCL ocean freight, and air freight shipments are consolidated (prepped and stuffed). FCLs almost always skip this step.
Terminal Handling (Export) covers all transport, storage and port related activities in the export country after the goods have been consolidated, or delivered by the truck that picked up the goods. The final stage is loading onto the ship or plane.
Customs (Export) covers clearance by Customs (and, for the US only, clearance by other authorities). Depending on the country and product, this step may not be required. This is an office procedure, processing the paperwork filed on behalf of the exporter or importer. In some instances this may also include inspection, storage and applying penalties. These additional steps happen at a bonded warehouse somewhere in the terminal, after arrival and before loading for international transit.
International Transit is the port to port stage between the export country and the import country by ship or plane. More correctly, this is the terminal to terminal stage, because it may cover additional transit by rail or road to an inland freight interchange.
Forwarder Handling (Import), Terminal Handling (Import), Customs (Import), Delivery are the same steps as in the export country, but in reverse order. Instead of Pickup, the final stage is called Delivery, which is usually to the buyer’s warehouse. This is not necessarily an incoterm’s definition of delivery (refer Named Place, above).