Freight Terms

In the world of freight, the terms that determine who is responsible and pays for each part of the journey are officially set out and are called ‘Terms of sale’ or ‘Incoterms’. Phrases ‘Freight prepaid’ or ‘freight collect’ just don’t cut it and should not be used for air freight or sea freight.

If we look at these from an importing from China or importing from India perspective, terms start with ‘ex works’ where your supplier just makes the shipment available at their premises for you to collect through FOB, where your supplier arranges to get your shipment to the agreed port or airport of departure, then on to terms such as CFR / CIF where your supplier gets your shipment to the port or airport of arrival, then on to DDU / DDP where your customer arranges delivery to you all charges paid, excluding or including duty respectively. If you want more information on terms of sale or ‘Incoterms’ Wikipedia is a good resource.

You might ask yourself why should I be concerned about terms of sale /Incoterms? The answer is that they are internationally recognised, being sponsored by the UN and normally are legally incorporated should there be any dispute with your supplier or customer.

What is the most commonly used term of sale / Incoterm?

FOB is the most commonly used term – probably for around 90% of shipments worldwide use this Incoterms as it is a good balance of cost, risk and control for the customer.

If in any doubt we suggest you consult an expert – certain terms of sale carry unforeseen risks. It is not unknown for companies to purchase product on a local market ex works only to find they don’t have the licence to export and a supplier who’s been paid and is uncooperative, leading to the goods being written off. Another scam is to send to port of arrival prepaid – officially Incoterms CFR / CIF, but with a huge additional charge masquerading as various locally payable handling charges.

K&L freight have many years of experience with terms of sale and incoterms so if you are in any doubt please get in touch to avoid making expensive mistakes.

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