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INTERNATIONAL TRANSPORTATION
The topics are:
- international transportation ways
- Incoterms
Exporters have to choose the carrier, and
therefore the mean of transportation, and
Incoterms, that is the rule governing the
delivery of goods
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INTERNATIONAL TRANSPORTATION
The choice of the carrier depend on:
- choice of type of shipment (sea, air, land)
- destination (what country or continent)
You have to consider that some international
carriers may take care of shipment with every
means of transportation and to every country
in the world, while others are specialized in
specific ways of shipment and for specific
destinations
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Each way of transportation has advantages:
a) Air: very fast and very expensive; it’s suitable
only for small and worthy merchandise
b) Sea: very cheap but slow: it’s the only way when
shipment has a very far destination, and it’s the best
solution for bulk loads (i.e. commodities), or
merchandise in containers
c) Land:
- rail: it has characteristics similar to sea transport,
even if it’s faster than sea transport, and it’s useful
for medium distances
- truck: it’s faster but costlier than rail
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INTERNATIONAL TRANSPORTATION
The task of shipment is ruled by a carriage contract
(i.e. bill of lading), which is governed by the United
Nations Convention on Contracts for the
International Carriage of Goods Wholly or Partly by
Sea, issued by Uncitral
This convention points out rules about:
- transport documents
- obligations and liability of the carrier
- obligations of shipper
- transfer of rights
- jurisdiction and arbitration
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The carriage contract can include different
services:
- loading
- stowage
- shipping
- unloading
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Incoterms rules are used in international sale contracts where
goods pass across national borders (including inside a trade
bloc as Eu) for determining means of transportation, place of
delivery, charges included in the price
Incoterms spell out rights and obligations of the parties of an
international contract of sale with respect to the delivery of
goods sold
Incoterms rules indicate:
- where and how the goods are delivered
- consequently when risk passes from one party to another
- how costs of shipment, insurance and duties are allocated
between seller and buyer
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Incoterms (International Commercial Terms), drafted
by Icc, help avoid legal uncertainty by spelling out
clear responsibilities between the buyer and seller in
cross-border sales contracts, and have been endorsed
by the UN Commission on International Trade Law
They have been foreseen the first time in 1936 and
renewed in 2010 (7th edition)
The document specifying rules on Incoterms has to
be purchased from Icc
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INTERNATIONAL TRANSPORTATION
Incoterms are useful to:
- protect parties’ interests (making clear which
is the place of delivery, when and where there
is the transfer of risk)
- reduce risks (having agreed modalities of
shipment)
Furthermore Incoterms are the trade-union
between sale contract and contract with the
carrier, and between sale contract and
insurance contract
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INTERNATIONAL TRANSPORTATION
Incoterms are inserted in contracts as a clause
It’s up to the parties to decide whether an
Incoterm has to be used as a provision of the
contract
But once it is adopted, the rules to be
respected are the ones of Incoterms, as
indicated by Icc
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It goes without saying that the Incoterm
adopted must be compliant with other clauses
of the contract (i.e. place of delivery, means of
transportation)
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The Incoterms are 11, of which 7 are
independent from the way of transportation:
- EXW (Ex Works)
- FCA (Free Carrier)
- CPT (Carriage paid to)
- CIP (Carriage and insurance paid to)
- DAT (Delivered at terminal)
- DAP (Delivered at place)
- DDP (Delivered duty paid)
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The remaining 4 Incoterms, which are specific
to transport by cargo are:
- FAS (Free alongside ship)
- FOB (Free on board)
- CFR (Cost and freight)
- CIF (Cost insurance and freight)
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EXW - Ex Works
After the abbreviation Exw you have to point out the place of the factory
(or the warehouse) where goods have been produced or stored
Under this Incoterm the seller delivers the goods at his location
Therefore the buyer has to collect the goods with his own carrier, and pays
all expenses for the transportation and has whole responsibility for the
shipment
The seller’s obligations are only to keep goods ready to be loaded and to
prepare proper documentation
It’s useful for commodities or semi-manufactured products, for which
there is price competition
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FCA – Free Carrier
After the abbreviation Fca you have to point out the
place where the seller delivers the goods
Under this Incoterm the seller delivers goods to the
carrier’s premises (named by the buyer). Therefore
costs and risks are born by the seller till the delivery
of the merchandise to the carrier’s custody
The buyer pays freight and insurance, while it’s up to
the seller the paperwork and duties for export
formalities (customs clearance)
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INTERNATIONAL TRANSPORTATION
CPT – Carriage Paid To
After the abbreviation Cpt you have to point out the
destination where the seller has to deliver the goods
The seller pays for carriage to the agreed point of
destination, but risk passes to the buyer when the
goods are handed over to the carrier indicated by the
buyer
This term differs from the previous for the fact that
the seller has to pay a part of the shipment
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INTERNATIONAL TRANSPORTATION
CIP – Carriage and Insurance Paid
After the abbreviation Cip you have to point
out the destination where the seller has to
deliver the goods
Under this term the seller pays for carriage
and insurance to the named destination point,
but risk passes to the buyer when the goods
are handed over to the first carrier
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DAT - Delivered at terminal
The risk passes to the buyer when the carrier has arrived at
the terminal of destination (harbour, airport, or station), and
the goods made available for unloading to the buyer
The seller pays the same freight and insurance costs as he
would under a Cif arrangement, but unlike this term, the
seller has agreed to bear not just cost, but also risk up to the
arrival of the cargo at the named terminal
Costs for unloading the goods and any duties are in charge of
the buyer
This Incoterm is used for bulk commodities (i.e coal, grain)
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DAP - Delivered at place
You have to specify which is the place of destination
The seller delivers the goods to the buyer to the
named place of destination
Under this term the goods are placed at the disposal
of the buyer on the arriving means of transport,
ready for unloading at the named place of destination
Cost ands risks are in charge of the seller as in DAT
term
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DDP - Delivered duty paid
You have to specify which is the place of destination
The seller pays for all transportation costs and bears all risk
until the goods have been delivered and the duty paid
This is the most comprehensive term for the buyer, and on the
other hand it’s the most expensive for the seller
In most of the importing countries, taxes, such as Vat and
excises, should not be considered prepaid, being handled as a
"refundable" tax (Vat and excises usually are not a direct cost
for the importer since they will be recovered against the sales
on the
local Dimarket)
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FAS - Free alongside ship
It’s only for maritime transport
The seller must place the goods at the docks alongside the
ship at the named port
The seller must clear the goods at the customs for export, and
he bears risks until the merchandise is placed next to the ship,
ready to be loaded
This term is typically used for heavy-lift or bulk cargo
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FOB - Free on board
The seller must load the goods on board the ship
nominated by the buyer, who is in charge of cost and
risk once the goods are loaded on board
The seller must clear the goods for export at the
customs
Only for maritime transport
The buyer must instruct the seller on details of the
vessel and port where the goods are to be loaded
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CFR - Cost and freight
The seller must pay the costs and the freight to bring the
goods to the port of destination. This entails that the choice of
the carrier is a seller’s task
The risk is transferred to the buyer once the goods have
crossed the ship's rail
It’s a term only for maritime transport
Insurance is at buyer’s charge, but he must receive the bill of
lading from the seller
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CIF - Cost insurance and freight
The seller must pay the costs, including insurance
and freight, and he is in charge of delivering goods
to the port of destination
The seller has to choose the carrier and the insurance
company
The risk is transferred to the buyer once the goods
have been loaded in the ship
It’s a term only for maritime transport
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