Incoterms - HANNON Transport (2024)

FAQs

Which Incoterms can only be used for transport by ship? ›

Which incoterms are only for sea shipments? Out of the 11 Incoterms, there are 4 that are exclusive for sea and ocean freight: FAS, FOB, CIF and CFR.

Incoterms, widely-used terms of sale, are a set of 11 internationally recognized rules which define the responsibilities of sellers and buyers. Incoterms specify who is responsible for paying for and managing the shipment, insurance, documentation, customs clearance, and other logistical activities.

“The choice of the most suitable Incoterm for an importer or an exporter will depend on whether they want to control costs, contract the main transport, reduce risks or have greater security in the logistics chain”

The majority of of all cargo delivered in the world is transported by sea. The technical features of cargo vessels make it possible to carry crude oil, petroleum products, chemical industry products, condensed gas, raw materials, equipment, cars, livestock and many other types of cargo.

A cargo ship or freighter is a merchant ship that carries cargo, goods, and materials from one port to another. Thousands of cargo carriers ply the world's seas and oceans each year, handling the bulk of international trade.

FOR stands for Freight on Road. The term Freight is used for the goods that are transported in bulk from one place to the other place such as from one city to other city or from one country to other country.

EXW (Ex Works) means that the seller delivers when it places the goods at the disposal of the buyer at the seller's premises or at another named place (i.e., works, factory, warehouse, etc.). The seller does not need to load goods or clear them for export.

Freight itself can be defined as the goods transported by truck, train, ship or plane. The means of transport commonly associated with freight shipping are trucks, railroad cars and large ships carrying containers.

FOB Incoterms® (or Free on Board shipping) means that the seller delivers the goods on board the vessel nominated by the buyer at the named port of shipment. They are responsible for all costs up until that point. Once the shipment is boarded, the buyer assumes risks and costs.

What are the freight terms? ›

A freight term identifies how transportation costs are calculated. The default freight terms of Sterling Order Management are: Cost Insurance and Freight (CIF) - The freight cost is completely paid by either the Seller, the Enterprise, or the Hub.

The delivery terms define the agreements with the business partner concerning the way the goods are delivered. The delivery terms can include the point of title passage. The point of title passage is the point at which the legal ownership changes. At this point, the risk passes from the seller to the buyer.

For international shipments, it is common to hear the freight terms referred to as Incoterms (International Commercial Terms). The Incoterm® rules are the internationally recognized freight terms for international ships and are commonly, but not always, leveraged in domestic shipments.

Modes of transport include water, air, land (rail and road), cable, pipeline and space.

Ferries are a form of transport, usually a boat or ship, but also other forms, carrying (or ferrying) passengers and sometimes their vehicles. Ferries are also used to transport freight (in lorries and sometimes unpowered freight containers) and even railroad cars.

Trucks are, by far, the most common way to move goods in the supply chain. Every day, the U.S. transportation system moves an average of over 50 million tons of freight valued at more than $50 billion. Trucks can get to places that other transportation methods cannot.

The need to ship large loads or heavy products, lower transportation costs and enormous urgency are key factors that lead companies to use ocean freight.

The main advantage of Incoterms is the standardized terminology used by all companies doing international business. Specific terms or acronyms provide both carriers and buyers with clear rules, helping to avoid confusion about each party's responsibilities and cost management.

Containerized or non-containerized cargo

FOB and CIF are two of the most commonly used Incoterms in the shipping trade.

The most commonly used Incoterms are DDP, EXW, FAS and CIF. You can read about the uses of these Incoterms and learn how to add them to your contract by reading our complete guides.

What are the 4 types of transportation? ›

The four primary modes of transportation in logistics are shipments by truck, ship, train and plane — also known as road, maritime, rail and air shipments.

transportation, the movement of goods and persons from place to place and the various means by which such movement is accomplished.

The different modes of transport are air, water, and land transport, which includes rails or railways, road and off-road transport. Other modes of transport also exist, including pipelines, cable transport, and space transport.

What is Delivered at Place (DAP)? An Incoterms^® rule, applicable to any form or forms of transport (air, ocean, ground, or multimodal), under which the seller is responsible for delivery of the goods, ready for unloading, at the named place of destination (often the buyer's place of business).

Free Carrier (FCA) means that the seller delivers the goods to a carrier or another person nominated by the buyer, at the seller's premises or another named place.

Delivered Duty Paid (DDP)

Transport modes are the means supporting the mobility of passengers and freight. They are mobile transport assets and fall into three basic types; land (road, rail, pipelines), water (shipping), and air.

Roadways, railways, waterways and airways are some of the prominent means of transportation. Roads are most common modes of transport, especially for short distances, of about 20 to 100 kilometres.

Freight means a payment or charge paid for carriage or transportation of goods by means of air, land or sea. Transportation is the movement of human, animals, goods form one location to another.

What is the difference between transport and logistics? The transportation industry focuses on the actual movement of products via ground, ocean, and air conveyances (methods of transport). Logistics covers a much broader scope of activities that facilitate the management of product movement within the supply chain.

What are 5 examples of transport industry? ›

The transportation sector consists of several industries including air freight and logistics, airlines, marine, road and rail, and transportation infrastructure.

In a nutshell, the major difference between FOB and CIF is in transference of liability and ownership. With FOB, title possession and liability usually shift when the shipment leaves the point of origin. With CIF, responsibility moves to the buyer once the goods reach the point of destination.

Freight on board, also known as free on board, refers to a set of Incoterms that govern who owns and pays for a shipment when traveling overseas. Although its original definition was used exclusively for seafaring transport, modern use of the term can be applied to all shipment modes of transit.

In FOB shipping point agreements, the seller pays all transportation costs and fees to get the goods to the port of origin. Once the goods are at the point of origin and on the transportation vessel, the buyer is financially responsible for costs to transport the goods such as customs, taxes, and fees.

There is a long-established rule in English law that a claim for loss of or damage to cargo cannot be used to deduct or set-off the obligation to pay freight (the “Freight Rule”). The application of the Freight Rule has, however, been extended to more than just claims for loss of or damage to cargo.

The primary difference between using cost and freight (CFR) and free on board (FOB) shipping lies in who must pay for various shipping or freight costs—the buyer or the seller. The terms refer to the point at which transfer of responsibility for goods shipped occurs, from the seller/shipper to the buyer/receiver.

With FOB, a designated port or place of shipment acts as the delivery point. On the other hand, FCA requires goods to be delivered at a chosen place or carrier accepted by both the buyer and the seller.

There are five essential factors that affect the process of labor and delivery. They are easily remembered as the five Ps (passenger, passage, powers, placenta, and psychology).

FOB is a shipping term that stands for “free on board.” If a shipment is designated FOB (the seller's location), then as soon as the shipment of goods leaves the seller's warehouse, the seller records the sale as complete. The buyer owns the product en route to its warehouse and must pay any delivery charges.

A delivery order is a document that can be issued by the owner of freight, consignee, shipper or a carrier to deliver the goods to another party. A delivery order should be differentiated from the bill of lading. The delivery order is not a negotiable document and it does not act as evidence or receipt of goods.

Who pays freight terms? ›

Ideally, the seller pays the freight charges to a major port or other shipping destination and the buyer pays the transport costs from the warehouse to his store or vendors. The determination of who will be charged the freight costs is usually indicated in the terms of sale.

Under CFR terms (short for “Cost and Freight”), the seller is required to clear the goods for export, deliver them onboard the ship at the port of departure, and pay for transport of the goods to the named port of destination. The risk passes from seller to buyer when the seller delivers the goods onboard the ship.

Freight allowed (or collect) is when the buyer, or receiver of goods, pays the freight charges upon delivery of the goods to them. While freight prepaid, the shipper or seller pays all of the shipping costs up until the cargo arrives to the buyer.

In the case of sea freight, the most commonly used Incoterms are EXW, FOB, CFR, and DDP. They can be divided into two groups, according to benefits for a seller and a buyer. In simple terms, for a buyer, the most beneficial rules are FOB and EXW.

Cost, insurance, and freight only applies to goods transported via a waterway, sea, or ocean. CIF is similar to carriage and insurance paid to (CIP), but CIF is used for only sea and waterway shipments, while CIP can be used for any mode of transport, such as by truck.

FCA is one of the Incoterms rules that can be used for any transport mode. This means that it can be used for sea freight as well as for various modes of land transport.

Officially FOB cannot be used for air freight, it is restricted to transit by sea or inland waterways.

The most common Incoterms for sea freight transport

Ex Works (EXW) Free On Board (FOB)

A bill of lading (/ˈleɪdɪŋ/) (sometimes abbreviated as B/L or BOL) is a document issued by a carrier (or their agent) to acknowledge receipt of cargo for shipment. Although the term historically related only to carriage by sea, a bill of lading may today be used for any type of carriage of goods.

FOB Incoterms® (or Free on Board shipping) means that the seller delivers the goods on board the vessel nominated by the buyer at the named port of shipment. They are responsible for all costs up until that point. Once the shipment is boarded, the buyer assumes risks and costs.

Is CIF for sea freight only? ›

CIF is only designated for ocean freight and waterway shipments. Buyers and sellers wishing to use CIF for air shipments can substitute CIF for CIP, which stands for carriage insurance paid to the destination. With this Incoterm, the seller must insure the cargo to the defined destination.

CIF stands for Cost, Insurance, and Freight. These are the fees a seller pays to cover the costs, insurance, and freight of a dealer's order when it's enroute. This sums up the CIF definition. Only commodities carried by water, sea, or ocean are subject to CIF.

Free carrier is a trade term requiring the seller of goods to deliver those goods to a named airport, shipping terminal, warehouse, or other carrier location specified by the buyer. The seller includes transportation costs in its price and assumes the risk of loss until the carrier receives the goods.

FOB should only be used for ocean shipments that will be delivered directly from the seller's premises to the vessel. FCA is a more suitable incoterm for LCL and other containerized shipments that will be delivered to a carrier at a CFS (Container Freight Station) or Container Yard.

With FOB, a designated port or place of shipment acts as the delivery point. On the other hand, FCA requires goods to be delivered at a chosen place or carrier accepted by both the buyer and the seller.

Most incoterms can be used for any mode of transport. The exceptions are FOB, FAS, CFR, and CIF, which are used for sea freight only.

It is to be used only for exclusively water transportation. Do not use it for road/rail/sea multimodal container transportation – use FCA instead. In FOB, the seller clears the goods for export and loads the goods on the vessel and at the port that have been nominated by the buyer.

FCA can be used for any form of transport, such as air freight, sea freight, road freight, and rail freight. This Incoterm provides the buyer with flexibility, as they can arrange carriage, frequently at a better price than what their seller might quote.