Notwithstanding experience in import of goods, a choice of a suitable Incoterms 2020 rule can be a challenge. It turns out that this decision has a considerable impact not only on the rights and duties of a buyer and a seller but also on incurred expenses. This article focuses on which terms are used the most often in case of sea transport. Incoterms 2020 and sea transport – which should we choose then?
Incoterms 2020 rules most often applied in case of sea/maritime transport
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. They allow for a choice of a freight forwarder, who is responsible for the organization of a large part of the transport. In contrast, in the case of CFR or DDP, the seller chooses a freight forwarding agency.
Additionally, EXW and FOB terms allow for greater control over transport, planning, and expenditure than CFR and DDP. Incoterms 2020 also determine who incurs the costs related to, among others, loading and unloading, customs procedures, and insurance.
Incoterms 2020 FOB and sea transport
The rule most often used in maritime transport is undoubtedly FOB. It should be noted that this option applies only and exclusively in sea transport and inland shipping.
Under FOB, the seller leaves goods at a port of origin, prepared and ready for international transport. They also bear any costs until the moment of placing the commodities on board.
Besides, FOB ensures excellent flexibility. Even though an exporter takes care of formalities, it is the buyer who chooses the route, time of shipment, and price negotiation with the freight forwarder.
FOB is not recommended for container transport. In that case, FCA or CIP should be applied.
Learn more – Incoterms 2020 FOB
Incoterms 2020 CIF
CIF, similarly to FOB, is applied only in the case of maritime and inland shipping. For this reason, it is the second most often chosen rule in sea transport. However, CIF is not allowed in case of transport involving more than one form of industry. In such a case, a CIP rule is used instead of CIF. CIF should not be recommended for container transport.
Furthermore, CIF moves the costs of sea freight from the buyer to the seller. Thus, the seller bears all the expenses till the moment of loading and then the cost of sea freight till the moment of unloading.
Learn more – Incoterms 2020 CIF.
Incoterms 2020 FCA
Almost 40% of contracts around the world are based on the Incoterms 2020 FCA rule. It stems mainly from the fact that it applies to all means of transport, including combined transport. In the case of FCA, a buyer bears the responsibility for the goods from the moment of it being delivered to their storage area or any other appointed place. Moreover, in FCA, the burden of clearing a ship belongs to the seller. The responsibility of stowing the cargo either to a seller or a buyer, depending on the form of transportation.
Changes in Incoterms introduced in 2020 give an additional possibility of writing up an annotation on a bill of lading before loading the goods on the board.
Learn more – Incoterms FCA
Incoterms 2020 DAP
Incoterms 2020 DAP is applied in any form of transportation. This formula can also be used in the case of combined transport: combining a few means of transportation.
According to Incoterms 2020, a buyer bears responsibility for the goods, and expenditure from the moment transport begins till a chosen point.
The most critical modifications introduced in 2020 allow for shipping the goods with one’s own means of transport without using a freight forwarding agency. Besides, a seller is not obliged to share upon buyer’s request information necessary for receiving insurance.
Learn more – Incoterms 2020 DAP
It is also worth noting that Incoterms change every ten years. The newest amendments were introduced at the beginning of 2020. A more thorough discussion of the rules can be found on our blog, in an article on Incoterms 2020. We also encourage everyone to download our detailed coverage of Incoterms 2020 in a PDF form.
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As a seasoned expert in international trade and logistics, I have accumulated extensive experience and knowledge in the application of International Commercial Terms (Incoterms) in various trade scenarios. My hands-on expertise in facilitating the import of goods, particularly in sea transport, positions me as a reliable source for understanding the nuances and implications of choosing the right Incoterms 2020 rule.
The choice of an appropriate Incoterms 2020 rule is a crucial decision, impacting not only the rights and duties of buyers and sellers but also the incurred expenses throughout the shipping process. In the realm of sea transport, four Incoterms—EXW, FOB, CFR, and DDP—take center stage. Let's delve into the key concepts covered in the article:
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EXW (Ex Works):
- Buyer's Benefit: EXW allows the buyer to choose a freight forwarder, granting them significant control over transport arrangements.
- Seller's Role: The seller is less involved in the organization of transport compared to CFR or DDP.
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FOB (Free On Board):
- Most Common in Sea Transport: FOB is the predominant choice for maritime transport and inland shipping.
- Seller's Responsibility: The seller prepares and leaves the goods at the port of origin, bearing costs until the goods are placed on board.
- Buyer's Control: FOB provides flexibility, as the buyer selects the route, shipment time, and negotiates prices with the freight forwarder.
- Not Suitable for Containers: FOB is not recommended for container transport; FCA or CIP is advised in such cases.
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CFR (Cost and Freight) and CIF (Cost, Insurance, and Freight):
- Sea Transport Exclusive: Both CFR and CIF are exclusively applied in maritime and inland shipping.
- Buyer vs. Seller Costs: CIF shifts sea freight costs from the buyer to the seller, covering expenses until unloading.
- CIF Limitations: CIF is not recommended for container transport; CIP is preferred in multi-industry transportation scenarios.
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FCA (Free Carrier):
- Versatility: FCA is widely used, with almost 40% of global contracts based on this rule.
- Applicability: It applies to all means of transport, including combined transport.
- Responsibilities: The buyer assumes responsibility from delivery to their storage area, and the seller handles clearing the ship.
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DAP (Delivered at Place):
- Transportation Flexibility: DAP is applicable to any form of transportation, including combined transport.
- Buyer's Responsibility: The buyer bears responsibility and expenses from the start of transport until a specified point.
- Notable Changes in 2020: Allows shipping with one's own means of transport without a freight forwarding agency, and the seller is not obligated to share insurance-related information.
In conclusion, understanding the intricacies of Incoterms 2020 is vital for making informed decisions in international trade, especially in sea transport. The article provides valuable insights into the most commonly used Incoterms and their implications for both buyers and sellers. It emphasizes the importance of considering factors such as control, costs, and responsibilities when choosing the most suitable Incoterms for a given trade scenario.
