Shipping Terms

Whether you are buying or selling you have to consider the terms in accordance with which the transaction will be made. All shipping terms are defined in a special book known as the INCOTERMS (International Commercial Terms). All in all, there are 14 different ways of arranging the shipment of goods. Since in international trade the interests of the buyer and the seller are conflicting both parties will prefer different ways of delivery of their merchandise.

We'll not be discussing all 14 terms, but highlight the most popular ones.

For the seller the transaction under Ex Works term is the most attractive one. In such case, the only thing he has to do is to put the goods, on a prearranged place outside the factory and the buyer will have to arrange transportation and to bear all the expenses connected with the transportation process, insurance and customs clearance.

For the buyer the transaction under Delivered Duty Paid term is preferable. He does not have to worry, about anything, because the seller will pay all the costs connected with the delivery of goods to the importer.

It's only natural that these shipping terms are not particularly popular in international trade, because they put one of the parties in a vulnerable position. International trade is a two-way process, and a deal is a result of a sensible compromise. That's why FOB, FAS, C&F, CIF terms seem to be the most popular ones.

The initials FOB stand for Free oh Board. This term is a little bit confusing, because 'on Board' does not necessarily mean 'on board the ship'. 'On Board' may imply any means of transportation, namely plane, lorry, train.

So, if you really want to have your goods delivered 'On Board the Ship', you must specify FOB Vessel, Port of London, In general, the term FOB implies that the buyer becomes the owner of the goods the moment they have been placed over the ship's rail. The exporter has to deliver the goods as indicated above, to notify the other party, to get an export licence, if necessary; Customs formalities in his country are also the exporter's respon­sibilities.

The initials FAS stand for Free Alongside Ship. Under this term, the seller is responsible for the goods until the moment they are delivered to a port, where they will be loaded on a vessbl. Since that moment, the control over the goods passes on to the buyer and the latter will have to pay export taxes and loading charges, if any.

The initials C&F stand for Cost and Freight. Under this term the seller pays the ocean freighycosts, but does not pay for the insurance. If a deal is concluded on C&F terms, the buyer usually tries to minimize the risks involved in the transportation by buying insurance.

The initials CIF stand for Cost, Isurance, Freight. Under this term, the importer buys the goods, the freight and insurance from the exporter who arranges everything.

All these shipping terms have some advantages and disadvantages. CIF seems to be very popular even among exporters with a long record of international trade.