It is crucial to understand who owns and takes responsibility for goods shipped internationally.
The International Chamber of Commerce created 13 International commercial terms in 1936 to help consignors and consignees understand each other better. These terms, also known as Incoterms, are used by the buyer and seller of goods for shipping. These Incoterms are accepted by all governments, freight forwarders and lawyers around the globe, making it easier for sellers and buyers to communicate.
Although it’s not necessary to know all the Incoterms completely, it’s essential to be familiar with them and to have a good understanding. Here are 13 terms that you can start with.
1. FOB Shipping
FOB shipping is the most popular shipping method. FOB stands either for “Free On Board” or “Freight On Board”. This shipping means that the buyer will take responsibility for the shipment as soon as the goods leave the seller’s shipping dock. The seller must record a sale as soon as the goods leave the seller’s dock. The buyer must also record an increase in inventory, as the buyer is taking on both the risks and the rewards of owning the goods. The supplier will not be held responsible for damages caused by delivery.
2. CIF and CNF Shipping
CIF stands to represent ‘Cost, Insurance, and Freight’. CIF shipping means that the price quoted to the buyer includes delivery costs and insurance. This is to ensure compensation for loss or damage to goods. Delivery of the consignment is up to the port responsibility of the seller. Delivery beyond your port is the responsibility of the buyer. After the goods have left the port, the seller registers a sale, and the buyer also records an increase in inventory.
CNF stands to mean ‘Cost and Freight’, or ‘Cost without Insurance, Freight’. CNF shipping can also be referred to as CFR (Cost and Freight). CIF shipping is an alternative to CIF, except that it includes insurance coverage for loss or damage to the shipment. The seller remains responsible for shipping sea freight to your port. The buyer is responsible for delivery once the consignment has left the dock. Although CNF shipping costs are less expensive, there are additional costs once the goods arrive at your port. These include import duty, VAT clearance, customs clearance and docking fees. Warehouse fees for storage, port security, fuel surcharge, and port security fees. Before you decide on CNF shipping, it is essential to know the additional costs that may be required at the port. Only then can it be determined if CIF shipping is actually cheaper.
3. LCL and FCL Shipping
LCL is short for ‘Less than Container Load. LCL is when the goods being shipped are too small to fit in a shipping container. A consolidator is hired by the shipper to arrange for the shipment to be sent in the same container as other shippers. Consolidators organize for different shippers’ goods to be transported together in one container. The loads are then separated at the destination dock and shipped to their final destinations. LCL shipping is an economical method to dispatch goods that don’t fit into a container. It is trendy.
FCL stands to indicate ‘Full-Container Load’. FCL shipping means that all goods are contained in a container belonging to one shipper. FCL shipping is booked by a shipper who has sufficient cargo to fill the container. FCL shipping does not require that the container be loaded fully. FCL simply means that a shipper owns the container for the trip. FCL allows for faster and safer shipping than LCL shipping. LCL is slower because it consolidates different shipping.