Shipping Terms

Incoterms - a.k.a. Trade Terms are key elements of international contracts of sale. They tell the parties what to do with respect to carriage of the goods from buyer to seller, and export & import clearance. They also explain the division of costs and risks between the parties. The incoterms define the role between seller and buyer at an international transaction. Who has to do what en at what time? In the contract between the seller and the buyer, the following is determined:

• The duties of the buyer and the seller.
• Who takes care of the insurances, licences, permissions and all other formalities.
• Who arranges the transport untill which point and who is responsible for this.
• The point where the costs and risks pass on from the seller to the buyer.

There are thirteen different incoterms in Incoterms 2000 and 2010. These incoterms take care of the international rights and duties from the buyer and the seller. Six of of the thirteen incoterms are about ocean freight. The remaining seven incoterms are regarding all transport modalities. The Incoterms are being prepared and published by the International Chamber of Commerce (ICC).

EXW - ExWorks (2000 and 2010)

This term represents the seller's minimum obligation, since he only has to place the goods at the disposal of the buyer. The buyer must carry out all tasks of export & import clearance. Carriage & insurance is to be arranged by the buyer.

FCA - Free Carrier (2000 and 2010)

This term means that the seller delivers the goods, cleared for export, to the carrier nominated by the buyer at the named place. Seller pays for carriage to the named place.

FAS - Free Alongside Ship (2000 and 2010)

This term means that the seller delivers when the goods are placed alongside the vessel at the named port of shipment. The seller is required to clear the goods for export. The buyer has to bear all costs & risks of loss or damage to the goods from that moment. This term can be used for ocean transport only.

FOB - Free On Board (2000 and 2010)

This term means that the seller delivers when the goods pass the ship's rail at the named port of shipment. This means the buyer has to bear all costs & risks to the goods from that point. The seller must clear the goods for export. This term can only be used for ocean transport. If the parties do not intend to deliver the goods across the ship's rail, the FCA term should be used.

CFR - Cost and Freight (2000 and 2010)

This term means the seller delivers when the goods pass the ship's rail in the port of shipment. Seller must pay the costs & freight necessary to bring the goods to the named port of destination, BUT the risk of loss or damage, as well as any additional costs due to events occurring after the time of delivery are transferred from seller to buyer. Seller must clear goods for export. This term can only be used for ocean transport.

CIF - Cost, Insurance, Freight (2000 and 2010)

The seller delivers when the goods pass the ship's rail in the port of shipment. Seller must pay the cost & freight necessary to bring goods to named port of destination. Risk of loss & damage same as CFR. Seller also has to procure marine insurance against buyer's risk of loss/damage during the carriage. Seller must clear the goods for export. This term can only be used for ocean transport.

CIP - Carriage and Insurance Paid (2000 and 2010)

This term is the same as CPT with the exception that the seller also has to procure insurance against the buyer's risk of loss or damage to the goods during the carriage. This term may be used for any mode of transportation.

CPT - Carriage Paid To (2000 and 2010)

This term means that the seller delivers the goods to the carrier nominated by him but the seller must in addition pay the cost of carriage necessary to bring the goods to the named destination. The buyer bears all costs occurring after the goods have been so delivered. The seller must clear the goods for export. This term may be used irrespective of the mode of transport (including multimodal).

DAF - Delivered At Frontier (2000)

This term means that the seller delivers when the goods are placed at the disposal of the buyer on the arriving means of transport not unloaded, cleared for export but not cleared for import, at the named point & place at the frontier - but before the customs border of the adjoining country. To be used when delivering to a land frontier.

DES - Delivered Ex Ship (2000)

Seller delivers when goods are placed at the disposal of the buyer on board the ship, not cleared for import at the named port of destination. The seller bears all costs & risks in bringing the goods to the named port before discharging. This term can only be used when the goods are to be delivered by ocean.

DEQ - Delivered Ex Quay (2000)

This term is the same as DES with the exception that the seller is responsible to place the goods at the disposal of the buyer, not cleared for import, on the quay (wharf) at the named port of destination. Seller bears all costs & risks as in DES plus discharging the goods on the quay. This term can only be used in ocean transport.

DDU - Delivered Duty Unpaid (2000)

This term means the seller delivers the goods to the buyer, not cleared for import, and not unloaded from arriving means of transport at the named place of destination. The seller bears all costs & risks involved in bringing the goods to the named place other than "duty" (which includes the responsibility for customs formalities & payment of those formalities, duties & taxes) for import into the country of destination. Buyer is responsible for payment of all customs & duties & taxes.

DDP - Delivered Duty Paid (2000 and 2010)

This term represents maximum obligation to the seller. This term should not be used if the seller is unable to directly or indirectly to obtain the import license. The terms means the same as the DDU term with the exception that the seller also will bear all costs & risks of carrying out customs formalities including the payment of duties, taxes & customs fees.

DAT – Delivered at Terminal (named terminal at port or place of destination) (2010)

Seller pays for carriage to the terminal, except for costs related to import clearance, and assumes all risks up to the point that the goods are unloaded at the terminal.

DAP - Delivered At Place (named place of destination) (2010)

Seller pays for carriage to the named place, except for costs related to import clearance, and assumes all risks prior to the point that the goods are ready for unloading by the buyer.

Ad Valorem

(“at value”) – an ad valorem freight rate is one where the freight is based on the value of the goods. An ad valorem bill of lading is one where the value of the goods is shown on the face of the document, which value then becomes the carrier’s limit of liability, in return for this increased liability the carrier will charge an addition to the sea freight.

Agent

A person or company authorized to transact business for and in the name of another person or company.

Arbitrary

An additional rate charge over an already fixed rate, when freight has to be moved by an additional source of transport from one point, to get to another point.

BAF

Bunker Adjustment Factor: Adjusts the freight to reflect current cost of bunkers (fuel for ships)

B/L or BOL

Bill of Lading – acts as a receipt for the cargo and contains the terms of the contract of carriage and is a document of title to the goods and contains all related parties of the trading transaction with full cargo description.

Bonded Warehouse

A place of security approved by the customs authorities for the deposit, keeping and securing of goods liable to excise duty, without payment of this duty.

Box

A colloquial name for a sea freight shipping container

Break Bulk

Goods shipped loose in the vessels hold and not in containers.

CAF

Currency Adjustment Factor – adjusts the freight to reflect currency exchange fluctuations.

CABAF

Currency and Bunker adjustment factor, a combination of CAF and BAF.

CAN/PRA

CAN – Customs Authority Number It’s the number given by customs upon the clearance of export goods.

PRA – Pre Receival Advice

It’s the electronic lodgement to the wharf for notification of a container coming in for export.

Cartage

Refers to the intra-city haulage of goods on drays (heavy side less cart) or trucks.

Certificate of Origin

A document certifying the country of origin of goods which is normally issued or signed by a Chamber of Commerce or Embassy.

CFR

Cost and Freight. An Incoterm where the seller includes the cost of transportation in the price for his goods (freight pre-paid). Formerly known as C&F. Does not include Marine Insurance.

CFS

Container Freight Station – a place for the packing and unpacking of LCL consignments.

DAFF

Department of Agriculture, Fisheries and Forestry. A government body protecting Australia from contaminated fauna and flora.

Duty

Is a particular percentage (depending on commodity) of the FOB value, which is paid to the government. The FOB value is the cost of the goods plus any other charges to get those goods on to a vessel

EHA

Equipment Handover Agreement – Acknowledging the condition of the carriers equipment when taking over and returning it, incorporating contractual terms under which the equipment is taken over.

ETA

Estimated Time of Arrival – indicates the estimation of the date/hour, the carrier believes the cargo, vessel or container will arrive at a nominated point/port.

ETD

Estimated Time of Departure – see above.

EXWORKS

An Incoterm when the seller’s only responsibility is to make the goods available at his premises for pick up.

FAK

Freight all kinds – refers to full container loads of mixed shipments for different consignees.

FCL

Full Container Load- an arrangement whereby the shipper utilises all the space in a container which he packs himself.

FCX

Full container shipments from multiple suppliers for the one consignee.

Flat Rack

Container bottom specifically for heavy lifts and over width cargoes. Noncontainerisable cargo can be accommodated on several flats positioned side by side.

FMC

Federal Maritime Commission – US Federal Authority governing sea transport.

Feeder Vessel

A Short-sea vessels used to fetch and carry goods and containers to and from deep-sea ports/vessels.

Freight

The amount of money payable for the carriage of goods. Sometimes erroneously used to describe the goods, which are more correctly described as “cargo” in marine transportation.

GP

General Purpose – A closed steel container for the carriage of all types of general, non-hazardous cargo. 20’ & 40’ available in GP.

GST

Goods and Services Tax – worked out as 10% of the CIF value + the duty amount. The CIF value is the cost of goods + marine insurance + freight amount (cost to get cargo to destination port) + duty.

Hazchem Code

Hazardous chemical code placed on tankers carrying dangerous chemicals.

Hi-Cube

Is a container which is slightly (bigger) higher than a General Purpose container. Available in both 20’ & 40’.

CIF

Cost, insurance and freight. An Incoterm where the seller arranges and pays for the main carriage to the port of destination and organises the insurance cover for the cargo, while in transit.

CRN

Customs Register Number – is the number allocated by customs to an export, agent or freight forwarder for use when exporting goods on the same shipment from more than one shipper.

CT

Combined transport – carriage by more than one mode of transport under one contract of carriage.

CY

Container Yard – a collection and distribution point for FCL containers.

Conference

An organisation of a group of shipping lines operating in one trade who have agreed to operate a common tariff.

Consortium

A group of ‘Combined transport’ operators who agree to rationalise sailing in a trade and carry each others cargo.

Cut Off Date

The last date for which goods can be accepted for anominated sailing.

Consignee (CNEE)

The party to whom a consignment is dispatched, having legal title to the goods.

Consignor (CNOR)

The sender of the goods.

Consignment Note

A document that describes a consignment moving from one point to another, also known as advice or dispatch note or Con note.

COD

Cash on delivery – full payment for goods on delivery.

Deconsolidation Point

Place where loose or other non-hazardous cargo is ungrouped for delivery.

Demurrage

A charge raised for detaining cargo containers or trailers for a longer period than provided for in the tariff.

D/O

A document given to the party surrendering the original Bill of Lading, authorising them to take delivery of the goods.

Documentary Credit

The basis of international trade by means of which payment is made against surrender of specified documents.

Drawback

Repayment of duty upon re-exportation of goods previously imported.

House Bill of Lading

Issued by a freight forwarder or consolidator covering a single shipment containing the names, addresses and specific description of the good shipped.

ICC

International Chamber of Commerce.

IMDG Code

International Maritime Dangerous Goods Code – contains the IMO recommendations for the carriage of dangerous goods by sea. The form needed for export of this sort of cargo is known as an MO41 and is available from a freight forwarder. Paperwork for imported dangerous goods comes from the supplier.

IMO

International Maritime Organisation – a UN body charges with the duty of making safety and anti-pollution conventions and recommendations concerning sea transport.

Incoterms

A list of standard terms sated by the ICC for all foreign trade contracts, which lists the respective responsibilities of the buyer and seller.

Insulated Container

Specifically for cargoes requiring transport at a constant temperature above or below freezing point. This is controlled by the ship’s or the terminal’s cooling plant or a clip on reefer unit.

ISO

International Standards Organisation – a body responsible for, inter alia, setting standards for container construction.

L/C

Letter of Credit – a document in which the terms of documentary credit transactions are set out.

LCL

Less than Container Load – when a parcel is too small to fill a container, it is grouped by the carrier at a ‘CFs’ depot, with other compatible cargo, for the same destination.

L/I

Letter of Indemnity – sometime also called a letter of guarantee, if an original b/lading has become lost or delayed it allows the consignee to take delivery of his goods.

Lo/Lo (or EHC)

Lift On Lift Off – a wharf charge for the lifting of containers on and off a vessel.

Liner

A vessel plying a regular pattern of trade on a defined route under a published sailing schedule.

MMO

Multi Modal Operator

Manifest

List of goods or passengers on a vessel/aircraft

Non Conference

A shipping line which does not participate in a consortium with other lines for tariff agreement.

NVOC(C)

Non Vessel Operating (Common) Carrier – a carrier issuing bills of lading for carriage of goods on vessels which they neither own or operate.

Notify Party

The party to whom the cargo arrival notice is sent

O/H

Over Height – a container with cargo exceeding the height of the container.

O/S

Open Sided – A container with open sided for over width cargo.

O/T

Open Top – A container with open top loading facility, suitable for the carriage of heavy, over height cargo’s equipped with tarpaulin roof.

OOG

Out Of Gauge – goods whose dimensions exceed those of the container in which they are packed.

O/W

Over Width – a container with goods producing beyond the sides of the container/flat rack onto which they are packed.

Packing List

Document required by the buyer and Customs, indicating content being shipped, or contents of each package.

Packing Declaration

Document required by DAFF which states how the shipment as been packed with regards to straw, timber and bark. The packing declaration must be completed in full including a numerical link i.e. container or bill number and issued on supplier’s own letterhead to be accepted by quarantine.

POA

Place of Acceptance – the place where the goods are received for shipment of transit and where the carrier’s liability commences.

POD

Place of Discharge – the place where the goods are discharged and carrier’s liability ends. It can also mean;Proof of Delivery – a signed receipt acknowledging delivery.

POL

Port of Loading – the port at which accepted cargo is loaded onto a vessel.

Principle Carrier

The carrier who issues the B/Lading regardless of whether or not the goods are carried on their own, a third party’s or consortium members vessel.

PSC

Port Service Charge. Cost of loading, unloading FCL consignment at the terminal.

RO/RO

Roll On Roll Off – a vessel onto which goods can be driven,via ramp.

Routing Order

Document given to a supplier for instruction of buyer whom cargo is to be routed through, i.e. freight forwarder or forwarders agent in country of origin.

Reefer

A refrigerated container.

SOB

Shipped on Board – and endorsement on the bill of lading confirming that the goods have been loaded on board.

Shipper

The person who tenders the goods for carriage. Not to be confused with the party issuing the bill of lading or the vessel operator, who is the carrier.

Short Shipped

Goods not carried on the intended vessel.

Slot

The space on board a vessel occupied by a container. Also known as the time booked to deliver a container to the wharf.

TEU

Twenty-Foot Equivalent Unit – i.e. 1 x 20ft = 1 TEU, 1 x 40ft = 2 TEU

THC

Terminal Handling Charge – a charge for handling containers at ocean terminals/wharfs.

Tare Weight

The actual weight of the empty container, not including the goods.

Tariff

The terms, conditions and scale of charges for carriage.

Transship

When cargo is discharged from one ship and loaded onto another in order to reach a port of no direct service or as a cheaper alternative to the direct service.

Waybill

A bill of lading that acts as receipt for the goods and evidence of the contract for carriage. A way bill is a bill of lading that is not a document and can be defined as follows: a receipt for goods, is evidence of the contract, is a non-negotiable document. Under a waybill, delivery will be affected to a nominated consignee upon proof of identity. As a title it presents a personal contract between the shipper and the carrier only. There is (at present) no mandatory law or convention and the parties have absolute freedom of contract.

Vent

Container which contains ventilations sites to prevent condensation accumulating on cargo.