Understanding Shipping Terms

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Understanding shipping terms

If you are not significantly aware of the common Domestic shipping terms that are used in the shipping industry, then most definitely you will be unfamiliar with the various trading practices that are conducted in respective countries all-round the world. It is very important to know all the shipping terms exactly, otherwise, any default, in this case, can lead to great disputes regarding payments of freights, shipment prices, or cost-related to any kind of insurance or security. The trade rules of the shipping processes are termed as the “International Commercial Terms or Incoterms”. This is a series of rules regarding the shipment processes laid down by the International Chamber of Commerce or ICC. 


These rules are widely practiced in the International trading processes. These are a series of three-letter trade rules that are directly related to sales practices that are contractual. The Incoterms are implemented to communicate the costs, risks, and tasks associated with shipments of goods. These rules are approved by the government as well as by the legal practitioners and authorities for interpreting the terms related to international trading systems. These rules help in preventing uncertainties that arise from different ruling systems in different countries. Therefore, Incoterms are implemented in every sales contract all over the world. The Incoterms were first published in the year 1936. However, it has been updated since then, with its latest update being the “Incoterms 2010” publishes in the year 2011 on January 1st

Incoterm 2010

The Incoterms according to the Government legislations:

In many jurisdictions, the duty costs associated with goods are calculated against a particular Incoterm. For instance, in Incoterm India, the duty cost is calculated against the customs value associated with goods. Similarly, in South Africa, it is calculated against the “Freight on Board” value associated with goods. Therefore, it is common for the countries to use these terms while indulging in any export contracts, even if they are not quite suitable according to the mode of transport that is been selected. The shipping terms are discussed below:

EXW (EX Works)

Related to (named place for delivery)

The sellers are responsible for making the goods available at the said address or at any other named place. Here the maximum obligations lie on the buyers and minimum obligations lie on the sellers. The Ex-works is used to refer to any particular sale of items without including the cost. EXW means that there is risk associated with the process of shipment and the risk is incurred by the buyers while completing the delivery of the administrations. Either the seller avoids loading of the items on the vehicle or it remains unclear of the export or the sellers load the goods but does so at the buyer’s risk. If they agree on the terms that the seller should be held responsible for loading goods and bearing the costs associated with it, then only the contract proceeds further. If this is done, then some extra disclaimers should be put in wording in the contract.  

FCA (Free Carrier)

(Related to a named place for delivery)

The sellers deliver the items that are cleared for exports at a particular place including their premise. The goods or administrations can also be delivered by a carrier who is nominated by the buyer itself. In modern usage, the incoterms have replaced the wide usage of the FOB. However, the probability of risk is always there from loading up the vehicle for abroad ventures to the determined places. There is another pointer that should be kept in mind is that the place that is chosen has a direct impact on the loading and unloading procedures of the delivery of goods at that particular place. If the said delivery is conducted at the seller’s premises or is conducted under the seller’s guidance, then the whole process of loading and unloading of goods falls under the seller’s responsibility. Nevertheless, if the delivery is conducted at some other location, then the seller will only be responsible once to deliver the goods at the named place. Here, the buyer will be responsible for both unloading and loading the goods on their carrier. 

CPT (Carriage paid to)

(Related to the named place of the location)

CPT takes place of the CFR terms associated with every shipping mode that is beyond the non-packed sea freight along with the C&F. the seller is bound to pay for the transportation of goods up to the said location. However, the goods are already considered as delivered when the items are handed over to the primary or main carrier. Henceforth, the risk passes on to the buyer who has assigned the primary carrier at the said location in the exporting country. The original cost including the freight cost for transport carriage to the said location and the export clearance depends upon the seller and it falls under is complete responsibility. The destination has to be agreed upon by both the buyer and the seller. If the buyer wants insurance from the seller, then the incoterm known as the “CIF” will be considered instead.

CIP (Carriage & Insurance Paid to)

(Related to the named terminal at the port or the final destination)

This term is quite a bit of a replica to the above term CPT. The only exception is that here the seller is bound to obtain insurance for the administrations or goods during the transit. Here the policy must be in a similar currency as the contract and must allow the seller, the buyer, or anyone with an uncertain interest in goods to make a claim. CIP can be used while using all modes of transport, but the incoterm CIP must only be used for the non-packed sea freight.

DAT (Deliver at the terminal)

(Related to the named terminal at the port or the final destination): This incoterm states that the seller is bound to deliver the goods and then unload it at the stated terminal. Here the seller is required to cover all the costs related to transporting including the export fees, unloading charges, carriage charges, and the destination terminal charges. They are also required to assume all the possible risks associated with the delivery until the delivery of goods is complete at the end terminal or destination port. The end terminal can be an Airport, interchanged inland freight, or a port. However, the terminal must have the facilities and the capabilities to receive shipments. If the seller is unable to conduct the shipment then the shipping is ought to be done under the DAP terms instead. Every other charge after the unloading is done are to be deemed by the buyer itself. However, it is essential to note that any default or delay charges at the final destination or the end terminal have to be deemed by the seller and not the buyer.

DDP (Delivered Duty Paid)

(Related to the named terminal at the port or the final destination)

The seller is bound to deliver the goods to the stated location in the particular country of the buyer. The seller bears all the cost of the delivery including the charges associated with taxes and import duties. However, the seller is not responsible for the unloading process of the goods. The most essential consideration of the term DDP is that the seller is bound to deliver the goods via customs in the buyer’s country.

Understanding basic terms of shipping

The whole process of ordering something online and then getting them delivered at your doorstep is an excellent process. The procedure requires immense coordination between the shipping company and the merchant. Some of the basic terminologies of shipping terms along with domestic delivery terms in India are discussed below: 

Airway bill number (AWB number)

This number is a –digit tracking code used for tracking shipments. This number can be used to check the real-time status of the delivery and its exact positions. If your delivery is late, then you can use the AWB number to register you to complain to the logistics and the shipping company.

Shipping invoice

This document contains standard information that includes the address and the name of the receiver and the sender. It also reflects information about the ordered items, which includes the number of items, their price, any taxes that are applicable, any discounts that are been applied, and the final amount that is being paid.

Shipping Label

The shipping label is pasted right on top of the package. It describes the details of the package along with its original and destination address.

Shipping manifest

This document is proof that the shipment is handed over to the courier company. It has all the required information about the courier person including his name and contact details.

Freight bills

the freight bills are issued by the logistics and shipping company to the consignee. This bill contains all the details of the freight including the shipper’s name, actual weight, place of origin, the volumetric weight of the package, and lastly the final bill amount.

Ready to dispatch

This message is reflected when the shipment has left its place of origin. This message is provided after the AWB number has been processed and the shipment order is been assigned to the courier company.

COD label

Either this label is printed on the package or the delivery person carries the receipt. This label has complete information about the item, about the receiver, and the amount that is to be paid to the delivery person. The label also includes extra information like the weight and dimension of the product and the AWB number.

Generate pickup

This process reflects when the product that is order is confirmed and is finalized for shipping on a specific day. 

Missing orders

These orders are the once that could not be processed in the initial steps of logistics and shipping company. The factors that are responsible for such error includes an error in the payment process or items not properly selected at the time of the checkout, etc.

Return to origin (RTO)

This contains the address where the products can be sent back. The products can be sent to their place of origin i.e. at the merchant’s address.

Conclusion

The incoterms are used to eliminate the unpredictability in the various interpretations of shipping terms in various countries having various languages. Therefore, the international chamber of commerce came up with these incoterms for making the shipping process easier and better. Since the time the Incoterms were published in the year 1936, it has been updated and reformed to make all the terms and practices current.

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