How is it applied in practice? After the shipper has sold his goods, all shipping terms fall on the buyer’s shoulders. The cargo recipient contacts the logistics company, provides the factory address, and requests shipping to the final destination. He indicates whether he must carry out customs clearance of the cargo or has his own customs representative.
The Chinese market interprets the term EXW ambiguously. So, a Chinese supplier can sell goods on EXW terms while giving free cargo freight to one of the consolidation warehouses in China. But these will still be EXW terms since he does not custom his goods.
Another advantage of this scheme is that the consignee controls his cargo at each stage. This is very convenient, but more expensive since the goods price does not include any logistics.
An important point: it is necessary to specify the plant or factory address from where you need to pick up the cargo – this affects the delivery cost in China and the final price of the goods.
FCA (Free Carrier)
The next freight basis is FCA. It differs from EXW only because the seller arranges his cargo for export. The supplier sells the shipment to the buyer, but at the same time, undertakes to carry out export clearance and bear the costs for it. He must obtain an export license and accreditation at customs to do this. All other terms repeat EXW rules.
If the supplier agrees to deliver the cargo to the address specified by the buyer without paying for export declaration, these are not FCA terms. The FCA rules apply only if the seller has made a “customs clearance”.
FOB (Free On Board)
During the FOB term, the seller undertakes to ship the goods to the container carrier and load it on board. He provides all the logistics before loading on a board until the container appears on the vessel.
There is an important point here. The seller transfers the rights to the cargo when the container crosses the ship’s side. After that, the buyer is responsible for the goods. He also has to charter a place for the goods and pay subsequent costs.
Roughly speaking, FOB is all local expenses on the supplier’s territory until the moment of loading on the ship. After that, the consignee takes responsibility and costs for the cargo.
CIF (Cost, Insurance, and Freight)
CIF terms include – these are, in fact, FOB rules, except that sea freight and insurance policy is the responsibility of the cargo sender.
He also makes an export declaration, shipping the container to the port, paying for loading and unloading, insurance, loading on board the ship, and sea freight to the destination port.
The consignee’s financial responsibility begins when the ship arrives at the destination port, including unloading, customs clearance, and delivery to the export country.
CFR (Cost and Freight)
Under the CFR terms, the CIF rules apply, but with one exception – without insurance. This term is specified when the seller does not want to insure the cargo.
The supplier relieves himself of obligations for the cargo when he transfers it to the buyer on board the ship and also draws up the customs of the country of export, paying duties. In this case, the seller pays for the freight. Import and unloading upon arrival are on the buyer’s shoulders.
Are you still confused about terms? Contact the experts – PartnerTrade managers will be glad to advise you on any direction and time of cargo freight.
Cost and Freight (CFR), Cost, Insurance and Freight (CIF) and Free on Board (FOB) are three of the terms included in the International Chamber of Commerce's International Commerce Terms (Incoterms).
Six commonly used terms in international commerce are EXW (Ex Works), FOB (Free On Board), CFR (Cost and Freight), CIF (Cost, Insurance, and Freight), DDU (Delivered Duty Unpaid), and DDP (Delivered Duty Paid). Understanding the nuances of these terms is essential for businesses engaging in cross-border transactions.
List of Incoterms explained. Incoterms are categorized into two main groups to facilitate understanding and application in international trade: 7 rules for any mode of transport (EXW, FCA, CPT, CIP, DAP, DPU, DDP).4 rules for sea and inland waterway transport (FAS, FOB, CFR, CIF).
It's one of the easiest for sellers, who only have to make the buyer's shipment available for pickup. That said, we also see the following Incoterms used with relative frequency: DDP (Delivered Duty Paid), FOB (Free on Board), CIF (Cost, Insurance, and Freight), and FAS (Free Alongside Ship).
It's important to consider your specific business needs and preferences when choosing between FCA and EXW. FCA offers more flexibility and control over transportation, while EXW places the burden of logistics entirely on the buyer.
FOB is only used in waterway shipments. Under FOB, the seller is responsible for loading the cargo onto the vessel, but with FCA, it is the buyer's responsibility. FCA transfer risk takes place at an agreed-upon point, whereas with FOB, the buyer assumes the risk on the vessel.
What is FCA Incoterms? Under the shipping terms for the FCA Incoterms (short for “Free Carrier”), the seller is responsible for export clearance and delivery of goods to the carrier at the named place of delivery.
Free carrier is a trade term dictating that a seller of goods is responsible for the delivery of those goods to a destination specified by the buyer. When used in trade, the word "free" means the seller has an obligation to deliver goods to a named place for transfer to a carrier.
Incoterms. When goods are bought or sold "Ex Works" (EXW) it means that the Seller is making the goods available at their factory or warehouse. The buyer is then free to come and pick up the goods. Ex Works places full responsibility for cost and risk with the buyer, as the buyer has to arrange everything.
What are INCOTERMS? INCOTERMS are the language you'll need when you're trading abroad, defining the trade contract responsibilities and liabilities between a buyer and a seller. They cover who is responsible for paying freight costs, insuring goods in transit and covering any import/export duties, for example.
In choosing the right incoterm, buyers and sellers must consider their experience level. For example, EXW Incoterm is not suitable for importers. A buyer with more experience importing goods can decide on Ex Works Incoterm. DAP, DDP, and DPU Incoterms are good for importers with little experience.
Scroll down to the next section. CIF (Cost, Insurance, and Freight) and FOB (Free On Board) are both shipping terms, used to define the responsibilities and obligations of the buyer and seller when trading goods internationally.
What does cost and freight (CFR) entail? Cost and freight (CFR) is an expense associated with cargo transported by sea or inland waterways. If CFR is included in a transaction, the seller must arrange and pay for transporting the cargo to a specified port.
The Code of Federal Regulations (CFR) is the codification of the general and permanent rules published in the Federal Register by the executive departments and agencies of the Federal Government. It is divided into 50 titles that represent broad areas subject to Federal regulation.
With FOB, title possession and liability usually shift when the shipment leaves the point of origin. With CIF, responsibility moves to the buyer once the goods reach the point of destination. Simply put, on the whole it's recommended that buyers use FOB, and sellers use CIF.
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