FREIGHT FORWARDING BIB 3350

INTRODUCTION Role of Freight Forwarder Manage logistics between exporter and buyer Close relationships with carriers, ports and terminals, and Customs Ensures compliance with regulations Ensures efficient transportation Network of agents and warehouses overseas Forwarders’ purchasing power means lower prices for the exporter Ensures cost-effective transportation

TRANSPORTATION Transportation, the movement of products from where they are made to where they are used, is the most expensive physical distribution function.

Transportation Modes There are five basic transportation modes, each offering distinct advantages. a) Railroads carry heavy, bulky freight that must be shipped long distances overland. b) Trucks provide the most flexible schedules and routes of all major transportation modes because they can go almost anywhere.

c). Waterways are the cheapest method. of shipping heavy, low-value, c) Waterways are the cheapest method of shipping heavy, low-value, nonperishable goods. d) Air transportation is the fastest yet most expensive form of shipping. e) Pipelines, the most automated transportation mode, usually belong to the shipper and carry the shipper’s products.

Transportation Modes for Various Product Railroads Coal Grain Chemicals Lumber Automobiles Steel Trucks Clothing Paper goods Computers Books Livestock Waterways Petroleum Iron ore Bauxite Airways Flowers Perishable food Instruments Emergency parts Overnight mail Pipelines Oil Processed coal Natural gas Water

Criteria for Selecting Transport Modes Distribution managers select a transportation mode based on the combination of cost, speed, dependability, load flexibility, accessibility, and frequency that is most appropriate for their product and generates the desired level of customer service.

a). Speed is measured by the total time a a) Speed is measured by the total time a carrier has possession of goods, including the time required for pickup and delivery, handling, and movement between points of origin and destination. b) Dependability of a transportation mode is determined by the consistency of service provided.

c). Load flexibility is the degree to which a c) Load flexibility is the degree to which a transportation mode can provide appropriate equipment and conditions for moving specific kinds of goods and can be adapted for moving other products. d) Accessibility refers to a carrier’s ability to move goods over a specific route or network. e) Frequency refers to how often a company can send shipments by a specific transportation mode.

Transportation Modes by Selection Criteria Cost Speed Dependability Load Flexibility Accessibility Frequency Railroads Trucks Waterways Airways Pipelines Moderate High Very low Very high Low Average Fast Very slow Very fast Slow Limited Very limited

INCOTERMS INCOTERMS constitute a contractual code made up of acronyms. INCOTERMS stands for International Commercial Terms.  They establish a standardized common language for buyers and sellers so that there will be no misunderstandings when using commercial terms and conducting international business deals.

“INCOTERMS” precisely define the responsibilities of the buyer and the seller and are recognized as the international standard by customs authorities and courts in all the main trading nations. INCOTERMS are a standard set of definitions for DELIVERY TERMS (also known as TERMS OF SALE)

The International Chamber of Commerce’s decision to reverse the widely used INCOTERMS 1990 was prompted by developments in technology and responds to an increased use of INCOTERMS in commercial practice worldwide.

Purpose of INCOTERMS The purpose of INCOTERMS is to create an internationally uniform set of regulations governing the interpretation of the most commonly used contractual terms in foreign trade agreements. Inconsistencies and uncertainties arising from the varying interpretation of such terms in different countries can be avoided or significantly reduced. Uniform guidelines reduce both the risk of legal complications and misunderstandings resulting from different trading practices.

INCOTERMS determine: Who arranges transportation? Who pays which transportation cost? Who has a right to shipping documents? Who insures, for how much, at what level of coverage?

EXW – Ex Works Title and risk pass to buyer including payment of all transportation and insurance cost from the seller's door. Used for any mode of transportation. Seller : In EXW shipment terms the Seller (Exporter) provides the goods for collection by the Buyer (Importer) on the seller or exporter's promise. Responsibility for the seller is to put the goods, in a good package which is adaptable and disposable by the transport.

Buyer : The buyer or Importer arranges insurance for damage transit goods. The Buyer or importer has to bear all costs and risks involved in shipment transactions. (However, if the parties wish the seller to be responsible for the loading of the goods on departure and to bear the risks and all the costs of such loading, this should be made clear by adding explicit wording to this effect in the contract of sale. )

FAS – Free Alongside Ship FAS- Free Alongside ship: Title and risk pass to buyer including payment of all transportation and insurance cost once delivered alongside ship by the seller. Used for sea or inland waterway transportation. The export clearance obligation rests with the seller. In FAS has price includes all the costs incurred in delivering the goods alongside the vessel at the port or nominated place of the buyer but there is not applicable charges to the seller for loading the goods on board of vessel and no ocean freight charges and marine insurance.

Seller: The responsibility of the seller are fulfilled when the goods are placed cleared along the ship. Buyer: Buyer or Importer bear all the expenses and risks of loss or damage of transit goods which are delivered along the ship.

FCA – Free Carrier Title and risk pass to buyer including transportation and insurance cost when the seller delivers goods cleared for export to the carrier. Seller is obligated to load the goods on the Buyer's collecting vehicle; it is the Buyer's obligation to receive the Seller's arriving vehicle unloaded. Seller : The Seller’s responsibility is to deliver the goods into the custody of the transporters at defined points. It is important for the chosen place of delivery to have an impact on the obligations of loading and unloading the goods.

Buyer : The Buyer nominates the means of transport or shipping mode and pays the shipment charges. The seller and the buyer agree upon the place for delivery of goods. If the buyer nominates a person other than a carrier or transporter to receive the goods, the seller is deemed to fulfill his obligation to deliver the goods when they are delivered to that person.

FOB – Free on Board The FOB (Free on Board) price is inclusive of Ex-Works price, packing charges, transportation charges up to the place of shipment. Seller also responsible for o clear customs dues, quality inspection charges, weight measurement charges and other export related dues. It is important that the shipment term in the Bill of Lading must carry the wording "Shipped on Board' it must bear with signature of transporter or carrier or his authorized representative with the date on which goods were "Boarded".

Seller :Seller responsible for clear customs dues, quality inspection charges, weight measurement charges and other export related dues. It is important that the shipment term in the Bill of Lading must carry the wording "Shipped on Board' it must bear with signature of transporter or carrier or his authorized representative with the date on which goods were "Boarded". Buyer : The buyer indicates the ship and pays freight, transfer expenses and risks is done when the goods passes or forwarding to the buyers warehouse by rail or ship.

CFR - Cost and Freight In this term the exporter bears the cost of carriage or transport to the selected destination port, in this term the risk transferable to the buyers at the port of shipment. Seller: The chooses the carrier, concludes and bears the expenses by paying freight to the agreed port of destination, unloading not included. The loading of the duty-paid goods on the ship falls on him as well as the formalities of forwarding. On the other hand, the transfer of risks is the same one as in FOB.

Buyer: The buyers supports all the risk of transport, when the goods are delivered aboard by ship at the loading port, buyer receives it from the carrier and takes delivery of the goods from nominated destination port.

CIF – Costs, Insurance and Freight Title and risk pass to buyer when delivered on board the ship by seller who pays transportation and insurance cost to destination port. Used for sea or inland waterway transportation. This Term involves insurance with FOB price and ocean freight. The marine insurance is obtained by the exporter at his cost against the risk of loss or damage to the goods during the carriage.

Seller: The CFR extends additional obligation to the seller for providing a maritime So insurance against the risk of loss or damage to the goods. The seller pays the insurance premium. Buyer: He supports the risk of transportation, when the goods have been delivered aboard the ship at the loading port. He takes delivery of the goods from the carrier to the appointed port or destination.

CPT – Carriage Paid To Title, risk and insurance cost pass to buyer when delivered to carrier by seller who pays transportation cost to destination. Used for any mode of transportation. This term uses land transport by rail, road and inland waterways. The seller and exporter are responsible for the carriage of goods to the nominated destination and have to pay freight up the first carrier.

Seller: The seller or exporter controls the supply chain after paying customs clearance for export. Seller or Exporter select the carrier and pay the expenses up to the destination. Buyer: The risks of goods damages or loss are supported by the buyer as goods are given by the first carrier. The buyer or importer has to pay importation customs clearance and the unloading costs.

CIP – Carriage and Insurance Paid To Title and risk pass to buyer when delivered to carrier by seller who pays transportation and insurance cost to destination. Used for any mode of transportation. This term is similar to Carriage Paid To but the seller has to arrange and pay for the insurance against the risk or loss or damage of the goods during the shipment.

Seller: The seller or buyer has to provide insurance and seller pays the freight and insurance premium. Buyer: The buyer or importer supports the risks of damages or loss, as goods are given to the first carrier. The buyer has to pay customs clearance and unloading charges.

DAF – Delivered At Frontier Title, risk and responsibility for import clearance pass to buyer when delivered to named border point by seller. Used for any mode of transportation. This term is used when the goods are to be carried by rail or road.

Seller : The seller is responsible to make the goods available to the buyer by the carrier till the customs border as defined in sales contract. Buyer : The buyer takes delivery of the goods at the contract agreed point border and he is responsible for bearing all customs formalities.

DES – Delivered Ex-Ship Title, risk, responsibility for vessel discharge and import clearance pass to buyer when seller delivers goods on board the ship to destination port. Used for sea or inland waterway transportation. Seller: The seller is responsible to make the goods available to the buyer up to the named quay or after crossing the customs border. Buyer: The buyer takes delivery of the goods from ship at destination port and pays the expenses of unloading.

DEQ – Delivered Ex-Quay Title and risk pass to buyer when delivered on board the ship at the destination point by the seller who delivers goods on dock at destination point cleared for import. Used for sea or inland waterway transportation.

DDU – Delivered Duty Unpaid Seller fulfills his obligation when goods have been made available at the named place in the country of importation. Seller: The seller is responsible for all transportation cost and accept the customs duty and taxes as per defined in customs procedures. Buyer: The buyer is responsible of the importation customs formalities.

DDP – Delivered Duty Paid Title and risk pass to buyer when seller delivers goods to the named destination point cleared for import. Used for any mode of transportation. Seller: The seller is responsible to make the goods available to the buyer at his risk and cost as promised by the buyer. All the Taxes and duty on importation is promised by the buyer to the seller. Buyer: The buyer is responsible to take delivery at a nominated place and pays the expenses for unloading of goods.

Differences in INCOTERMS 2000 Included in INCOTERMS 2000 are six minor differences from the 1990 version which could prove costly if ignored.  EXW, FAS, FCA, DEQ, DDU, and DDP were effected.

1. EXW 2000 Differences Ex Works The responsibility for loading cargo onto a collecting vehicle at the sellers/exporters premises is no longer the obligation of the seller/exporter. The buyer is now responsible. If there is more than one loading area at the sellers premises the seller has the option to designate any one of them for loading.

2. FAS 2000 Differences Free Alongside Ship The obligation of customs entry and obtaining an export license will change from the buyer/importer to the seller/exporter at the named port of sailing.

3. FCA 2000 Differences Free Carrier This now defines two possibilities. Delivery to the carrier at the premises of the seller, when the latter is under obligation to load the cargo onto the vehicle of the carrier. Delivery to the carrier at any other point such as a terminal, where the carrier on behalf of the buyer is responsible for discharging the shipment from the vehicle sent by the seller.

4. DEQ 2000 Differences Delivered Ex Quay The obligation for customs clearance and payment of import duties will change from the seller/exporter to the buyer/importer at the named port of destination. The 1990 version allowed for the seller/exporter to pay all customs duties & taxes.

5. DDU 2000 Differences Delivered Duty Unpaid Delivery takes place on the premises of the buyer, still loaded on the arriving vehicle. If delivery takes place elsewhere, delivery is completed by loading the cargo onto the vehicle sent by the buyer to collect the goods. This is more of a clarification than a change.

6. DDP 2000 Differences Delivered Duty Paid Delivery takes place on the premises of the buyer where the arriving vehicle cargos are discharged from the vehicle. If delivery takes place elsewhere, delivery is completed by loading the cargo onto the vehicle sent by the buyer to collect the goods. Again, this is more of a clarification than a change.

The four groups of INCOTERMS Group E - placing the goods at the disposal of the buyer Group F main carriage not paid by seller Group C main carriage paid by seller Group D delivered terms

 GROUP     ELEMENT      TERM      DESCRIPTION    E Departure EXW Ex Works F Main carriage    FCA     Free Carrier   unpaid   FAS Free Alongside Ship FOB Free On Board C Main carriage CFR Cost and Freight paid  CIF Cost Insurance and Freight CPT Carriage Paid To CIP Carriage and Insurance Paid To    D Arrival DAF Delivered at Frontier DES Delivered Ex Ship DEQ Delivered Ex Quay DDU Delivered Duty Unpaid DDP Delivered Duty Paid

Group E EXW – Ex Works “Ex works” means the seller’s only responsibility is to make the goods available at the seller’s premises, i.e., the works or factory. The seller is not responsible for loading the goods on the vehicle provided by the buyer unless otherwise agreed. The buyer bears full costs and risk involved in bringing the goods from there to the desired destination. Ex works represents the minimum obligation of the seller.

Group F FAS – Free Alongside Ship “FAS or “Free alongside ship” requires the seller to deliver the goods alongside the ship on the quay. From that point on, the buyer bears all costs and risks of loss and damage to the goods.  FAS requires the seller to clear the goods for export and the buyer to pay the cost of loading the goods

FOB – Free On Board Under FOB or “Free on board,” the goods are placed on board the ship by the seller at a port of shipment named in the sales agreement. The risk of loss of or damage to the goods is transferred to the buyer when the goods pass the ship’s rail (i.e., off the dock and placed on the ship). The seller pays the cost of loading the goods.

FCA – Free CArrier This term has been designed to meet the requirements of multimodal transport, such as container or roll-on, roll off traffic by trailers and ferries. It is based on the same name principle as FOB (free on board), except the seller fulfills its obligations when the goods are delivered to the custody of the carrier at the named place.

If no precise place can be named at the time of the contract of sale, the parties should refer to the place where the carrier should take the goods into its charge. The risk of loss or damage to the goods is transferred from seller to buyer at that time and not at the ship’s rail.  When a seller has been furnished a bill of lading, way bill or carrier’s receipt, the seller duly fulfills its obligation by presenting such a document issued by a carrier.

Group C CFR – Cost and FReight “CFR” requires the seller to pay the costs and freight necessary to bring the goods to the named destination, but the risk of loss or damage to the goods, as well as any cost increases, are transferred from the seller to the buyer when the goods pass the ship’s rail in the port of destination. Insurance is the buyer’s responsibility.

CIF – Cost, Insurance and Freight “CIF” is CFR, with the additional requirement that the seller procure transport insurance against risk of loss or damage to goods. The seller must contract with the insurer and pay the insurance premium. Insurance is generally more important in international shipping than domestic shipping, because U.S. laws generally hold a common carrier to be liable for lost or damaged goods.

CPT-Carriage Paid To This term means the seller pays the freight for the carriage of the goods to the named destination. The risk of loss or damage to the goods and any cost increases transfers from the seller to the buyer when the goods have been delivered to the custody of the first carrier, and not at the ship’s rail.

Accordingly, “freight/carriage paid to” can be used for all modes of transportation, including container or roll-on roll-off traffic by trailers and ferries. When the seller is required to furnish a bill of lading, way bill, or carrier receipt, the seller duly fulfills its obligation by presenting such a document issued by the person contracted for carriage to the main destination.

CIP – Carriage & Insurance Paid to This term is the same as “freight/carriage paid to (CPT) but with the additional requirement that the seller has to procure transport insurance against the risk of loss or damage to the goods during the carriage. The seller contracts with the insurer and pays the insurance premium.

Group D DAF – Delivered At Frontier “Delivered at frontier” Means that the seller’s obligations are fulfilled when the goods have arrived at the frontier but before the customs border of the country named in the sales contract. The term is primarily used when goods are carried by rail or truck. The seller bears the full cost and risk in delivering the goods up to this point, but the buyer must arrange and pay for the goods to clear customs.

DES – Delivered Ex Ship This term means the seller shall make the goods available to the buyer on board the ship at the place named in the sales contract. The seller bears the full cost and risk involved in bringing the goods there. The cost of unloading the goods and any customs duties must be paid by the buyer.

DEQ – Delivered Ex Quay Means the seller has agreed to make the goods available to the buyer on the quay or the wharf at the place named in the sales contract. The seller bears the full cost and risk in delivering the goods to that point including unloading.

Delivered Duty Unpaid Under this term, the seller fulfills his obligation to deliver when the goods have been made available to the buyer un-cleared for import at the point or place of the named destination. The seller bears all costs and risks involved in bringing the goods to the point or place of named destination. There is no obligation for import clearance.

Delivered Duty Paid Represents the seller’s maximum obligation Delivered Duty Paid Represents the seller’s maximum obligation. The term “DDP.” is generally followed by words indicating the buyer’s premises. It notes that the seller bears all risks and all costs until the goods are delivered. This term can be used irrespective of the mode of transport. If the parties wish to make clear that the seller is not responsible for certain costs, additional words should be added (for example, “delivered duty paid exclusive of VAT and/or taxes”).

Guidelines to use INCOTERMS Always specify which terms are applicable ie FAS in INCOTERMS 2000 as opposed to INCOTERMS 1990. When completing documents ensure that you are using the correct format of a term. The term CFR is persistently misused/replaced with C&F or C+F .

Urge your trading partners to confirm their acceptance of the specified term in writing. Draw up a check list of your duties and rights under the selected term and check that every intended or completed transaction conforms to this list, and that nothing is omitted

Request your trading partner to do the same, and exchange this information with them. Change or add nothing, but in any event as little as possible to the selected term. In case of any inevitable change or addition, inform your trading partner and request them to accept it in writing. Such an addition could be 'stowed and trimmed' to FOB.

Compare your duties and rights under the selected INCOTERM(S) with your company's standard terms of sales (or purchase), to make sure that there are no conflicts. If your business is run under standard conditions established by a trade body or similar association, request that this association amend its terms on behalf of all the membership.

In the event of such conflict(s), amend your standard conditions, rather than the INCOTERM(S), in order to remedy the problem. If the standard conditions are those of an association, act similarly through this association.

Never instruct the carriers or any third party to do or omit anything on the basis of the INCOTERMS which do not apply to them at all. Inform your bank and insurance company which INCOTERM(S) have been selected for your business, so that they can determine exactly what your duties and rights are with regard to a transaction in which they may have a role to play.

Pre Shipment Documents Quotation Pro-Forma Invoice Purchase Order, Portrait Order Conformation, Portrait Order Acknowledge

Financial & Commercial Trade Documents Commercial Invoices Memorandum of Shipping Commercial Invoice, No HTS Number Domestic Invoice Certificate of Origin Bank Draft & Transmittal Letter

Packaging Documents Packaging List, Break Bulk Packaging List, Ocean Container Packaging List, No Value

Shipping Documents Inland Bill of Lading FAA Certificate Consignment Instructions Dock Receipts Delivery Order Ocean Bill of Lading Shippers Letter of Instruction Cargo Labels

Customs Documents Shippers Export Declaration Certificate of Origin Customs Invoice Certificate of Destruction / Export

Cline-Specific Documents