Monday 20 Nov 2017

Chain of Ownership (Incoterms)

As some point during the shipping process, legal ownership of the products passes from your supplier to you.  When this actually occurs is a highly technical matter that affects who pays for shipping, who pays for insurance, and when the risk of damage passes from your supplier to you.

While your supplier typically sets out the terms of ownership, they are negotiable.  However, when discussing these terms with your supplier, you’ll need to be clear and specific, because even small misunderstandings can lead to big arguments later on about who bears what risk and cost.

When discussing shipping, you’ll probably come across something called the Incoterms (the International Commercial Terms), a set of standardized terms coined by the International Chamber of Commerce (www.iccwbo.org) to describe the different ways ownership and risk passes from the supplier to the buyer.  There are 13 Incoterms in all, ranging from least to greatest risk to the supplier.

  • Ex Works (EXW).  Supplier’s obligations and risks end when buyer takes possession of products at supplier’s premises, with no stipulations for shipping or export.
  • Free Carrier (FCA).  Supplier’s obligations and risks end when supplier delivers products to buyer’s shipping carrier, cleared for export.
  • Free Alongside Ship (FSA).  Supplier’s obligations and risks end when supplier places products alongside shipping vessel at port of exit, cleared for export.
  • Free on Board (FOB).  Supplier’s obligations and risks end when supplier places products past shipping vessel’s rail, cleared for export.
  • Cost and Freight (CFR).  Ownership and liability changes when supplier places products past shipping vessel’s rail, cleared for export.
  • Cost, Insurance, and Freight (CIF).  Supplier’s obligations and risks end when supplier places products past shipping vessel’s rail, cleared for export.  But supplier is obligated to buy minimal marine insurance.
  • Carriage Paid To (CPT).  Supplier’s obligations and risks continue until delivery to buyer’s destination.  Buyer assumes risk only after taking delivery of products.
  • Carriage and Insurance Paid To (CIP).  Supplier’s obligations and risks continue until delivery to buyer’s destination.  Supplier pays for insurance and cost of delivery.
  • Delivered at Frontier (DAF).  Supplier’s obligations and risks continue until delivery of products to buyer’s designated destination, without products being unloaded from means of transport.
  • Delivered Ex Ship (DES).  Supplier’s obligations and risks continue until products reach designated port, onboard shipping vessel, but not yet cleared for import.  Buyer must clear products for import.
  • Delivered Ex Quay (DEQ).  Supplier’s obligations and risks continue until products are unloaded onto quay (dock or wharf) at designated port, but not yet cleared for import.  Buyer must clear products for import.
  • Delivered Duty Unpaid (DDU).  Supplier’s obligations and risks continue until buyer accepts delivery of products at designated destination, not yet cleared for import and not yet unloaded.  Buyer must clear products for import.
  • Delivered Duty Paid (DDP).  Supplier is responsible for all costs, including import and delivery fees.

 

incoterms-scams

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