Sea Freight | Sales Terms For Overseas Transactions

Things to consider when you are selling internationally.

When you are selling overseas, your customer needs to understand what they are paying for, and who is supposed to do what.

The last thing you need to have (not) happen, is for your shipment and payment to be delayed because your customer or you has misunderstood the responsibilities of each party.

If you are unsure as to your terms of sale and what you are comfortable with, then you should talk to your forwarding agent who can explain these terms and ensure you get the best services to match you sale terms.

These shipping terms are referred to as INCOTERMS and are common globally. The exception is USA where what they understand and the rest of the world understands is very often different. So, when dealing with the USA, you need to be particularly clear with what your customer expects when your are quoting export prices and terms of sale.

There are INCOTERMS to cover every possible transport option; but the vast majority of purchase terms are: EXW, FOB, CNF, CIF, DDU and DDP.

Depending on your level of comfort with any purchaser, you may require the additional security of having a Letter Of Credit, but that is a separate issue, and does not affect the shipping terms of any sale.

Overseas transactions for freight goods

As a general guide; this is what they mean:

EXW = ex works. Very simply, you have quoted a rate ex your factory/premises. You will pack the goods for export or may even pack the goods into a container for export – but your customer is responsible for providing the transport and container if the shipment is FCL (Full Container Load), plus all of the freight, port and handling charges this end; plus any marine/transit insurance, If you do not have the facilities to pack containers on site, then you may just give the cargo to your customer’s nominated agent for them to arrange the packing of the containers as well. Normally you would heve already been paid for the goods before pick up, but you may have some sort of account with your customer.

FOB = Free On Board. This is similar to EXW, except that you are responsible for the delivery of the goods to the port for shipping. From Australia, and/or unless you agree otherwise, all charges relating to export declarations, export documents and shipping line port and documentation charges are also the responsibility of the purchaser. The USA can be an exception if your customer thinks that FOB is actually EXW. You should always check with your customers that you both understand what is covered by your terms of purchase.

CNF = cost and freight. In this case, uou also arrange and pay the freight all the way from ex works to arrival at your customer’snominated port of discharge. In this case, it is theoretically (more later) the responsibility of your customer to arrange and pay for any insurance on the goods.

CIF = cost, insurance and freight. Similar to CNF except that you also arrange the transit insurance. As the seller, you should always check with your unsurer that the coverage is exactly what you expect it to be.

DDU = Door delivered, duty unpaid. Your are responsible for all charges for having the cargo delivered to your customer’s nominated address, but you are not responsible for any import duties, GST and customs entry fee.

DDP = Door delivered, duty paid. In this case you are responsible for all charges including any duties and taxes up to your customer receiving the goods. This is a very dangerous way to sell goods unless you are very sure of what import duties and taxes are applicable in the destination country.

 

Each of these arrangements has its place. There is no right or wrong reason to sell your goods under any of these terms, although some may make more sense depending on your customer and your specific requirements.