About International Procurement: Freight

Prepaid and related incoterms

Abstract:
“Freight Collect” & “Freight Prepaid” are two shipping terms, which indicate whether
consignee has the primary liability to the carrier for the shipping charges in a procurem
ent process. EXW, FCA, FOB, FAS etc Incoterms are used for “Freight Collect” shipment
. Now, we would like to discuss about incoterms which can be used for different types of
“Freight Prepaid” shipments based on Incoterms 2010 published by ICC.

Introduction:
Transportation is one of the Drivers of Supply Chain. The term Freight denotes
transportation charges. The International Commercial terms or INCOTERMS refers to
whether the shipper/consignee responsible to pay the freight or transportation charges.

The Incoterms:
“Freight Collect” & “Freight Prepaid” are two shipping terms, which indicate whether
consignee has the primary liability to the carrier for the shipping charges in a
procurement process. If it is a “Freight Prepaid” shipment, then the carrier is supposed
to invoice to shipper for the transportation charges. Conversely, if it is a “Freight
Collect” shipment, the carrier is supposed to invoice the consignee. The Incoterms CFR,
CIF, CPT, CIP, DAT, DAP, DDP require repayment of cost of the main carriage or
shipping cost by seller/shipper. EXW, FCA, FOB, FAS etc Incoterms are used for
“Freight Collect” shipment. Now, we would like to discuss about incoterms which can be
used for different types of “Freight Prepaid” shipments based on Incoterms 2010
published by ICC:
“Main Carriage paid by Supplier” group of incoterms:

CFR: Cost and Freight (Named Port of destination)

Sellers arrange transport and pay all the freight charges, so that the goods may be
brought to a named destination port. Point of delivery of goods and transfer of risk is
when the respective goods pass ship’s rail at the destination port. Previously, it was
called CNF or C&F. This incoterm is used for sea bound shipments.

CIF: Cost, Insurance and Freight (Named Port of Destination)

This incoterm is exactly same as CFR, except seller need to pay insurance also. It’s only
applicable for Maritime and inland waterway shipments.

CPT: Carriage Paid to (Name place of destination)

All kind of shipments (general/multimodal/containerization) are included for CPT. Not
only sea shipments. Point of transfer of risk happens upon delivery of goods at the
country of export.

CIP: Carriage and Insurance paid to (Named place

of destination)
This incoterm is exactly same as CPT, except seller need to pay insurance also.

“Arrival” group of incoterms:

DAT: Delivered at Terminal (Named terminal at Port or Place of
Destination)
Delivery takes place once the goods unloaded at the terminal .Except import clearance
cost carriage to terminal cost and all risk is to be paid by seller .Previously DEQ was
used for similar purpose.

DAP: Delivered at Place (Named Place of Destination)

Delivery takes place once the seller sends the cargo to the Named Place and pays freight
for it. Seller assumes risks until buyer is ready to unload it at the terminal DAP should
be used in place of previous incoterms DAF, DES, DDU.
 DDP: Delivery duty paid (Named place of destination)
It is seller’s duty to deliver the goods to the named place in buyer’s country. Including
duty and taxes all cost need to bear by the seller. So, the term is giving maximum
responsibility to seller and minimum responsibility to buyer. The goods are delivered at
the named place, which may be buyer’s premises, but not unloaded. Above mentioned
incoterms are applied for different type of transportations. CFR and CIF are used for
Maritime and inland waterway. CPT, CIP, DAT, DAP, DDP are used for air freight, road
freight, Railway freight, Maritime and Inland waterway freight.

A Usage of Incoterms by Banks in Bangladesh:

Bangladesh Bank (Central Bank of Bangladesh) has given a rule binding to its entire
Banks that the EXP Form shall be negotiated / accepted only when these are drawn on
CFR/CIF/CPT/CIP basis and not on FOB/FCA/FAS/EXW/DAS basis.

Conclusion:
At conclusion stage, we can say one thing is that suppliers and buyers can also invent or
modify incoterms for their particular situation. But ICC incoterms are widely used by
world business community for its familiarity and wide acceptance.
References:

1. Vishny, Paul H. (1981). Guide to international commerce law. St. Paul, MN:
West Group. ISBN 0070675139.

2. “ICC Guide to Incoterms® 2010”. ICC. Retrieved March 14, 2014.