A guide to transportation and incoterms

Modes of transport

All the principal modes of transport figure in international trade.

Land transport includes road and rail. In the latter case, either the cargo may be carried by rail or the vehicle carrying the cargo may be carried.

Water-borne transport includes deep-sea voyages, short-sea transportation (in which goods are carried short distances along a coastline, usually for further transportation to another destination) and carriage by inland waterways. Short-sea and inland-waterway carriage are usually alternatives to land transport methods.

Air transport includes both long and shorthaul journeys but is usually an alternative to deep-sea voyages.

Cargo may be carried by a mixture of modes, e.g. by road, then by deep-sea voyage, then by rail and finally by road again. This is known as intermodal transport. Although these definitions may seem obvious and trite, they play a part in the selection of the terms, specifically Incoterms® 2010, that should govern a transaction.

Freight forwarders

The exporter or importer may choose not to make the transport arrangements for a consignment directly but to employ a freight forwarder – a transportation expert who has the specialised resources to handle the carriage and the associated documentation. Freight forwarders can achieve economies of scale by consolidating individual consignments into whole containers which are then consigned to clearance depots for disaggregation. For the importer, the freight forwarder offers the vital service of providing a necessary physical presence at the point of arrival. Depending on the goods and their destination, postal or courier services may be the most effective means of arranging transport. They work in the same way as freight forwarding.

Transport and Incoterms® 2010

Trade terms set out the rights and obligations of the parties to a sales contract with respect to the delivery of goods. Issued by the International Chamber of Commerce (ICC), there are eleven internationally recognised Incoterms®. These terms are the most commonly used and should be used in any international sales contract as they make clear:

• whether the exporter or importer is responsible for organising and paying for the delivery
• where delivery actually takes place
• at which point the risks associated with the delivery pass from the exporter to the importer.

Incoterms® are recognised globally and used worldwide. They minimise confusion regarding each party’s obligations and costs which protect both the seller and the buyer.

What are the Incoterms®?

Each term is a three letter abbreviation, and refers to who is responsible for each part of an international transaction.
For example, if you are selling 100 boxes of apples to your buyer in Italy and your agreed contract with them stipulates the Incoterms® ‘FOB’, this means:

• you (as the seller) are responsible for arranging and paying for the transportation of the goods from the point of manufacture to the port
• you (as the seller) are responsible for the welfare of the goods to that point including buying any insurances as needed
• from the moment the goods are loaded on to the ship/plane, the above responsibilities for payment of transport and insurance become the buyer’s (the importers).

The 11 internationally recognised Incoterms®

The following table lists the 11 Incoterms® for any mode of transport and shows who is responsible for arranging transport, paying all associated costs and the risk/welfare of the goods.

This article is taken from the RBS ‘Guide to International Trade’.