Understanding Incoterms is essential for facilitating global transactions as they can ensure a seamless and efficient shipping process. However, it is significant to note that not all Incoterms apply to air freight.
In this blog post, we will explore the specific air freight Incoterms and offer practical advice for choosing the right ones.
Understanding Incoterms
Incoterms, introduced by the International Chamber of Commerce (ICC) in 1936, were created to streamline international trade with a standardized set of terms and conditions. These rules clarify the responsibilities of both sellers and buyers in the goods transportation.
The latest update, Incoterms 2020, builds on previous versions by refining rules and adding new provisions to match current market practices and trends in global trade.
Below is a brief and detailed explanation of each abbreviation.
Incoterms only for sea freight
While many Incoterms can describe the roles of buyers and sellers in air, ocean, and land transportation, four terms are exclusive for sea freight forwarding.
CIF: Cost, Insurance, and Freight
It is an Incoterm used merely in sea freight. Under CIF, the seller covers the expenses and assumes the risk of loss or damage until the goods reach the destination port.
Additionally, the seller must secure insurance to protect against any potential loss or damage to the cargo during transit. For more details, click here.
FOB: Free On Board
This sea freight Incoterm signifies that the seller has fulfilled their obligation once the goods pass the ship’s rail at the designated port of shipment.
From this point onward, the buyer assumes all responsibilities, including the costs and risks related to loss or damage during transit. For more details, check this article.
CFR: Cost and Freight
This term for sea shipping is similar to the CIF term but with one key difference: the seller doesn’t need to provide marine insurance.
Under CFR, the buyer takes all costs and risks associated with loss or damage once loading the goods onto the ship.
FAS: Free Alongside Ship
The FAS sea Incoterm indicates that the seller has fulfilled their responsibility once delivering the cargo to the named port of shipment.
The seller is responsible for clearing the goods for export, but from that point, the buyer assumes all costs and risks of loss or damage. You can check this article for more practice.
Incoterms for air freight
EXW: Ex Works
Under the EXW Incoterm, the seller makes the goods available at their premises, and the buyer bears responsibility for all transportation and customs clearance expenses.
This term places minimal obligations on the seller, making it particularly suitable for businesses that prefer not to manage shipping themselves. For more information, click here.
FCA: Free Carrier
This air Incoterm requires the seller to deliver the goods to a carrier or another agreed-upon location, such as a warehouse or airport.
Furthermore, the seller is responsible for export clearance, while the buyer takes responsibility for all subsequent shipping costs, import clearance, and risks during transit.
For more information, check here.
CIP: Carriage and Insurance Paid To
It is similar to CPT but with insurance coverage during transit. Under CIP, the seller arranges and pays for transportation and insurance until the goods arrive at the agreed upon destination.
However, the risk transfers to the buyer once the carrier has handed over the cargo. You can check our CIP guide for more information.
DDP: Delivered Duty Paid
DDP Air Incoterm imposes the greatest responsibility on the seller, who covers all shipping costs, export/import clearance, and applicable duties and taxes. The risk shifts to the buyer once the goods are available at the specified destination.
CPT: Carriage Paid To
CPT air freight requires the seller to arrange and cover the transportation costs to a named destination, excluding insurance.
Once the carrier receives the cargo, the risk shifts to the buyer, who assumes responsibility for import clearance and any additional handling expenses.
DAP: Delivered at Place
This air Incoterm requires the seller to deliver the goods to a agreed upon destination, covering all freight costs and export clearance. The buyer should bear import clearance, duties, and taxes. The risk transfers to the buyer once the cargo are available at the designated location before unloading.
DAP air freight offers flexibility regarding the delivery point, making it suitable for various shipments, including sea and land freight.
DPU: Delivered at Place Unloaded
DPU air freight Incoterm, formerly DAT, requires the seller to deliver the goods to a specified location, such as a warehouse or airport, with unloading included. The seller is responsible for all risks, costs, and duties, including export and import clearance up to the unloading point.
Choosing the appropriate air freight Incoterms
When deciding on the right Incoterms for air freight, consider these key factors:
Level of responsibility
Determine how much control you wish to have over the shipping process.
For example, if you are a seller/shipper who prefers minimal involvement, select terms like EXW, where the buyer handles most transportation. For greater control, opt for terms like DDP, where you oversee the entire shipping process from start to finish.
Risk management
Evaluate your risk tolerance and decide which party you are willing to transfer the shipping risk. This decision will help you choose the most appropriate Incoterm. For example, with CPT and CIP, the risk shifts to the buyer once the goods are handed over to the carrier.
Cost allocation
Consider how you want to distribute costs between you and your trading partner. Some Incoterms, like FCA, require the seller to cover transportation costs up to a certain point, while others, like DDP, place all cost responsibilities on the seller.
Insurance coverage
Decide whether you want insurance included in your chosen Incoterm. Terms like CIP provide insurance coverage, whereas terms like CPT do not. Weigh the benefits and risks carefully before making a decision.
Customs clearance
Familiarize the export and import regulations of both the origin and destination countries. Select an Incoterm that delegates customs clearance responsibilities to the party best equipped to handle them efficiently.
Navigating air Incoterms with ease
Our comprehensive Incoterms guide is your go-to resource for a streamlined approach to managing your responsibilities and costs associated with freight shipments.
Moreover, you can also get a reliable reference if any issues arise during goods transportation.
Airsupply boasts over a decade of experience in warehousing, packing, freight, and logistics management. Our dedicated account managers are ready to discuss your specific needs.
Furthermore, Our team can assist with customs clearance documentation and clarify the meaning of air freight Incoterms for you.
FAQ:
Can I use CIF for air freight?
As mentioned above, the CIF shipping term is strictly for shipping goods via ocean or waterways and cannot be applied to air freight. This Incoterm is beneficial for buyers who prefer not to handle obtaining insurance, paying freight charges, or taking full responsibility for international shipping.
