Logistics for Fashion: Freight handling – Roles, Responsibilities and Incoterms explained
Incoterms are rules that determine the terms for the international sale of goods. They determine which party is responsible for what part of the import or export process. Incoterms encompass transportation and insurance costs as well as liability and customs responsibilities. In other words, incoterms can be seen as the delivery terms of your purchase between you and your seller. There are 11 incoterms and each describes a different agreement between buyer and seller—all have their advantages and disadvantages.
Before we elaborate on the 5 most used incoterms here are a few things to keep in mind:
whilst some of the incoterms put the responsibility of transport, customs and liability on the seller others put them on the buyer (or a combination of both). Keep in mind that if the seller is mostly responsible for the delivery of goods you will not be able to have the same level of control over your goods as when you are responsible for it. With more control comes the ability to adapt your supply chain to changing business needs and react swiftly to changes.
With control comes additional workload, if you decide to manage the delivery then it means you will be responsible for getting your goods to your warehouse. Luckily you don’t have to manage this all yourself; we recommend working with a Freight Forwarder to manage the shipments, customs and insurance for you. When selecting a freight forwarder, make sure they provide you with an easy-to-use digital platform from which you can manage your entire supply chain with the click of a few buttons. Leveraging digital technology to reduce your workload but increase control is paramount to a successful supply chain.
Being responsible for most of the delivery yourself gives you more insight and control over the costs you incur. Keep in mind that many sellers will mark up the delivery costs to compensate for the extra workload on their end if they are asked to be responsible for the delivery to you.
The 5 most used incoterms:
- EXW: Under Ex Works (EXW) the buyer is responsible for arranging the full transportation from the seller’s location to wherever the buyer needs to get the goods. This includes the arrangement of transport, covering the transport costs & insurance as well as customs declarations where needed.
- FCA: Under Free Carrier (FCA) the seller is responsible for getting the goods to a destination specified by the buyer; generally this is a location where the goods can be transferred to a carrier like an (air)port. The seller will need to cover costs and bear the risk of transporting the goods to this location. Once the goods arrive at this location the buyer assumes all responsibility.
- FOB: Under Free On Board (FOB) the seller is responsible for the goods until the goods are loaded onto the vessel. In other words, the seller is “free” of any responsibilities when the goods are “on board”. From that moment on it is the buyer who is responsible & liable for the goods.
- DAP: Under Delivered at Place (DAP) it is the seller who is wholly responsible for the shipment of the goods to a predetermined final destination and all actions required to get the shipment there in good order, except covering the import customs—this lies with the buyer.
- DDP: Under Delivered Duty Paid it is the seller who is wholly responsible for the shipment of the goods to a predetermined final destination and all actions required to get the shipment there in good order, including the import customs. The buyer is not responsible for any part of the shipment journey.
This guest blog is written by our collaborator, Flexport, a leading digital freight forwarding company headquartered in San Francisco. Read our full Logistics for Fashion Guide now.