About procurement: Freight Prepaid related incoterm based on ICC amend. 2020.
“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. 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 of Sept 2019 published by ICC, also called 2020 incoterm amedment.
Keywords:International Procurement, Freight Prepaid,Freight collect,Incoterm,ICC, Amendment 2020.
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.
“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, DPU, 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.
According to Sept 2019 amendment if not otherwise mentioned in the agreement the insurance clause should be Institute cargo clauses (A) instead of Institute cargo clauses(C). Clause (A) is a higher insurance coverage than clause (C).
“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.
The September 2019 amendment
According to September 2019 amendment DAT is renamed as DPU (Delivered at place unloaded). It emphasizes that delivery can be anywhere, not only in the terminal.
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 incoterm 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, DPU, 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.
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. We need to follow incoterm 2020 (Sept 2019) where it is updated. But no major update has been made in this amendment.
- Vishny, Paul H. (1981). Guide to international commerce law. St. Paul, MN: West Group. ISBN 0070675139.
- “ICC Guide to Incoterms® 2010”. ICC. Retrieved March 14, 2014.