GLOSSARY: Terms and definitions related to Incoterms
Your source of simple, clear definitions of common import, export and delivery terms used in relation to Incoterms 2020
Bill of Lading
A document issued to a consignor by the master of a carrier (ship). The bill of lading stands as indisputable proof that goods have been handed over to the carrier for shipment.
After the voyage, the bill of lading must be handed back to the carrier to retrieve the goods. If the consignee is noted on the bill of lading, they must present it. If the bill of lading is made out “To order”, anyone in possession of the bill of lading my claim the shipment described on it.
Received for shipment bill of lading
A bill of lading issued when the goods are handed over to the carrier at the port, not yet loaded onto the ship.
Clean on board bill of lading
A bill of lading issued when the goods have been loaded on the ship in goods order with no apparent damage from loading.
Carriage (see also Freight)
The international journey a shipment takes between the port of export and the port of import.
Carrier
The vehicle or vessel that moves a shipment through the international leg of a fulfilment chain. The carrier can be a ship, plane, train, truck, van, or any other means of transport suitable to moving the shipment to its import destination.
Contract of carriage
A service bought from a carriage provider in which a carrier is contracted by a shipper to ensure the international movement of goods.
Through contract of carriage
A contract of carriage that is sold as a single service, but includes multiple legs of a fulfilment chain. The carriage provider oversees handing the goods over from one carrier to another, without any intervention from the shipper.
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Carriage Paid To (CPT)
An Incoterms 2020 multimodal rule where the seller delivers the goods, and transfers obligations of risk, by handing it over to a carrier arranged and paid for by the seller.
Certificate of analysis
Documentary proof that a product has been laboratory tested, and is of the chemical make-up, composition and/or standard that the buyer expects it to be.
Certificate of conformity
Documentary proof issued by a certification bureau to prove that a shipment conforms to quality or health specifications set by a country of import’s government. Certificates of conformity are typically mandated by smaller or 3rd world governments that do not have their own regulatory bodies to enforce standards.
Certificate of origin
Documentary proof that goods are produced, manufactured, or processed to a satisfactory degree in a particular country of origin.
Some certificates so origin may allow importers to pay a preferential (reduced) rate of import duty if the goods comply to the rules of origin set by a relevant trade agreement.
Clearing
A process of declaration and approval by a customs authority for goods to be exported or imported.
If tax is payable on the import and/or export, payment thereof would generally be required for clearing, unless the goods are kept in bond.
Commercial invoice
A mandatory customs document used in international trade.
The commercial invoice acts as a confirmation of an international sale, and is provided by the seller. The parties involved in the shipping transaction, the goods being transported, the country of origin, the HS codes for those goods and the terms of the sale are noted in this document.
Most international shipments are required to be accompanied with a commercial invoice, regardless of whether the goods represent a monetary transaction.
Access our guide on completing a commercial invoice.
Download a Customs compliant commercial invoice template.
Consignee
The person or business responsible for receiving the shipment, at the destination, from the carrier according to the transport documents. The consignee may be the buyer and may be the shipper, but they may also be neither.
Consignor
The person or business responsible for handing the goods over to the carrier according to the transport documents. They consignor may be the seller and may be the shipper, but they may also be neither.
Cost and Freight (CFR)
An Incoterms 2020 maritime rule where the seller delivers the goods, and transfers obligations of risk, by placing it onboard a vessel nominated and paid by the seller.
Carriage and Insurance Paid To (CIP)
An Incoterms 2020 multimodal rule where the seller delivers the goods, and transfers obligations of risk, by handing it over to a carrier arranged and paid for by the seller. The seller also supplies the buyer with an insurance policy for the duration of the contact of carriage, taken out against the buyer’s insurable risk.
Cost, Insurance and Freight (CIF)
An Incoterms 2020 maritime rule where the seller delivers the goods, and transfers obligations of risk, by placing it onboard a vessel nominated and paid by the seller. The seller also supplies the buyer with an insurance policy for the duration of the contact of carriage, taken out against the buyer’s insurable risk.
Delivered Duty Paid (DDP)
An Incoterms 2020 multimodal rule where the seller delivers the goods, and transfers all obligations of risk and cost, by bringing it to the buyer’s premises, Customs cleared for import and ready to be unloaded off the arriving means of transport.
Delivered At Place (DAP)
An Incoterms 2020 multimodal rule where the seller delivers the goods, and transfers all obligations of risk and cost, by bringing it to the buyer’s premises, ready to be unloaded off the arriving means of transport.
Delivered at Place Unloaded (DPU)
An Incoterms 2020 multimodal rule were the seller delivers the goods, and transfers all obligations of risk and cost, by bringing it to the buyer’s premises, and unloading it off the arriving means of transport.
Delivery (Incoterms definition)
The definition, according to an Incoterms rule, where the risk of loss or damage to the shipment transfers from the seller to the buyer.
Place of delivery
A physical location within a chain of fulfilment where, if the goods reach it, the seller and buyer may consider a delivery as complete.
E.g. If the Incoterms rule defines delivery as handing over of the goods to the first carrier, the address at which this handover happens is the place of delivery.
Point of delivery
A specific point within the place of delivery that the buyer may notify the seller to arrange delivery to. E.g. A particular receiving bay at the buyer’s warehouse. In the absence of a point of delivery, the seller may deliver to any point within the place of delivery that best suits them.
Delivery period
A timeframe stated in the contract of sale in which the seller and buyer must perform their respective obligations regarding delivery. By failing to adhere to this deadline, the party at fault would be in breach of contract and take on the resulting loss or responsibility of risk.
Destination place/port
A physical location that signifies the end of a contract of carriage. In a sales contact that makes use of Incoterms, the destination and place of delivery may be the same or two different points of concern, depending on the rules at play.
Documents of sale
The documentation that accompanies an international shipment due to legal or contractual requirements.
Documents that are legally required for Customs clearance are a commercial invoice and, in the case of dangerous cargo, the security requirements of the relevant shipment. Some counties also mandate a certificate of conformity, phytosanitary certificates and/or a permit specific to the type of goods.
Documents that are not legal requirements for trade, but that may be part by the terms of sale are:
Certificates of origin, a proof of pre-shipment inspection, a certificate of insurance, transport documents, a packing list and/or a supplier’s proof of authenticity.
Export tax
Any duties, levies incurred by a shipment, and payable to a customs authority, before it may leave the port of export.
Ex-works (EXW)
An Incoterms 2020 rule were the seller delivers the goods, and transfers all obligations of risk and cost, by making it available to the buyer at a location controlled by the seller.
Free Alongside Ship (FAS)
An Incoterms 2020 maritime rule where the seller delivers the goods, and transfers all obligations of risk and cost, by placing it on a loading dock at a port, next to a vessel nominated by the buyer.
Free Carrier (FCA)
An Incoterms 2020 multimodal rule where the seller delivers the goods, and transfers all obligations of risk and cost, by:
a) Loading it onto a carrier arranged by the buyer at the seller’s premises, or
b) Handing it over to a carrier arranged by the buyer at the arranged place, ready to unload off their vehicle.
Free On Board (FOB)
An Incoterms 2020 maritime rule where the seller delivers the goods, and transfers all obligations of risk and cost, by placing it onboard a vessel nominated by the buyer.
Freight
The means by which an international consignment makes its way from the seller to the buyer.
Types of freight:
- Sea freight – By ocean carrier
- Water freight – By ship of boat on an inland waterway
- Air freight – By plane
- Road freight – By any road vehicle
- Rail freight – By train
- Multimodal freight – By ay combination of the above
- Container freight – Making use of a shipping container which can be moved between modes of transport or carriage. Container freight can mean a Full Container Load (FCL) shipment or Less than Container Load (LCL) shipment which would be consolidated with other shipments at a container depot.
Freight agent
A person or company that provides a service of arranging international carriage on behalf of buyers and sellers.
Import tax
Any duties, levies and sales tax (such as VAT) incurred by a shipment, payable to a customs authority, when it enters the port of import.
Incoterms
The Incoterms or International Commercial Terms are a series of pre-defined commercial terms published by the International Chamber of Commerce (ICC) relating to international trade.
Traders may elect to use Incoterms in a sales agreement as a means of stipulating parties responsible for cost and risk while goods are in transit.
Institute Cargo Clauses
Standard template contracts of insurance that describe various types of cover for cargo in case of any loss or damage to the shipment in transit.
All risk insurance
The most comprehensive level of cargo insurance that is described by Clause A of the Institute Cargo Clauses
General average
General Average is a principle of maritime law. According to the law, all stakeholders of a voyage (i.e. all owners and shippers of the goods on board the ship) evenly share any damage or loss that may occur as a result of voluntary sacrifice of part of the vessel or cargo to save the whole in an emergency.
For example, if sea faring cargo catches fire, damage that occurred to the ship is payable by the stakeholders and may be redeemed from their insurers.
Inherent vice
Loss that occurred to a shipment due to an oversight, or a preventable cause innate to the shipment. E.g. If the shipment incurred moisture damage or rot in transit due to the use of damp packing material. Cargo insurance does not cover inherent vice.
Jettison
The practice of throwing cargo or equipment overboard in order to lighten a sea vessel or to improve its stability in case of emergency. If cargo catches fire, shipment that are alite may be jettisoned to protect other cargo and the ship itself from catching fire.
Letter of Credit (LC)
A method of payment whereby a buyer’s bank guarantees payment, pending satisfactory documentary proof that a shipment was delivered. Letters of credit are most often used in sales where delivery (transfer of risk) occurs before the buyer, or a representative of the buyer, has control of the goods.
Download the Shipping And Freight Resources guide to Letters of Credit
Maritime rules
The Incoterms 2020 rules that are written and intended for delivery by sea on inland waterway only. These rules include terms specific to shipping, such as “vessel” and “berth”.
The maritime rules included in Incoterms 2020 are FAS, FOB, CFR and CIF.
Material Safety Data Sheet (MSDS)
A technical document which provides detailed information on a controlled material or product for the purpose of shipping and handling. The document must describe in detail:
- The hazards involved in its handling, storage, and use
- Precautionary measures required to protect workers from risk of exposure.
- The effect of exposure, and emergency countermeasures
Download a detailed explanation of a material safety data sheet.
Multimodal rules
The Incoterms 2020 rules that are written and intended for delivery by any means of transport or carriage, including sea and inland waterway and/or multimodal freight.
The multimodal rules included in Incoterms 2020 are EXW, FCA, CPT, CIP, DAP, DPU and DDP.
Permit
Documentary proof of consent issued by a regulatory body that a particular type of controlled goods may be exported from or imported to their jurisdiction.
Phytosanitary certificate (PSC)
Documentary proof issued by a certification bureau to confirm a shipment containing plant-based material meet phytosanitary standards set by the country of import’s government.
Typically, a phytosanitary certificate provides assurance that the shipment does not contain pests, diseased plants, or other threats to the country of import’s ecology.
Pre-shipment inspection (PSI)
An inspection by an independent third party or certification bureau to ensure a shipment is of the type, quality and quantity ordered before it is placed on a carrier.
A buyer may request a seller to provide proof of a satisfactory pre-shipment inspection before assuming risk of the shipment, or to trigger payment.
Packing list / Packing note
A document which provides the exporter, freight agent, carrier, and ultimate consignee with information about the shipment, including how it is packed, the dimensions and weight of each package, and the marks and numbers that are noted on the outside of the boxes.
A packing includes all the information the shipper would require to arrange collection, loading, carriage, unloading etc.
Shipper
A person or business who contracts for carriage. I.e. the carriage provider’s client. The shipper may be the seller or the buyer in an international sale.
Stowage factor (SF)
The ratio of the stowage space required, under normal conditions, to the weight of the cargo. measured in m3/MT.
I.e. the amount of metric tonne that can or may be packed into one (1) cubic meters of space in a vessel, vehicle or shipping container.
Stowage factor calculations are used in ship design to evaluate the loadable space efficiency. It can also be used to pre-empt overloading of a container or plane based on a maximum allowable weight per packable cubic meter ratio.
Stuffing
Loading goods into a shipping container.
Transport document
Documentary proof supplied by the seller and/or buyer that delivery has occurred according to the definition of an Incoterms rule. The type and format of transport document must be defined in the sales contract.
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