Are you new to international importing business? When you are talking with a supplier or freight forwarder, probably it’s hard to understand some of their languages as they use incoterms (International Commercial Term) and abbreviations a lot. This article will introduce 5 major incoterms and 12 frequently used abbreviations.
Incoterm 1. EXW (Ex Works)
EXW, also known as Ex Works, is the term used when referring to the expectation of shipping costs between the supplier and buyer. In this case, the EXW simply indicates that the buyer will pick up goods at sellers warehouse. After the goods have been picked up by the buyer from the supplier’s location, all further shipping and liability costs will fall on the shoulders of the buyer alone.
This means that any shipping risks and costs will be the buyer’s responsibility. EXW term will only be used when the buyer has a full system in logistics. This also stops the supplier from increasing the price due to outside factors, allowing the buyer to make their own price for selling.
Incoterm 2. FOB (Free on Board)
FOB, also known as Free on Board, is the international trade agreement that pins all responsibility of damage to the goods during transit on either the buyer or seller.
FOB is the most frequently used term among others. This is because most buyers have their own shipping forwarder, and most seller are not willing to take care of the shipping part. Especially when you are working with a small sized company or factory, in their mind, more process means more risk. The earlier handing over the goods, the sooner getting the payment.
Incoterm 3. CNF (Cost and Freight)
CNF or C&F or CFR, also known as Cost and Freight. In this term, the seller needs to take care of the shipping, but he or she is not responsible to buy insurance for the cargo. The seller is only required to pay for the cost of freight of the goods, taking it to the agreed destination port and transfer other required documents to the buyer.
Incoterm 4. CIF (Cost, Insurance and Freight)
CIF, also known as Cost, Insurance, and Freight. Covered with insurance is the only difference between CNF and CIF. It is the term that describes the supplier’s responsibility to transport goods by freight to an agreed upon destination port. After arrival, the seller is furthermore required to transfer also relevant documents to the buyer of the goods. In the EU, the CIF value is a necessary factor when finding the import duty for the goods.
Incoterm 5. DDP
DDP, also known as Delivered Duty Paid. Different from EXW, DDP requires the supplier or the forwarder undertake all possible costs and risks when transporting items to a buyer. The seller must ensure that he settles all associated costs until the buyer receives the goods at the destination port.
DDP is asked by many of the customers. It is regarded as the easiest way to ship the cargo. But before making the decision, ask more about the shipping cost as sometimes DDP is not real DDP from the forwarder. And customers usually believe that there will be no more cost in the destination port. To avoid further surprises, if you are dealing with a supplier or forwarder by this term, better be clear with them if you need to pay anything at last.
DDP is only getting popular recent years, especially for e-commerce. And just for your information, DDU which is Delivered Duty Unpaid.
Abbreviation 1. B/L
B/L, or BoL, also known as Bill of Landing, is the document that a shipper is granted by the carrier. This document acts as the legal contract for shipping of the goods, and can be used as the cargo receipt. It is also the only and main proof for customers to pick up the goods.
The B/L will include several details, such as:
- Name of Consignor and consignee
- Name of the vessel
- Departure and arrival dates
- A complete inventory of the transported goods
- Departure and arrival ports
- Packaging details
Abbreviation 2. AWB
AWB, also known as the Airway Bill, is a specific B/L which allows the buyer and shipper to track the shipment. After an airplane has taken off with the cargo on board, rights of the cargo are immediately transferred from the shipper to the consignee. The Airway Bill will include all relevant information on the cargo, including the carriage conditions, the liabilities, and procedures, and this will serve as the carrier’s receipt of goods.
Remember: the Airway Bill is non-negotiable, and will not include the arrival time of the goods.
Abbreviation 3. CO
CO, also known as Certificate of Origin, is the document that legally certifies that certain exported goods have been entirely produced or obtained in a specific origin or country. This document is used for tariff calculations and trade statistics.
CO is a general one. But there are also certain countries ask for Form A or Form E. And with Form A or Form E, they could even get a better rate of tariffs. So, if you are a new importer, you’d better check with your forwarder which format of CO they are asking.
Abbreviation 4. ETA and ETD
ETA and ETD, also known as Estimated Time of Arrival and Estimated Time of Delivery, are the terms that describe when a shipment will arrive and deliver at the designated location. The schedule is generally rough estimated that take into account the handling time of the sourcing agent, the time of payment, as well as the chosen carrier.
Accreviation 5. FCL and LCL
The FCL and LCL, also known as Full Container Load and Less Container Load, are terms that are commonly used when dealing with international trade shipping. Full Container Load refers to a particular container that is fully loaded with goods for a single importer. FCL can take adavantage of every space of the container and to save unit shipping cost.
LCL refers to containers that loaded with various goods owned by multiple importers. If an importer is not shipping enough goods to fill one container load, then their goods will be placed in a Less Container Load with other goods.
New starters cannot always fill one full container. If the goods are not special like fragile items, try LCL to save some cost. But if the cargo is even half container, sometimes FCL shipping could be same as LCL shipping. This could be one of the reasons that many oversea buers visit Yiwu Wholesale Market for mixed container. Consult with the shipping forwarder and get a price of both types of shipping containers, you will end with a better deal.
Accreviation 6. POD and POL
POD, also known as Port of Destination, is the final location where a shipment is expected to deliver.
POL, also known as Port of Loading, is the first location where a shipment is loaded onto a ship by the chosen carrier.
Abbreviation 7. RMB
RMB, or renminbi, is China’s official currency and translates officially to “the people’s money.” It is also known as the base unit for “Yuan”.
Abbreviation 8. PI and CI
PI, also known as Proforma Invoice. It is a rough invoice from supplier to buyer offering the price details issued by the seller.
CI indicates the commercial invoice. It is the exact invoice that a supplier provides to the importer prior to the arrival of the imported goods. This will be the official contract that will describe the goods, the quantity of the goods, their value, their conditions, and other important elements. These are used for custom purposes.
Abbreviation 9. MOQ
MOQ, also known as Minimum Order Quantities. It is to specify the minimum quantity the customers should order in wholesale business. A lower MOQ is always appreciated by customers who want to test the products. Dealing with factory directly, you should not be surprised for the MOQ they are asking, especially when you want to develop your own brand of products.
This is also one of the factors why some retailers prefer to source from wholesale market like Yiwu. Yiwu Wholesale market offers products with a low MOQ and huge varieties. It is recognized as the best place sourcing for retail stores, department stores, one dollar/euro store, etc.
Abbreviation 10. Shipping Mark
The shipping mark is not an abbreviation. But just for your information, it is a mark that applied on the exterior of a shipping carton for an exported item. If your outer carton is produced in bulk, you can also ask the shipping market to be printed directly on the carton. This mark allows all relevant parties to see the important details of the shipment, including its country of origin, size, quantity, and more.
The first image above is the carton normally used for packing. Obviously, it does not have enough information. The second image is a shipping mark with lots of information from Minden Intl. Sometimes it includes handling labels, your shipment’s destination, dimensions, weight, order number, and company name or logo, and country of origin, etc. But it also can be very simplified.
Abbreviation 11. Consignee
The consignee is the individual or company that will be responsible for receiving the shipment upon its arrival. The consignee will usually be the same as the recipient, however this is not always the case. A consignee information normally asks information like company name, representative name, address, phone number, tax ID, etc
Abbreviation 12. Notify Party
The Notify Party is indicated by the shipper or the consignee. It will be the individual or company that is contacted when the goods arrive at the destination port. It could be the same as consignee information.
Now you are much clearer with those 5 incoterms and 12 abbreviations. There are much more incoterms out there, but those 5 are of top importance. You should now have confidence in communicating with the suppliers and shipping forwarders.