any companies do not have their own shipping department.

Nevertheless, buyers need to be aware of shipping terms

and conditions before they conduct direct imports. The
following is a list of some of the commonly used terms that will
assist you when placing orders abroad. We begin with the terms of
sale, because this is where you can save or lose a lot of money.

T ERM S OF S A LE
These come into play when sellers have fulfJ!led their obligations so
that the goods could, in a legal sense, be said to have been delivered
to the buyer. They are shorthand expressions that set out the
rights and obligations of each party when it comes to transporting
the goods.

The Art of Retail Buying: An Insider's Guide to the Best

Practices from the Industry
By Marie -Louise Jacobsen
Copyright © 2009 by John Wiley & Sons (Asia ) Pte. Ltd.
 There are Terms of Sale reflected in the International Chamber
of Commerce Terms of Trade (INCOTERMS), as follows:

EXW ( Ex W orks) ( ... Na m ed Pla c e ): Indicates that the seller

fulfills the obligation to deliver when he or she has made the
goods available at his/her premises (that is, works, factory,
warehouse, etc.) to the buyer. In particular, the seller is not
responsible for loading the goods in the vehicle provided by the
buyer or for clearing the goods for export, unless otherwise
agreed. The buyer bears all costs and risks involved in taking
the goods from the seller's premises to the desired destination.
This term, thus, represents the minimum obligation for the seller.

FCA ( Fre e C a rrie r) ( ... Na m e d Pla c e ): Indicates that the seller

fulfills his or her obligation when he or she has handed over the
goods, cleared for export, into the charge of the carrier named
by the buyer at the named place or point. If no precise point
is indicated by the buyer, the seller may choose, within the
place or range stipulated, where the carrier should take the
goods into their charge.

FAS ( Free A lo ngsid e S hip ) ( ... Na m e d Port of S hip m e nt ):

Indicates that the seller fulfills his obligation to deliver when the
goods have been placed alongside the vessel on the quay or in
lighters at the named port of shipment. This means that the buyer
has to bear all costs and risks of loss of, or damage to the goods
from that moment.

FO B ( Fre e On Board ) ( ... Na m e d Port of S hip m e nt ): Indicates

that the seller fulfills his or her obligation to deliver when
the goods have passed over the ship's rail at the named
port of shipment. This means that the buyer has to bear all
costs and risks to loss of, or damage to the goods from that
point. The FOB term requires the seller to clear the goods
for export.

C FR (C ost a nd Fre ight ) ( ... Na m e d Port of De st inat io n): Here,

the seller pays the costs and freight necessary to bring the
goods to the named port of destination, but the risk of loss of,
or damage to the goods, as well as any additional costs due
to events occurring after the time the goods have been delivered
on board the vessel, is transferred from the seller to the buyer
when the goods pass the ship's rail in the port of shipment. The
CFR term requires the seller to clear the goods for export.

C IF (C ost , Ins ura nc e a nd Fre ig ht ) ( ... Na m ed Pla c e of

De st inat io n): Under this term, the seller has the same
obligations as under the CFR, but also has to procure marine
insurance against the buyer's risk of loss or damage to the
goods during the carriage. The seller contracts for insurance
and pays the insurance premium. The CIF term requires the
seller to clear the goods for export.

CPT (C a rria ge Pa id T o) ( ... Na m ed Pla c e of De st inat io n):

Requires that the seller pays the freight for the carriage of the
goods to the named destination. The risk of loss of, or damage to
the goods, as well as any additional costs due to events occurring
after the time the goods have been delivered to the carrier, is
transferred from the seller to the buyer when the goods have
been delivered into the custody of the carrier. If subsequent
carriers are used for the carriage to the agreed destination, the
risk passes when the goods have been delivered to the first carrier.
The CPT term requires the seller to clear the goods for export.

C IP (C a rria ge a nd Ins ura nc e Pa id T o) (. .. Na m ed P lace of

De st inat io n): Here, the seller has the same obligations as
under CPT, but with the addition that the seller has to procure
cargo insurance against the buyer's risk of loss of, or damage to
the goods during the carriage. The seller contracts for insurance
and pays the insurance premium. The buyer should note that
under the ClP term, the seller is required to obtain insurance
only on minimum coverage. The CIP term requires the seller to
clear the goods for export.

OA F (De livered At Front ie r) ( ... Na m ed Pla c e ): Under this

term, the sellers fulfill their obligation to deliver when the
goods have been made available, cleared for export, at the named
point and placed at the frontier, but before the customs border,
of the adjoining country.
 D D U (De livered Dut y U npa id ) ( ... Na m e d Port of De st inat io n):
Here, the seller fulfIlls his obligation t o deliver when the goods
have been made available at the named place in the country
of importation. The seller has to bear the costs and risks
involved in bringing the goods thereto (excluding duties, taxes
and other offlcial charges payable upon importation) as well
as the costs and risks of carrying out customs formalities. The
buyer has to pay any additional costs and bear any risks caused
by failure to clear the goods in time.

D D P (D e livered Duty Pa id) ( ... Na m e d Port of De st ina t ion):

The seller fulfIlls his obligation to deliver when the goods have
been made available at the named place in the country of
importation. The seller has to bear the risks and costs, including
duties, taxes and other charges of delivering the goods thereto,
clear for importation. While the EXW term represents the minimum
obligation for the seller, DDP represents the maximum.

D ES (D e livered Ex S hip ) ( ... Na m e d Port of Dest inat io n):

The seller fulfIlls his/her obligation t o deliver when the goods
have been made available to the buyer on board the ship,
uncleared for import at the named port of destination. The
seller has to bear all the costs and risks involved in bringing
the goods to the named port destination.

D EQ (D e livered Ex Quay, [ Dut y Paid] ) ( ... Na m e d Port of

De st inat io n): Here, the term has been fulfIlled when the goods
have been made available to the buyer on the quay (wharf) at
the named port of destination, cleared for importation. The
seller has to bear all risks and costs including duties, taxes and
other charges of delivering the goods thereto.

OT H ER US EFUL T ERM S
The terms set out below have been carefully selected from the myriad
of terms encountered in the shipping business. For a more complete
Iist, go to http//www.marad.dot.gov.

AA R : Against All Risks (insurance clause).

A dvising ba nk : A bank operating in the seller's country that

handles letters of credit on behalf of a foreign bank.

rt of Retail Buying
A ge nt (A gt .): A person authorized to transact business for and
in the name of another person or company. Types of agents
comprise (1) brokers, (2) commission merchants, resident
buyers, (4) sales agents, (5) manufacturer's representatives.

A ir w ayb ill: The forwarding agreement or carrying agreement

between shipper and air carrier and issued only in non-negotiable
form.

A ccept a nc e : A time draft (or bill of exchange) that the drawee

(payer) has accepted and is unconditionally obligated to pay
at maturity. Also any agreement to purchase goods under
specified terms.

A dvic e of s hip m e nt : A notice sent to a local or foreign buyer

advising that shipment has gone forward and containing
details of packing, routing, and so on. A copy of the invoice is
often enc losed together with, if desired, a copy of the bill
of lading.

A rrival not ic e : A notification by the carrier of the ship's arrival

to the consignee (the Notify Party).

Ass ig nm e nt : A term commonly used in connection with a bill

of lading. It involves the transfer of rights, title and interest in
order to assign goods by endorsing the bill of lading.

Be nef ic ia ry : Entity to whom money is payable, or for which a

letter of credit is issued; the seller and the drawer of a draft.

B ill of Exc ha nge : Also commonly known as a "Draft", this is

an unconditional order issued by a person or business which
directs the recipient to pay a fixed sum of money to a third
party at a fixed or negotiable future date. A bill of exchange
must be in writing, signed and dated.

B ill of Lad ing (B/ L): A document that establishes the terms
of a contract between a shipper and a transportation company.
It serves as a document of title, a contract of carriage and a
receipt for goods.
 Bla nket rate : A rate applicable to or from a group of points; a
special rate applicable to several different articles in a single
shipment.

Ba nk g uarant e e : Guarantee issued by a bank to a carrier to be

used in lieu of lost or misplaced original negotiable bill of lading.

Base rate : A tariff term referring to ocean rate less accessorial

charges, or simply the base tariff rate. Ocean rates are charged
by either weight or measurement of the shipment, whichever
yields greater revenue to the carrier. Accessorial charges
include stop-off in transit; pallet exchange/loss; detention of
equipment; driver load/unload; week-end delivery; or
temperature control.

C &F Te rms of S a le , or INCOT ER M S : Term of sale meaning

"cargo and freight" whereby the seller pays for cost of goods
and freight charges up to destination port. Now obsolete but
still heavily used (was replaced by " CFR" (see Appendix
in 1990).

CAF ("C urre nc y Adj ust m e nt Facto r" ): A charge, expressed as

a percentage of a base rate, applied to compensate ocean
carriers for currency f luctuations.

C ash a ga inst do c um e nt s (C A D): Method of payment for

goods, in which documents transferring title are given to the
buyer upon payment of cash to an intermediary acting for the
seller, usually a commission house.

C ash in advanc e (C IA ): A method of payment for goods in

which the buyer pays the seller in advance of the shipment of
goods. Usually employed when the goods, such as specialized
machinery, are built to order.

C e rt if ic at e : A document certifying that merchandise was in

good condition immediately prior to its shipment.

CI ("Cost a nd Ins ura nce "): A price that includes the cost of
the goods, the marine insurance and all transportation charges,
except the ocean freight, to the named point of destination.

e rt of Retail Buying
C IF ("Cost , Insura nc e , Fre ight ") ( Na m ed Port ): Similar to
CEtF or CFR except seller also provides insurance to named
destination.

C IF& C : Price includes commission as well as CIF.

C IF& E: Cost, Insurance, Freight and Exchange.

C IFC I: Cost, Insurance, Freight, Collection and Interest.

C le a n B ill of La d ing : A receipt for goods issued by a carrier,

with an indication that the goods were received in "apparent
good order and condition," without damage or other irregularities.
If no notation or exception is made, the B/L is assumed to
be "cleaned."

C O D : Collect (Cash) on Delivery.

C ollec t ion : A draft drawn on the buyer, usually accompanied

by documents, with complete instructions concerning processing
for payment or acceptance.

C o nsig nm e nt : ( 1) A stock of merchandise advanced to a dealer

and located at his place of business, but with title remaining in
the source of supply; (2) A shipment of goods to a consignee.

C o nso lid at io n : Cargo containing the shipments of two or

more shippers or suppliers. Container-load shipments may be
consolidated for one or more consignees.

C onso lid at o r: A person or fIrm performing a consolidation

service for others. The consolidator takes advantage of lower
full carload (FCL) rates, and savings are passed on to shippers.

C ont rac t : A legally binding agreement between two or more

persons/organizations to carry out rec iproc al obligations
or value.

C usto m s : Government agency charged with enforcing the

rules passed to protect the country's import and export revenues.
C ust oms e nt ry : All countries require that the importer make a
declaration on incoming foreign goods. The importer then
normally pays a duty on the imported merchandise. The
importer's statement is compared against the carrier's vessel
manifest to ensure that all foreign goods are properly
declared.

C ust oms invo ic e : A form requiring all data in a commercial

invoice, along with a certifIcate of value and/or a certifIcate
of origin.

D isc re panc y let t er of c re d it : When documents presented do

not conform to the requirements of the letter of credit (LlC), it
is referred to as a "discrepancy." Banks will not process L/Cs
which have discrepancies. They will refer the situation back to
the buyer and/or seller, and await further instructions.

Do c um e nt s a ga inst ac c e pt anc e (0 / A ): Instructions given by

a shipper to a bank, indicating that documents transferring title
to goods should be delivered to the buyer only upon the
buyer's acceptance of the attached draft.

C o m m e rc ia l invo ic e : Represents a complete record of the

transaction between exporter and importer with regard to the
goods sold. Also reports the content of the shipment, and serves
as the basis for all other documents about the shipment.

C onf irm e d let t er of c re d it : A letter of credit, issued by a

foreign bank, whose validity has been confIrmed by a domestic
bank. An exporter with a confIrmed letter of credit is assured
of payment even if the foreign buyer or the foreign bank defaults.

C ons ig ne e : The person or company to whom commodities

are shipped.

C o ns ig ne e m a r k : A symbol placed on packages for

identifIcation purposes; generally a triangle, square, circle, and
so on, with letters and/or numbers and port of discharge.
Doc um e nt s a ga inst payme nt (DI P ): An indication on a draft
that the documents attached are to be released to the drawee
only on payment.

Doo r-to-d oor: Through-transportation of a container and its

contents from consignor to consignee. Also known as " House
to-house." Not necessarily a through rate.

Draf t , Ba nk : An order issued by a seller against a purchaser;

directs payment, usually through an intermediary bank. Typical
bank drafts are negotiable instruments, and are similar in many
ways to checks on checking accounts in a bank.

ETA : " Estimated time of arrival" or " Estimated time of

availability." Depending on the pre-arranged terms and
conditions, the ETA can state the estimated time of arrival at
port, or at the receiver's warehouse.

Force M aj e ure : A common clause in contracts, exempting the

parties from fulfillment of their obligations as a result of
conditions beyond their control, such as earthquakes, floods
or war.

Im port lic e nse : A document required and issued by some

national governments authorizing the importation of goods.

In t ra nsit : In the course of transportation or passage.

Inspec t ion c e rt if icat e : A certifIcate issued by an independent

agent or fIrm, attesting to the quality and/or quantity of the
merchandise being shipped. Such a certifIcate is usually
required in a letter of credit for commodity shipments.

Invo ic e : An itemized list of goods shipped to a buyer, stating

quantities, prices, shipping charges, and so on.

Irrevoca b le let t er of c re d it : Letter of credit in which the

specifIed payment is guaranteed by the bank if all terms and
conditions are met by the drawee, and which cannot be revoked
without joint agreement of both the buyer and the seller.
 La nde d c ost : The total cost of goods to a buyer, including the
cost of transportation.

La nd ing c e rt if ic at e : CertifIcate issued by consular offICials of

some importing countries at the point or place of export when
the subj ect goods are exported under bond.

Let t e r of ind e m nit y: In order to obtain the clean bill of lading,

the shipper signs a letter of indemnity to the carrier on the
basis of which may be obtained the clean bill of lading,
although the dock or mate's receipt showed that the shipment
was damaged or in bad condition.

Lice nse s: Some governments require certain commodities to

be licensed prior to exportation or importation. Clauses
attesting to compliance are often required on the B/L.

O c e an Bill of Lad ing (O c e a n A contract for

B/ L):
transportation between a shipper and a carrier. It also
evidences receipt of the cargo by the carrier. A bill of
lading shows ownership of the cargo and, if made negotiable,
can be bought, sold or traded while the goods are in transit.

O r igina l Bill of Lad ing (O BL): A document which requires

proper signatures for consummating carriage of contract. Must
be marked as "original" by the issuing carrier.

P & I: An insurance term meaning " Protection and Indemnity."

Pac k ing list : Itemized list of commodities with marks/numbers,

with no cost values indicated.

Paye e : A party named in an instrument as the benefIciary of

the funds. Under letters of credit, the payee is either the drawer
of the draft or a bank.

PO D : "Port of Discharge" or "Port of Destination"; " Proof of

delivery": A document required from the carrier or driver for
proper payment.

PO L: " Port of Loading."

T e Art of Retail Buying

Pre pa id (P p d .): Freight charges paid by the consignor
(shipper) prior to the release of the bills of lading by the carrier.

Pro f orm a : A Latin term meaning " For the sake of form."

Pro f orma invo ic e : An invoice provided by a supplier prior

to the shipment of merchandise, informing the buyer of the
kinds and quantities of goods to be sent, their value, and
specifications (weight, size, and so on).

Pro rat a: A l atin term meaning "In proportion."

Q ua ra nt ine : A restraint placed on an operation to protect the

public against a health hazard. A ship may be quarantined so
that it cannot leave a protected point. During the quarantine
period, the flag is hoisted.

Quot a : The quantity of goods that may be imported without

restriction during a set period of time.

Quot at io n : An offer to sell goods at a stated price and under

stated terms.

Re bate : A form of discounting or refunding that has the net

effect of lowering the tariff price. The granting of a freight
rebate to the shipper is not uncommon, but the rebate can be
either legal or illegal. For example, the commission of the
freight forwarder is about 2- 5% in ocean freight and about
10% in airfreight. It is legal for the airfreight forwarder to pay
back to the shipper a portion of the commission it earns from
the carrier. However, such a payback may be deemed illegal
in ocean freight, which is governed by the Shipping Act of
1984, and operates on competitive worldwide fixed rates. See
full Act at www.fmc.gov/about/ShippingAct.asp

Re co urse : A rights claim against the guarantors of a loan, or

draft, or bill of exchange.

Re m itta nc e : Funds sent by one person to another as payment.

 S hippe r: The person or company supplying and/or owning
the commodities shipped. Also called the " Consignor."

S hippe r 's inst ruct io ns: Shipper's co mmunication(s) to its

agent and/or directly to the international water-carrier.
Instructions may be varied; for example, specifiC details/clauses
to be printed on the B/L, directions for cargo pickup, and delivery.

St ra ig ht b ill of la d ing : A non-negotiable bill of lading which

states a specifIC identity to whom the goods should be delivered.

S urc ha rg e : An extra/additional charge.

S urt ax: An extra/additional tax.

T &E "T ra nspo rt at ion a nd Export at io n" : United States

custo ms form used to control cargo movement from port of
entry to port of exit, meaning that the cargo is moving from
one country, through the United States, to another country.

T ariff (T rf .): A publication setting forth the charges, rates and

rules of transportation companies.

Va lidat ion : Authentication of B/L and when B/L becomes

effective.

Va ria ble cost : Costs that vary directly with the level of activity
within a short time. Examples include costs of moving cargo
inland on trains or trucks, stevedoring in some ports, and
short-term equipment leases.

W ay b ill (W B): A document prepared by a transportation

c ompany at the point of a shipment; shows the point of the
origin, destination, route, consignor, consignee, description of
shipment, and amount charged for the transportation service.
It is forwarded with the shipment or sent by mail to the agent
at the transfer point or waybill destination. Unlike a bill of lading,
a waybill is not a document of title.

e Art of Ret ail Buying