Are you wondering how incoterms can simplify your air shipments? The incoterms specific to air transport are explained in this article. Mastering these terms is key for effectively managing your shipments and preventing high-cost.
Having spent years in the field of international transport, I have found that a lack of knowledge about incoterms can lead to potential complications. Learn about the most commonly used incoterms in air freight and how to use them to your shipments.
Essential Information :
- Rental rates of containers and the advantages of renting over buying
- The specific incoterms for air transport and their applications
What are incoterms, and why are they important?
A clear definition of incoterms, as well as their importance, and a list of different incoterms with their meanings will be detailed.
Definition
Incoterms, or International Commercial Terms, are a set of predefined commercial terms published by the International Chamber of Commerce (ICC). They are used worldwide to clearly communicate the tasks, costs, and risks associated with the transportation and delivery of goods in international trade.
Key Points of Incoterms for Air Freight
Incoterms are important for those reasons:
- Responsibilities: Incoterms specify the responsibilities of the buyer and the seller in international transactions, detailing who is responsible for tasks such as transportation, insurance, and customs clearance.
- Costs: They determine which party is responsible for the costs associated with shipping, including freight, insurance, and handling charges.
- Risk Transfer: Incoterms define the point at which the risk of loss or damage to the goods transfers from the seller to the buyer.
Incoterms play a key role in simplifying international trade transactions and reducing risks for the parties involved.
According to the International Trade Centre.
Different incoterms and their meanings: Multimodal incoterms
Multimodal incoterms are used when the cargo is transported by combined means between road, air, sea, or rail freight. The general Incoterms for all modes of transport can be added to any domestic or international freight contract. Here is an overview of the main incoterms:
EXW (Ex Works)
Under the EXW incoterm, the seller makes the goods available at their premises. The buyer assumes all costs and risks from that point onward. For example, a company buying spare parts in Thailand picks them up directly from the factory and handles all logistics.
FCA (Free Carrier)
The FCA incoterm stipulates that the seller delivers the goods to the carrier designated by the buyer at an agreed location. This incoterm is particularly used for air transport. For example, a French aerospace company might pick up components delivered to Bangkok airport.
CPT (Carriage Paid To)
With CPT, the seller pays for transport to the agreed location, but the risk transfers to the buyer as soon as the goods are handed over to the carrier. A textile manufacturer might deliver clothing to Paris airport, paying the transport costs.
CIP (Carriage and Insurance Paid To)
CIP is similar to CPT, but the seller must also provide insurance covering the risk of loss or damage during transport. This is crucial for high-value shipments, such as electronic equipment.
DAP (Delivered at Place)
DAP means the seller assumes all costs and risks until the goods are delivered to the agreed location. For example, a Thai furniture manufacturer delivers directly to a warehouse in Germany.
DPU (Delivered at Place Unloaded)
With DPU, the seller handles transport and unloading of the goods at the agreed location. This is useful for bulky or heavy products, such as industrial machinery.
DDP (Delivered Duty Paid)
DDP means the seller assumes all costs, including customs duties, until the goods are delivered. For example, an American company buying food products can receive the goods without worrying about customs formalities.
FAS (Free Alongside Ship)
Although primarily used for maritime transport, FAS involves the seller placing the goods alongside the ship, after which the buyer takes on costs and risks. This can be used in situations where air transport is combined with maritime.
FOB (Free On Board)
FOB is commonly used for maritime transport and means the seller covers costs until the goods are loaded on board the ship. It is less relevant for air transport but can be applied in multimodal contexts.
CFR (Cost and Freight)
With CFR, the seller pays transport costs to the destination port, but the risk transfers to the buyer once the goods are on board. This can be useful for shipments requiring multiple modes of transport.
CIF (Cost, Insurance and Freight)
CIF is similar to CFR, but the seller must also insure the goods. This is particularly advantageous for high-value products transported by air, such as jewelry or artworks. Understanding incoterms is essential for optimizing your air transport operations.
By choosing the right incoterm, you can avoid misunderstandings, reduce costs, and improve the efficiency of your international shipments. For optimal management of your shipments, use our freight services and benefit from the expertise of specialists in international transport to secure your goods and shipments.
Specific incoterms for air transport
It’s advisable to be familiar with the specific incoterms for air transport and their practical applications. Concrete examples and testimonials will be provided to illustrate the use of the incoterms FCA, CPT, and CIP in air freight.
Incoterm FCA (Free Carrier)
The FCA incoterm is one of the most commonly used in air transport. Under this incoterm, the seller delivers the goods to the carrier or another person designated by the buyer at the seller's premises or another agreed location.
Responsibilities of the seller
- Packaging and marking of the goods (See our guide to optimizing your packaging)
- Export formalities
- Delivery of the goods to the carrier designated by the buyer
Responsibilities of the buyer
- Choice of the carrier
- Main transport costs
- Insurance
- Import formalities
For example, the company "TechAéro" uses the FCA incoterm to ship electronic components from Bangkok to Paris.
FCA allows us to control the choice of carrier, ensuring a fast and secure delivery to our distribution center in France.
According to Marie Dupont, logistics manager at TechAéro.
Incoterm CPT (Carriage Paid To)
The CPT incoterm is often used for air transport when the seller wants to arrange and pay for transport to the agreed destination.
Advantages and implications
- Advantages: The seller manages transport arrangements, simplifying the process for the buyer.
- Seller's responsibilities: Arrange and pay for transport to the destination point.
- Buyer's responsibilities: Assume the risk as soon as the goods are handed over to the main carrier.
Unlike EXW (Ex Works), where the buyer assumes all costs and risks from the seller's premises, CPT allows the seller to manage transport to an agreed location, offering greater convenience to the buyer.
Jean-Marc Leclerc, logistics expert, explains:
CPT is ideal for companies that prefer to leave transport management to the seller while having the flexibility to choose the destination point.
Incoterm CIP (Carriage and Insurance Paid To)
The CIP incoterm is similar to CPT, but with an additional obligation for the seller to provide insurance covering the risk of loss or damage to the goods during transport.
Importance of insurance
Insurance is crucial for high-value shipments, ensuring that the buyer is protected against financial loss in case of issues.
Responsibilities of the seller
- Arrange and pay for transport to the agreed destination
- Provide insurance covering at least 110% of the value of the goods
Responsibilities of the buyer
- Assume the risk as soon as the goods are handed over to the main carrier
- Handle import formalities
Sophie Martin, an expert in marine and air insurance, states:
The CIP incoterm offers additional peace of mind to buyers, especially when importing high-value goods.
By understanding and using these specific incoterms for air transport, companies can improve their logistical management, reduce risks, and optimize their international operations.
Frequently asked questions about air incoterms
In this section, we explore the most common questions about incoterms specific to air transport.
Is FOB applicable to air freight?
The incoterm FOB (Free On Board) is generally not deployed for air transport. FOB is designed for maritime shipments, where goods are considered delivered once loaded on board the ship.
For air freight, alternatives like FCA (Free Carrier) are recommended as they specify delivery to the carrier at an agreed location, often an airport.
According to Jean-Luc Moreau, an air logistics expert: "Using FOB for air transport can cause confusion and unnecessary complications. FCA is much better suited and commonly used for air shipments."
What is the difference between DDP and DAP?
DDP (Delivered Duty Paid)
- Responsibilities of the seller : Assume all costs and risks, including customs duties, until the final destination.
- Responsibilities of the buyer : Take over the goods upon delivery.
DAP (Delivered at Place)
- Responsibilities of the seller : Assume costs and risks until delivery at the agreed place.
- Responsibilities of the buyer : Handle customs duties and import taxes.
Claire Dupont, an international trade consultant, explains:
DDP is ideal for buyers who want to avoid customs complications, while DAP is often chosen by sellers to limit their responsibilities to export formalities.
What does DPU mean in the context of air transport?
DPU (Delivered at Place Unloaded) means that the seller is responsible for delivering and unloading the goods at an agreed location. This is particularly useful for heavy or bulky goods requiring special handling upon arrival.
For example, the company "HeavyLift Logistics" uses DPU to ship industrial equipment by air, ensuring that the machines are unloaded at the destination airport.
DPU allows us to ensure that our clients receive their equipment without worrying about unloading logistics
explains Marc Lemoine, operations director.
Comparison of insurance coverage between CIF and CIP
The main difference between CIF (Cost, Insurance, and Freight) and CIP (Carriage and Insurance Paid to) lies in the required insurance coverage and the level of responsibility of the parties involved.
CIF (Cost, Insurance, and Freight)
- Insurance coverage : The seller provides minimum insurance covering the value of the goods + 10%.
- Applicability : Mainly used for maritime transport.
CIP (Carriage and Insurance Paid to)
- Insurance coverage : The seller must provide insurance covering at least 110% of the value of the goods.
- Applicability : Used for all modes of transport, including air transport.
On-board notation with the FCA rule
The FCA rule has been updated to allow for the inclusion of an on-board notation on the bill of lading. This ensures that the goods have been loaded onto the plane, offering additional security for transactions.
What are the most used incoterms?
The most commonly used incoterms include:
- FCA (Free Carrier) FCA (Free Carrier): Often chosen for its flexibility and adaptability to different modes of transport.
- CIP (Carriage and Insurance Paid to): Preferred for high-value shipments due to the required insurance coverage.
- DAP (Delivered at Place): Appreciated for its clarity in terms of delivery responsibilities.
Best practices for using incoterms for air freight
- Choose the appropriate incoterm: Select the incoterm that best suits your logistical needs and your ability to manage risks and costs.
- Clarify responsibilities: Ensure that all parties clearly understand their respective responsibilities.
- Use detailed contracts: Include the incoterms in your commercial contracts to avoid misunderstandings.
- Consult experts: When in doubt, seek advice from logistics experts on the choice and application of incoterms.
By following these tips and understanding the nuances of incoterms, you can optimize your air transport operations and avoid common complications.
How to decide the right incoterm for your air shipments?
Considering various factors such as the type of goods, responsibilities, and costs, you can optimize your logistics and minimize risks.
Factors to consider when choosing an incoterm
Choosing the right incoterm for your air shipments is crucial to ensuring efficient logistics and avoiding additional costs or misunderstandings. Here are some factors to consider:
Type of goods
The type of goods you are shipping can influence your choice of incoterm. For example, high-value goods may require additional insurance coverage, making the CIP (Carriage and Insurance Paid to) incoterm particularly relevant.
Responsibilities
It is important to clarify the responsibilities of each party involved in the transport. Incoterms like DDP (Delivered Duty Paid) and DAP (Delivered at Place) clearly define who is responsible for costs and risks at each stage of transport.
Costs
Consider the total costs associated with each incoterm, including transport, insurance, customs, and other ancillary fees. Incoterms like CPT (Carriage Paid to) and CIP can be advantageous if you want the seller to cover part of these costs.
Jean-Paul Martin, a logistics consultant, recommends:
Always assess the level of control you want to have over transport and customs formalities before choosing an incoterm. This can greatly influence the efficiency and costs of your shipments.
Tools and resources to help with the selection of incoterms
Selecting the appropriate Incoterms for an international transaction can be facilitated by various tools and resources. Here are some of the most commonly used:
Online tools
Using online tools can simplify the process of selecting incoterms.
- Incoterms® 2020 App: An official mobile application by the International Chamber of Commerce offering detailed descriptions and guides on each incoterm.
- ICC Incoterms® Rules: An online tool provided by the International Chamber of Commerce that allows easy comparison of incoterms and choosing the most appropriate one based on your specific needs.
- UPS TradeAbility: Offers tools to calculate shipping costs and helps select incoterms based on your shipment characteristics.
These tools will guide you in deciding the right incoterm for your air shipments, ensuring more efficient logistics and reduced risks and costs.
By understanding and applying the appropriate incoterms to your air shipments, you can effectively navigate international trade, avoid unnecessary complications, and ensure the smooth delivery of your goods. You have potential to optimize your air shipments, thereby reducing risks and costs associated with international trade.
For more information and answers to all your questions about air freight, check out our FAQ on air freight. For personalized advice and tailored solutions, contact our experts today.
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