Which Incoterm is best for your sea freight transport?
10 April 2019
Why are Incoterms important?
- Who organises the transport and pays for it
- In the event of damage, who bears the risk at what point
- Who arranges the customs documents for import and export
Incoterms for sea freight import
This schedule is a simplified representation of the Incoterms. For all details involving the division of tasks and risks for Incoterms, please refer to the International Chamber of Commerce (ICC) website.
CFR and DDP are often unexpectedly expensive
Sellers often propose to include CFR as Incoterm in the sales agreement. This means all handling up to and including main transport are arranged by said seller. After this, the cargo is your responsibility. The disadvantage of CFR is that you have no control over which forwarder is used. You will be informed of the costs for main transport in advance and will often receive a good rate for this. However, this is usually not the case for the handling charges at the final destination. These charges can be extortionate, with the total cost ending up (unexpectedly) higher than if you had chosen EXW or FOB.
Incoterm DDP means that the seller arranges the transport from door to door. This seems the simplest delivery condition for many importers, as the seller assumes all responsibility. However, DDP often has a sting in the tail when it comes to VAT payments and import duties. We see DDP cause complications in practical cases of customs forms on a regular basis, as well as unexpected extra costs. For this reason, we do not recommend DDP for goods originating from outside the EU.
EXW and FOB the smartest choice for many importers
Just like DDP, the Incoterm EXW governs transport from door to door. The significant difference is that not the seller, but you – the buyer – are completely responsible for the entire route. You choose your own Dutch forwarder who will arrange the transport for you, from the factory to the final destination. To achieve this, Ritra Cargo works closely with reliable local agents in the country of origin who carry out all handling up to the main transport on our behalf. EXW is a particularly smart choice for importers who wish to subcontract everything to a single party. It allows for maximum control over transport, planning and costs.
For a sales contract on the basis of FOB, you choose your own Dutch forwarder, who will arrange the main transport and all associated matters for you up to the delivery. Until the goods are on the vessel, your supplier is responsible for all required handling. You are often able to negotiate a better rate for these handling activities – in combination with the goods you buy from them – than you would for EXW. Therefore we recommend you include this in the quotation process so that you have a clear overview beforehand. FOB is a good choice for almost every importer due to the control over the (often lower) costs, the consignment and the planning.
Incoterms EXW and FOB are often the best options for our customers. As they choose the forwarder themselves, the control over transport, planning and costs is with them. No nasty surprises in retrospect. You can determine which Incoterm is most suitable for you on the basis of the cost profile. In most cases, FOB will come out on top. If you choose to have us arrange transport for you, we will always provide you with a concise all-in tariff with a clear breakdown of all costs.
Needless to say, a lot more goes into the import of goods. Think of transport insurance, clearance and physical distribution. We are available to give advice and support. For more information, please contact us without obligation. Also, we would be pleased to help if you have any further questions about Incoterms.
This explanation is aimed at providing importers with the best advice on Incoterms for sea freight. However, no rights can be derived from this document, and you will always have final responsibility for the choice of an Incoterm. We recommend that you ensure you are well informed on Incoterms.