Incoterms for clad metal shipments
The Incoterm decides who pays for what between the factory door and the buyer's warehouse. It also decides who is exposed when the container is delayed, which is the part that gets argued about.
At a glance
Specification at a glance
| Term | Supplier does | Buyer does |
|---|---|---|
| EXW | Makes the goods available at the factory | Everything from loading onward, including export clearance |
| FOB | Delivers to the vessel at the named port, clears export | Ocean freight, insurance, import clearance, inland |
| CFR | As FOB plus ocean freight to the destination port | Insurance, import clearance, inland |
| CIF | As CFR plus minimum insurance cover | Import clearance, inland, any cover above the minimum |
| DAP | Delivers to the named place, import duty unpaid | Import clearance and duty |
| DDP | Delivers with duty paid | Unloading, and any local tax the supplier cannot legally pay |
FOB is the default for a reason
Most clad orders move FOB because both sides can price what they control. The supplier prices the factory and the port; the buyer prices the ocean leg, which depends on his forwarder and his schedule. A CIF quote looks simpler and hides the freight inside a number the buyer cannot check.
CIF insurance is thinner than buyers expect
CIF requires minimum cover under the institute cargo clauses, not the full value. A buyer who assumes a CIF shipment is fully insured finds out at the claim. If the material matters, buy the cover rather than inherit it.
DAP is convenient until the duty bill
DAP puts the material at the buyer's door with duty unpaid, which suits a buyer without a customs broker and a supplier with a good forwarder. The trap is the destination charges: unloading, waiting time and terminal fees that the carrier bills to whoever is named. They are not duty and not always obvious in the quote.
The three arguments that recur
Who pays demurrage when the vessel is late. Who pays the destination terminal handling when a term is quoted loosely. Who pays for a re-inspection after a discrepancy. Each is settled by writing the named place precisely and by naming the charges that are excluded.
How to state it in the RFQ
Name the term, the named port or place, and the Incoterms edition. "FOB Xiamen, Incoterms 2020" is a specification; "FOB China" is not. Then ask for the packing specification separately, because on a long route packing is the largest variable the term does not cover.
Questions
Common questions
Which Incoterm should a first order use?
FOB with a forwarder the buyer chooses, so the freight cost is visible and comparable. A letter of credit pairs naturally with FOB.
Is CIF cheaper than FOB plus freight?
Rarely. CIF bundles the freight into the goods price; comparing it against a separately quoted freight is the only way to know.
Does DAP include duty?
No. DAP leaves import duty and clearance with the buyer. DDP includes duty but may not be legally possible for the supplier in every country.
Who insures the goods?
Under CIF the supplier insures at minimum cover. Under FOB and CFR the buyer insures from the point risk transfers.
What does the named place mean?
The exact point where cost and risk change hands. A port name without a terminal can leave the destination charges unresolved.