Incoterms shipping terminology isn’t just fancy jargon. Knowing the rules on global freight can translate to minimized shipping risk and maximized profits.

Expanding your small business globally is a great way to increase profits, but navigating international trade in 2023 can be difficult. Incoterms are a set of internationally recognized rules that define the responsibilities of buyers and sellers in international trade transactions. In this article, we’ll explore how Incoterms can help small business owners control shipping and freight costs and risk factors to better succeed in the global market.

What are Incoterms?

First published in 1936, Incoterms (International Commercial Terms) are a set of standard trade terms widely used in international trade transactions. Formally and currently published by the International Chamber of Commerce (ICC), they are widely recognized and accepted by governments, legal authorities, and practitioners around the world.

As a guide intended to level the international playing field, Incoterms specify the responsibilities of the seller and buyer in the transaction. This includes obligations for the delivery of goods, transfer of risks, and costs related to transportation and insurance.

Key Incoterms Defined

Some of the more commonly used Incoterms include:

EXW (Ex Works): The seller’s only obligation is to make the goods available at their premises.

FOB (Free on Board): The seller is responsible for the delivery of goods to the port of shipment and the buyer is responsible for the cost and risk of loss or damage to the goods from that point onwards.

CIF (Cost, Insurance and Freight): The seller is responsible for the delivery of goods to the port of destination and the cost and risk of loss or damage to the goods during transportation.

CPT (Carriage Paid To): The seller is responsible for the delivery of goods to the named place of destination and the cost of transportation.

DAP (Delivered at Place): The seller is responsible for the delivery of goods to the named place of destination.

Incoterms play a crucial role in international trade by providing a common understanding of the obligations and responsibilities of the parties involved, reducing the risk of misunderstandings and disputes.

Incoterms 2022 vs 2023

Compared to 2020, 2021 or 2022, what’s new in Incoterms for 2023? Essentially, nothing.

The ICC updates and revises the Incoterms guide only once every 10 years, with the last update being in 2020.

Not that the ICC is static in its development for more timely resources, far from it. For instance in 2022 the ICC launched Genesis, a online tool intended to enable exporters to obtain certification of their origin statement on invoice declarations.

As for the update in 2020, several changes were made to the Incoterms, including changes to the rules and responsibilities of the buyer and seller. Also included were updates to reflect developments in transportation and logistics practices, and the introduction of a new Incoterm, DPU (Delivered at Place Unloaded), which provides additional clarity for delivery obligations in multimodal transportation scenarios.

How Do Incoterms Impact the Cost of Shipping?

Incoterms can have a significant impact on the cost of shipping in international trade transactions. The specific Incoterm agreed upon between the buyer and the seller determines the responsibilities and costs associated with the delivery of goods, including transportation, insurance, and customs duties.

Having an intimate knowledge of the terms that relate to your business, and the resources available to negotiate the best possible outcome can have a significant impact on your shipping costs.

For example, if the Incoterm agreed upon is FOB (Free on Board), the seller is responsible for the delivery of goods to the port of shipment, while the buyer is responsible for the cost of transportation, insurance, and customs duties from that point onwards. This means that the buyer will bear the cost of these expenses, which can significantly increase the cost of shipping.

On the other hand, if the Incoterm agreed upon is CIF (Cost, Insurance and Freight), the seller is responsible for the delivery of goods to the port of destination, and the cost and risk of loss or damage to the goods during transportation. In this case, the seller will bear the cost of transportation, insurance, and customs duties, which can reduce the cost of shipping for the buyer.

What are the Most Important Incoterms for Small Business

For North American-based small business,

Depending on your type of industry, the most important Incoterms for smaller North American-based businesses would likely be EXW (Ex Works), FOB (Free on Board), CIF (Cost, Insurance and Freight), and DAP (Delivered at Place). Simply because these Incoterms are the most widely used in international trade.

In terms of controlling shipping and freight costs, it is important to carefully consider the Incoterm agreed upon in each transaction. In general sum-sum negotiations, Incoterms that place more responsibility on the seller will tend to result in lower costs for the buyer, as the seller will bear the costs of transportation, insurance, and customs duties.

For example, if you’re importing goods from a supplier in another country, using an Incoterm like CIF or DAP, which place the responsibility for delivery and transportation costs on the seller, can help to reduce your costs. On the other hand, if you are exporting goods to a customer in another country, using an Incoterm like FOB, which places the responsibility for delivery and transportation costs on the buyer, can help to reduce your costs.

Overall, consulting with a trade expert or an experienced logistics partner to help you determine the best Incoterms for your specific needs to help you control shipping and freight costs

Incoterms Shortfalls and Limitations

As mentioned, Incoterms are a widely used and well-established set of rules for international trade, but like any commercial tool, they are not without limitations. Some of the potential shortfalls or limitations of Incoterms include:

1. Ambiguity: Incoterms are designed to be flexible, but this can also result in ambiguity in the interpretation of their terms. This can lead to disputes between buyers and sellers over the responsibilities and obligations outlined in the agreement.
2. Limited coverage: Incoterms are only intended to cover the delivery of goods and do not address other important aspects of the transaction, such as the payment of goods, warranties, and intellectual property rights.
3. Outdated provisions: Incoterms are updated every 10 years, but changes in transportation and logistics practices, as well as other commercial developments, can render some provisions outdated. This can result in a lack of clarity around obligations and responsibilities, particularly in new or complex commercial arrangements.
4. Non-binding nature: While Incoterms are widely used and accepted in international trade, they are not legally binding and are only enforceable if specifically incorporated into a contract between the buyer and seller.
5. Lack of uniformity: Incoterms are used globally, but the interpretation and application of their terms can vary between countries and regions, leading to potential misunderstandings and disputes.

Move Forward with Expertise

Considering the complexity of the global supply chain and the endless combinations of market participants, it’s important to keep potential gains and shortfalls of using Incoterms in mind. It’s critical to ensure that they’re used in the context of a well-drafted contract that clearly outlines the rights and obligations of both the buyer and the seller.

Partnering with an experienced trade expert or a logistics specialist such as Brimich can help you navigate the limitations of Incoterms and ensure that they’re used effectively in your international trade transactions.

What is the Difference Between Freight and Regular Package Shipping?

Are you shipping packages and parcels, light-weight items or heavier products?

Package and parcel delivery have a few discrete features different from freight shipping. Depending on what it is you need moved, either freight or regular package shipping may be better for you, but which one?

Learn about freight vs regular package shipping and see how a strategic LTL or FTL ally can help your goods move.

It’s common for small businesses that aren’t familiar with these types of services to get confused. Let’s consider freight and regular package shipping, and see what might work best for your business.

In the simplest term, freight shipping is useful when you’re shipping palletized items whereas package shipping might be useful when shipping one-off items.

Freight Shipping in a Nutshell:

• Larger loads, such as palettes of products that’ve been packaged together or wrapped as one or more.
• For a typical large haul trip, loads can range from weights between 5,000 to 70,000 lbs.
• It could take 1-3 days for a delivery to be made
• The truck can be larger than 58-feet
• Hundreds of miles can be covered in one trips
• Oversized loads such as heavy equipment can weigh well over 110,000 lbs.
• Usually making one trip, from point A to point B

When is Freight Shipping a Good Choice?

Freight shipping is the perfect choice when you’re moving larger loads than any other form of road transport can deliver. When you need a transport service that can ship multiple tons of product from one point to another ,either for a client or for your own business, then freight is the only realistic option.

You can deliver many of thousands of pounds to your own warehouse from your production facility. If for instance, you need to move a large quantity of inventory from one warehouse to another, this is by far the best option.

When you simply have too big a load to make with a small truck, larger trucks can be your saving grace. Another way to look at it is you have gone beyond the typical LTL service and into TL territory.

For another example, if you require moving of a large piece of machinery, rather than breaking it up into parts, a freight truck can lift the load all in one go to determine whether it needs to be.

Freight shipping is typically used by large businesses that need to move large quantities of products to their depots. Moving straight from their own manufacturing plants, they transport large amounts of product.

These items could be cars, food, raw materials, crude, etc, which is shipped to a depot. From there, smaller trucks then distribute the loads to businesses and or local storage facilities.

The Basics of Parcel and Package Shipping

• In terms of capacity, a package truck can have anywhere between 50-100 parcels depending on the average size.
• Individual package loads are typically less than 150 lbs.
• Small parcels and packages are the main contents of a package truck
• Trucks are usually no longer than 28-feet
• A package truck will make multiple stops throughout the day, as in a milk run, delivering orders to customers at their door.

When is Package and Parcel Shipping the Better Choice?

As mentioned above, package shipping is a shipment that is under 150 lbs. However, it can be considered light freight. Most package companies will consider it a larger package load.

Package shipping is mainly used for courier services. These are the many smaller delivery trucks you’ll see on virtually any street. Such vehicles are a medium to small van or truck, delivering products door to door.

Consider the kind of truck you see pull up to your home when you have ordered something from Amazon, this is package delivery.

Regular package shipping is also usually restricted to local areas. Therefore unlike freight hauling, the service is for a local area, such as a city, town, or rural zone.

Smaller parcel shipping should be reserved for businesses that are fulfilling product delivery to customers’ doors. However, the service can also be used to move inventory from warehouse to warehouse though usually reserved for a local area.

Still Need Help? Get a Hassle-Free Freight Quote Today

If you still have questions understanding the differences when it comes to freight and regular shipping, let an experienced partner handle your next freight shipment.

Brimich Logistics is an expert when it comes to 3PL and freight shipping. From small business to medium and large-sized business that require reliable large load shipping services, we have served our clients with pride, expertise and consistency.

Looking for a dependable partner to move your products? Brimich Logistics handles truckload and less than truckload shipping. Just let us know when and we’ll handle the rest.

For businesses just getting into the import-export game, these terms are often blurred. Therefor, when talking ti industry professionals, using them in their proper contexts will help eliminate any possibilities for confusion.

In this article, we’ll clarify the differences between the two, exploring traditional definitions, modern contemporary use, and where the lines become blurred.

Traditional Differences Between Cargo & Freight

In a nutshell, the traditional difference between freight and cargo comes down to the type of vehicle carrying products.

Here are a few examples of common terminologies and their somewhat mixed meanings relative to the type of  vehicle:

• Instead of freight planes, we use cargo planes
• Instead of a freight ship, we use a cargo ship
• Instead of cargo trains, we use freight trains

Additionally, long-haul trailers loaded with products are generally referred to as freight trucks.

Therefor, we associate the term used with the type of transportation mode used to move it. Over land, we would typically use the term “freight”, whereas transporting by air or on the seas would use the term “cargo”.

Still, whether we use traditional or contemporary definitions, there is an underlying common ground in both terms refer to the transportation of goods and products. Moreover, the terms cargo and freight are almost exclusively associated with commercial items.

That being said, there’s one interesting exception, and that is for anything under the umbrella of “mail” regardless of the transportation mode – train, truck, plane or ship. Whether it’s bundled letters, parcels or packages, as a category, these federally regulated items are always referred to as “cargo” instead of “freight”.

Freight vs Cargo, the Contemporary Differences

In the professional sense, logistics providers will think only of the goods being transported instead of their monetary value. Their focus is on the “freight-payable” aspect of moving the cargo; the actual costs and dollar value of moving the products from place to place.

The confusion then lies around the word freight itself as it is the rather ubiquitous term used to describe payment processes attached to the transport of goods.

For example, the word “freight” can describe any number of the following:

• The money charged
• Amounts payable
• The product or goods itself
• Goods moved by any method

Although the word freight is skewed towards land transportation methods, it’s also an acceptable term in deference to cargo moved by truck, train, plane, or cargo ship.

However,

cargo can only be called freight if it is used in reference to both the cargo itself and the transportation cost or payment rolled into one, which is where the lines start to blur.

Because the transportation industry is constantly evolving, and the world is becoming logistically more flat every day, the lines differentiating cargo and freight are blurring even more.

As time passes, they’re being used more interchangeably. Still, logistics specialists and international freight forwarders are more likely to stick to their traditional meanings.

In Summary, the Subtle Differences Between Cargo and Freight Are Well Worth Noting

In short, the term cargo is traditionally used to refer to commercial goods shipped by sea or plane, and mail of course, is always cargo.

Freight on the other hand,  is cargo moved overland in trucks or trains. Plus it has the direct connection to the financial aspects of the transportation of goods.

As a shipper of your own products, better understanding of the differences between these terms will help you avoid confusion, and possible errors through miscommunication while talking to your freight forwarder or 3PL provider.

Choosing the right type of shipping container also ensures that your products will get to you safely. Here are the most common types of shipping containers you can find—reviewing these carefully will assist you in the process of choosing the right type of shipping container:

1. Dry Storage Containers: The most common type of container, especially in 20’ and 40’ sizes. They are used to transport dry goods.
2. Flat Rack Containers: Used for transporting oversized items. They usually have collapsible sides without walls.
3. Open-Top Containers: These have a removable top, and are used for transporting over-height products.
4. Tunnel Shipping Containers: These have doors on both ends of the container, which makes loading and offloading easy and quick.
5. Open-Side Storage Containers: These open up on the sides, not the ends. They make loading easy, especially for wide items.
6. Refrigerated Containers: These preserve perishable goods for travel, like fruits, seafood, and flowers.
7. Insulated /Thermal Containers: These have temperature-control features to transport products that need to be kept warm for the duration of the shipping process.
8. Half-Height Containers: As their name indicates, these are half the height of normal containers. They are ideal for transporting heavy but low-volume cargo. They can be used on trucks to transport sand and gravel.
9. Car Carriers: These are specially made to transport cars, to ensure their safety.

Other types of containers include tanks, refrigerated containers, drums, and swap bodies.

Factors to Consider When Choosing the Right Type Of Shipping Container

Here are some of the factors to have in mind when choosing the right type of shipping container for your business:

• What sizes do shipping containers come in? Shipping containers come in different sizes suitable for different products. The most common sizes of shipping containers are 10’, 20’, and 40’; the last two sizes are the most commonly used because they make transportation easy.
• What is the cargo? While choosing the right type of shipping container, you need to consider the cargo that you are shipping or hauling. Some cargo is extremely heavy; other cargo is simple to load and unload. Special cargo, like perishable products, will require refrigerated containers. Oil, petroleum products, and other liquids require tanks. There are also custom-made containers for any sort of special cargo that you might have.
• How much do shipping containers cost? There are various factors that go into determining the cost of a shipping container; size is one of them. The age and the condition of the container is important, too. If it is old and beaten up, it should cost you much less than if it is in pristine condition. On average, a 20’ container can cost anywhere between $1,400 and $2,500, while a 40’ container can cost between $3,500 and $4,500.