Shipping goods with LCL? What’s the connection with Incoterms?

Incoterms table
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Sea freight is a trillion-dollar industry that centers around buyers receiving goods and sellers receiving payment. The business is massive as shipping goods around continents by sea is cost-effective. Many carriers are ready to take your load. However, many regulations and documents are involved, and navigating them is as important as navigating the seas. So, whether booking LCL or FCL shipping, make sure you are up to speed with the Incoterm rules. The right choice of term can save your company time and money.

Shipping overseas

There are two ways to book overseas shipments. The first is best suited for shippers with Less than a Container Load (LCL) of goods and who would benefit from sharing space. The second is for shippers with enough merchandise for a Full Container Load (FCL) with a container being 20- or 40-feet. LCL shippers who share space pay mostly for volume, while FCL shippers pay for a full container no matter how much space they use. Shipping overseas involves many documents and meeting customs requirements at different ports worldwide. However, one stands out, and that is the Bill of Lading. A single Bill of Lading (Sea Waybill, BOL, B/L, BL) lists all goods within a container. This freight document is an agreement detailing the conditions of transport by sea. A single party owns the BOL, and it is paid based on the price of a full container, whether entirely full or not.

Shipping and Incoterms

  • What is an Incoterm, and how does it relate to shipping and the BOL?Incoterms® is an essential aspect of freight business negotiations as they lay out the responsibilities of the buyer and seller. Incoterms® comprise eleven universally accepted commercial terms issued by the International Chamber of Commerce (ICC). The terms define who pays for and manages shipment, documentation, customs clearance, insurance, and other logistics activities. The ICC created the terms in Paris in 1936, and they are revised regularly in line with changes in global trade. The latest version is the Incoterms 2020.Before negotiating the sale contract, importers and exporters should consider which Incoterm serves them best to prevent unexpected costs and needless complications. Furthermore, choosing an Incoterm aligns everyone in the shipping procedure when various stakeholders are involved. These terms ensure the on-time payment of services, goods, and taxes while protecting buyers, carriers, and suppliers.How does this relate to a BOL? A BOL is three documents in one: Loading Receipt – a receipt handed at pickup to the seller as proof that the goods were handed over and in good condition unless a note states otherwise on the BOL at pickup.Contract of Carriage (shipment contract) – the BOL includes the terms and conditions of the forwarder organizing the international transit. It limits their liability should something go wrong with the shipment. Technically, the contract starts when the seller accepts the forwarder’s freight quote and is evidence of that contract.Document of Title – a BOL is proof of ownership, although a commercial invoice also serves this purpose. Buyers and sellers choose Incoterms (freight terms) to create their sales contracts for importing and exporting. The Incoterm listed on the commercial invoice indicates the point when goods change hands during shipment. Therefore, a BOL has become proof of ownership that the seller receives at pickup and the buyer needs for shipment release.

Types of Incoterms

Whether importing, exporting, or both, it is essential to understand Incoterms and their interaction with the sales contract and underlying contracts (customs, insurance, shipping). The most well-known Incoterms are FCA (Free Carrier), FOB (Free On Board), and EXW (Ex Works). The choice depends on one’s experience as a shipper, the type of goods shipped, and the connection with your supplier. One can use most Incoterms for any transport mode, except for FAS, FOB, CIF, and CFR, which are only used for sea freight.

Examples of conditions covered in Incoterms:

  • Who will pay transportation, insurance, and additional costs.
  • At which location the transport should take place.
  • Whether unloading and loading are included.
  • When the risk passes from the buyer to the seller.
  • Information about limits, limitation periods, and deadlines.

Take note

Shipping Incoterms don’t cover breach of contract, property rights, or potential “force majeure” situations (unforeseeable circumstances that prevent contract fulfillment). Therefore, include these in the contract of sale. Likewise, only the C Incoterms assign responsibility for arranging insurance. Cargo insurance is, therefore, a separate cost for buyers.

FAQ

Answer: LCL (Less than Container Load) shipments offer flexibility, especially for businesses that don’t have enough cargo to fill an entire container. When using specific Incoterms like FOB or CIF, LCL allows shippers to only pay for the space they use in a shared container, making it cost-effective. Additionally, LCL provides more frequent shipping options, as you don’t need to wait to accumulate enough goods for a full container.

Answer: Incoterms define the responsibilities and costs between buyers and sellers. For LCL shipments, the chosen Incoterm will determine who pays for specific parts of the shipping process, such as packing, inland transportation, customs clearance, and freight charges. For instance, under the EXW Incoterm, the buyer bears almost all costs, while under DDP, the seller is responsible for most charges.

Answer: FOB (Free On Board) and CIF (Cost, Insurance, and Freight) are among the most commonly used Incoterms for LCL shipments. FOB is popular because it clearly defines the point where risk and responsibility shift from the seller to the buyer, which is when the goods are onboard the vessel. CIF, on the other hand, includes shipping costs, insurance, and freight in the price quoted by the seller, making it a straightforward choice for many buyers.

Answer: Incoterms specify the point at which the risk of loss or damage to goods transfers from the seller to the buyer. For LCL shipments, this is crucial as goods are often consolidated with other shipments. For example, under the FCA (Free Carrier) Incoterm, the risk transfers when the goods are handed over to the carrier, while under DAP (Delivered At Place), the risk remains with the seller until the goods are available for unloading at the destination.

Answer: LCL shipments can face challenges such as potential damage due to frequent handling, longer transit times due to consolidation and deconsolidation, and complexities in tracking goods. The chosen Incoterm can either mitigate or exacerbate these challenges. For instance, under CPT (Carriage Paid To), the seller might choose a cheaper, but longer, shipping route, while under DDP (Delivered Duty Paid), the seller must ensure all customs duties are paid, which can be complex in certain countries.

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eezyimport is an online platform and is not a licensed customs broker. However, we work closely with a third-party licensed customs broker who can assist with any entry-related issues.

eezyimport is an online platform and is not a licensed customs broker. However, we work closely with a third-party licensed customs broker who can assist with any entry-related issues.

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