Good morning. For those of you that jumped in a little bit early, this is my second appearance. For those of you not seeing me for the second time, my name is Brendan Carruthers. I will be your host for today's webinar, Incoterms and Supply Chain Strategy. Let's go ahead and get started. Few housekeeping items. First thing we need to do is acknowledge our disclaimer. For those of you that are regular attendees of our webinars and in-person seminars, this will be very familiar to you. Just a reminder that we're not lawyers. We are experts in the field of global supply chain. Of course, we thank you for taking note of this disclaimer. Understand that today's webinar will be recorded and available to you and for your use after the event concludes.
We're going to send you a survey within two or three hours, probably, after the conclusion of the event. When you complete your survey, you'll be directed to a landing page, which will have both this presentation and a recording of this webinar. Of course, our team will be talking and sharing images as we progress. Understand that your microphones are muted and your cameras will remain off. As we proceed, of course, you'll probably have questions. Feel free to let them flow. Drop them into the Q&A box, which you can find by hovering over your Zoom toolbar at the bottom of the screen. It's not entirely intuitive for those of you that are more accustomed to Teams or Google Meet or some other platform, maybe it's in the other. There's three dots, but it is there.
Sometimes folks have a little bit of a challenge finding that. It is there. Please put your questions there. We'll be able to get to most of them during the webinar, but if we don't, there will be time for Q&A at the end. If we still don't have time, which is possible but rare, we will make sure to reach out to you directly within a couple of business days or so. Joining me in hosting duties today is my colleague, Pam Norwood of our Charlotte district. Our agenda's a simple one. We're going to introduce our panelists, going to tell you a little bit about them in a minute, we'll talk about risk in the supply chain. We're going to take a deep dive on Incoterms and the definition of each, talk a little bit about controlling costs.
Then, as I mentioned, we'll have a Q&A session. Now our presenters, this is when I pick it up and read it, I don't miss anything. Forgive my eyes going down. Chris Beckwith is trade compliance manager for both Norfolk and Raleigh -Durham. He is based in our Norfolk, Virginia office, and he graduated from Old Dominion University. He's a licensed customs broker, and for those of you who hold that designation, you know that's not easy. He brings 17 years of industry experience to the webinar today. He has expertise in air and ocean export, domestic trucking, and is an Expeditors thought leader in global trade compliance. On the personal side, Chris is the proud father of three boys and enjoys spending his free time on do-it-yourself projects at home. Mark Zbyszewski is an account manager for ECI Brokered Insurance.
Almost 20 years with the organization now. He started with Expeditors in 2007, and in his role, he is responsible for placing and servicing a wide variety of cargo insurance programs at ECIB, Expeditors' wholly owned insurance subsidiary. His previous roles in his 20 years with the company include various positions of increasing responsibility in surety, customs, and corporate development. Pam is going to get us started. Pam, over to you.
Just launched the poll there. Poll question, if everyone can put their input in there. We're at about 50% now.
You can go ahead and share those results, Pam.
Okay.
Looks like a good majority of you, oh, we have the wrong poll going.
Oh.
That's unfortunate. We have them flipped. Well, by golly. Well, this is the poll that we have later in the presentation. I'm sorry. That's a technical issue, and that's my fault. The one that we have up here, Chris, since I know you're going to get us started, is how many unique Incoterms are there as of the Incoterms 2020 update? The slide is incorrect. Most of our respondents said 10, and I'll turn it over to you to talk about that answer.
All right. Thanks, Brendan. Thanks, Pam. We're going to get to the full Incoterm layout in just a moment, where we'll answer the poll question you folks just saw. The poll question that was on the screen was a question about what Incoterm year is going to be the next Incoterm year. The answer is 2030. More on who makes that decision and how all that works later in our presentation, I am going to kick us off by talking a little bit about risk. What I mean by risk, and what's the context for today? Today, we're talking about risk and where it exists in the supply chain, and particularly how it affects buyers and sellers. I presume most of you are involved in either logistics or buying and selling for your organization.
We're very honed in on what's relevant to you folks in the real world. What exactly do I mean by risk? Well, I'm talking about things like this. This first shot here is in 2024 from Rochester, New York. This is actually an overpass. What you don't see in this picture is another road going below this that this truck is dangling over. Fortunately, this here was only minor injuries reported. This next one here, allegedly this is just luggage, not cargo. This is the same style of container that the airline industries use to ship temperature -controlled goods, like perishables and pharmaceuticals, or to consolidate small parcels. These are common among the UPS, FedExes, and DHLs of the world.
This next one here, this is from 2013. This vessel is the MOL Comfort, which literally snapped in half, and its two ends sank into the Arabian Sea, along with the 4,000 shipping containers you see on its deck right now. Fortunately, all crew members managed to survive and were rescued. This event did lead to significant changes in ship design. This next example was just back in September 2025, so not long ago. This is at the Port of Long Beach, so in the United States, 70 containers fell off of a vessel. The cause is still a mystery, still actively under investigation. We may never know the outcome. It's believed to be a mechanical failure of the lashing system or possibly human error due to improper loading.
This next big messy pile is Japan's Port of Sendai. This is after the 2011 earthquake and tsunami that triggered the Fukushima nuclear power plant disaster. This was the costliest natural catastrophe in the insurance industry's history. This last one was just over a month ago. This here is an ultra-large class of vessel. This vessel was the OOCL Sunflower. While crossing the Pacific, it was caught in a storm. Of the 16,000 20 ft containers this vessel could hold, 57 went overboard and were lost at the bottom of the Pacific. They didn't put a number, though, on how many containers remained on deck, but shifted out of their secured position. 57 is what was lost, not necessarily the number of containers that experienced damage.
As you can imagine, risk exists at virtually every stage of the supply chain, and we've illustrated on this next slide the typical cargo flow for a variety of shipping modes. Truck, air, ocean. You'll notice a lot of overlap. Could you go to the next slide, Brendan? Thank you, sir. These are truck, air, and ocean cargo flows, typical transportation life cycle. Overlap for all modes. You'll see a lot of truck, a lot of handling, a lot of touch points. In terms of handling, take, for example, air freight. It's not uncommon to see 20 individual touch points throughout the life of that load.
Now, this is an Incoterms webinar. You are not mistaken. We're not here to talk about insurance, these examples I provided today happen all the time. Consider insuring your shipments or consider obtaining a marine cargo insurance policy. In our world, we have this pesky little thing called carrier limits of liability. That means the carriers are not on the hook for the full replacement value of your cargo. Why?
By limiting the liability, we facilitate global trade and commerce because the freight rates that the carriers can provide are much lower than what they would be if they were on the hook for 100% of the cargo value. The catch, or the most important thing to be mindful of when it comes to limits of liability, is it is on the claimant to prove negligence and to make that claim timely. Without insurance, you are subject to just these limits of liability, which may not get the job done. If you're not very attuned to how things work, you might find yourself left out in the cold. Limits of liability are dictated by international treaties or domestic regulations. For trucking and warehousing, it varies by country, it varies by provider, and things can range significantly.
For ocean freight, at least going to and from the United States, the limits are dictated by COGSA. That's short for the Carriage of Goods by Sea Act. This essentially amounts to $500 per customary shipping unit, and the ocean carriers typically consider one unit to be one container. Consider a fully loaded container that you typically see. Does $500 cover the full container? Likely not. Further, there are a variety of defenses that the carriers can cite which can exempt them from all liability. That would include act of God, act of war, or saving life or property. Think back to my example where 57 containers went overboard. If in that scenario, the captain decided it was necessary to jettison those 57 containers in order to preserve the rest of the cargo on board, the carrier would be exempt from the liability of those losses.
Those extraordinary situations sometimes turn into complex resolutions, such as general average. That's where the losses are essentially passed on to the cargo owners who did not suffer losses. Before the carrier will release the cargo, you would be obligated to sign a general average bond and guarantee stating that you will cover those losses once they are understood, and that process can take years to figure out. Another interesting concept in the ocean world would be force majeure. That allows carriers to say, "Something extraordinary and outside of our control has occurred, and we are within rights to not fulfill our contractual duty." We saw this most recently with Maersk when their vessel struck the Francis Scott Key Bridge in Baltimore. Containers could no longer reach their booked destination and had to be offloaded in Baltimore. That's a force majeure situation.
That also probably created a general average situation for all of the cargo that was damaged during that incident. Lastly, we have air freight. These limits are defined by international treaties, the Warsaw Convention and Montreal Convention. Currently, liability for air freight is set to 26 SDR per kilo, and SDR stands for special drawing rights. It's essentially a basket of currencies, and at current conversion rates today, that's about $37. $37 /kg if you have a claim in the air freight world. Air freight tends to be higher value cargo, right? That could truly be a fraction of what your cargo value actually is, especially if you ship high-value goods like pharmaceuticals. Let's imagine you come into work, you open your email, and you see an image that looks like it belongs at the start of my presentation. Who's responsible? Whose problem is this?
When things go bad, as they inevitably will, how is risk and responsibility determined between the buyer and the seller? You guessed it, because it's the name of our presentation. It's Incoterms. Now is where I'm going to pass it over to Mark to educate us on the finer points of Incoterms.
Hey, Chris. Hey, everybody. Thanks for having me. Great overview, if that wets your whistle a little bit in terms of carrier liability, it goes way deeper than that. Expeditors does host several webinars that just do focus on carrier liability and insurance and that sort of thing. Stay tuned for more on that. For this, I'll just go over the Incoterms and kind of the meat and potatoes of the presentation here. Just to start us off, the word Incoterm is actually just a combination of international commercial terms, which is important, because they are internationally accepted as the standard for interpreting trade terms. Internationally being the keyword there. They address the three main shipping topics of obligations, costs, and risk between a buyer and a seller to a transaction.
They're usually and always should be expressed as a three-letter acronym, with a named place. For example, you have an Incoterm we see that is common is FOB Shanghai, that's pretty descriptive there. As we start getting into what Incoterms are here to accomplish, it's also important to understand what they don't do. They are not law, and they are only potentially legally enforceable if they're written into a specific contract. Keep that in mind as we go over some of these Incoterms. They're not all inclusive. There are many parts of an international transaction that Incoterms have nothing to do with, such as naming carriers or specific regulatory requirements, that sort of thing. They're not all encompassing. They're not the answer to everything.
They do not address passage of title or revenue recognition, nor do they describe payment terms. That kind of stuff still needs to be understood in contracts and transactions. They're not the playbook for trade, like I just mentioned. They're simply a basic structure and agreement between buyer and a seller for an international shipment. It's basically just outlining who's responsible for what. They also don't expire. A seller and a buyer can continue to use prior terms if that's what's preferred between them. Again, it just comes down to the two parties agreeing on what they want to use. That's the communication is key there. Okay. Proper use of Incoterms. As I mentioned earlier, Incoterm's a three-letter abbreviation paired with a named place. Sometimes you'll see the year of the Incoterm listed as well, but that's much less common.
It's usually just the three letters and the place. The place should be very specific. If it's not, otherwise, things can be left up to interpretation and guessing. You don't want that. It's best to just try to use a city or a specific place, rather than a country. You also want to use an Incoterm that matches the mode of transit. There's 11 Incoterms total. Seven that can be used interchangeably between ocean and air cargo, and then there's four that should only be used for ocean shipments. Keep that in mind. Might be tested on that later. At the end of the day, as long as both parties are on the same page, it's usually okay if Incoterms aren't used in perfect fashion. The more precision used, usually the better. That way it's clear, and there's less doubt.
Here we go. Poll question number two. See who was paying attention. Actually, we've swapped these. I guess we put them in the chat. Oh, no, it worked.
Round two.
Put your votes into the pop-up there. All right.
Okay, we got about 59% completed.
Okay.
Go ahead and share.
Nice. Overwhelmingly, we have 11, which is correct. Seven omnimodal, and four ocean specific. All right. Just kind of going into this further, these are the seven Incoterms that are omnimodal, like I mentioned. That's a fun word that I discovered the first time I went through some of these Incoterms. Can be used for either ocean or air freight. We'll go into each one of these just a little bit further in-depth later on, so no need to memorize them or figure them out for now. Also on the next slide, we have just the ocean transit only Incoterms. There's the four that are specific for ocean. All right. Kicking it off. Just as a precursor, we have EX Works is up first, and we'll kind of go through them in a certain order.
As we go through them, we'll try to illustrate the responsibilities of the seller and the buyer with these colorful bars. The red represents what the seller is responsible for, and the blue is what the buyer is responsible for. Then at the top of the screen, you have the kind of generic supply chain pathway that shipment may take. From factory to documentation, export clearance, trucking, ocean freight, that sort of thing. That's kind of what the slide is illustrating for those of you that haven't seen this type of illustration before. Under EX Works, we'll kick it off. Under EX Works terms, the buyer's responsible for basically everything, as you can see by the bars. That includes export clearance, if it's applicable to the shipment.
All the seller has to do is get the goods packaged and ready for loading at the named place, which is usually their facility or the factory. Usually under EX Works terms, you'll see an origin, city, or port, wherever the seller's facility is located. Pretty straightforward. The next one, we actually have two slides on this one. It's FCA, stands for Free Carrier. There was a clarification added to Incoterms 2020 explaining how FCA can be used in two ways. We'll just have two slides to explain the differences on that one. The named place, though, is important here because it'll determine how far the seller's responsibilities will go. The first example we are looking at here is FCA at the seller's premises.
In this situation, the seller is responsible for packing the goods, loading the collecting vehicle, the truck, picking it up, and the exports customs filing. The buyer is then responsible to arrange the vehicle to go collect the goods, and the risk transfers to the buyer once the vehicle's loaded. Think of it basically as EX Works 1.5, where the buyer says, "I'll do my own trucking, but you handle the export formalities." The other option, which is probably more common of FCA, is where the named place is the port. In this case, the seller is in charge of getting the shipment packaged and prepared and then moving it to the port, and the export clearance. All that initial origin stuff, they're working on the buyer's behalf.
The buyer just basically assumes obligation once the goods are delivered to the nominated carrier, which is also the same place where the risk transfers. Up until now, the carriage risk and cost have all transitioned at the same point up at the origin. For the next two terms that we cover, CPT and CIP, the risk actually transitions earlier than the responsibilities of the carriage and cost. With CPT, the seller is responsible for packaging, export customs, and contract of carriage to the named place of destination. This means the buyer is responsible for unloading at the named place at destination and import customs clearance. The key difference, though, is that the risk transfers when the goods have been delivered to the first carrier, which is usually overseas, and who is usually hired by the seller as well.
Therefore, the buyer will be at the mercy of the limits of liability for the carrier, which they did not hire and would be responsible for purchasing insurance if necessary. As we know from Chris's slides, anything can happen. CIP stands for Carriage and Insurance Paid To. It's just like CPT, but now the seller must purchase insurance in the name of the buyer. CIP is one of the two Incoterms that require the seller to contract insurance on behalf of the buyer. Although the buyer is still technically at risk from the origin port, once the goods are on the main conveyance, seller must insure it on their behalf. This is key, all risk Cargo Clause A coverage is required. Before the Incoterms updated in 2020, the minimum insurance needed to be purchased was Cargo Clause C, which is a limited coverage.
Not to get too deep into the distinguishing factors of Cargo Clause A and Cargo Clause C, the main thing you just need to remember there is Cargo Clause A stands for all risk, so everything is covered. Cargo Clause C is basically limited, named perils, more so if it falls off a ship or if a ship collides with another ship and that sort of thing. Much better coverage with all risk Cargo Clause A there.
Hey, Mark, if I could step in, and Brendan, if you wouldn't mind going back a slide. I just want to give a real-world example using the C Incoterms. I want to call back to our previous slide that featured the MOL Comfort. You remember, that was the ship that split in half. If you bought goods and they were in a container on that vessel, and your sales agreement was subject to one of the C Incoterms, that means you didn't select or hire the ocean carrier, but because risk transferred once the seller delivered goods to that first carrier, that means that container at the bottom of the Arabian Sea is your problem as the buyer, not the seller's. Put some thought into your insurance needs or buying under CIP Incoterms so that insurance comes along with part of the package.
Great call out there, Brendan, or Chris, sorry. Great call out there. Definitely something to keep in mind there when choosing Incoterms. Next up, we have Free Alongside Ship, FAS. The key term there is alongside ship. That's because FAS is not really intended for containerized cargo, because the seller's only required to deliver the cargo to the side of the ship. Usually, the container's loaded on board. Containers are usually tendered to a port terminal yard. FAS is usually more so intended for break bulk or project cargo type moves, if that's something that you're involved with, it's probably something that you're familiar with as well. FOB. FOB stands for Free On Board. Under FOB terms, the seller is responsible for pre-carriage and loading the container on the vessel.
It goes up a little step further than FAS since everything, including the risk of loss, transfers after vessel loading. I would say that FOB is probably one of the most commonly used Incoterms for international ocean container moves. Yeah. I see it all the time in terms of it's very popular, it's very clean cutoff from buyer and seller getting it on the ship. Real quick question. If the container's dropped during the loading and smashes on the deck of the vessel, whose problem is that? Whose problem would that be?
You guys can drop your answers in the chat.
Oh, we got lots of sellers coming in, a couple buyers. What do you think, Chris?
The correct answer here, folks, under FOB, this would be the seller's problem because the container didn't successfully make it on board. Think back to our Japan Port of Sendai example earlier, that big pile of containers. Imagine that's a stack of export containers, right? In that scenario, we did not successfully load on board, thus risk never transferred. If we drop a container before we successfully load it on board, even if it landed on the vessel, that doesn't count. It's all smashed up on the deck of the boat now. That would mean risk did not transfer, this is the seller's problem to resolve.
Good stuff. Okay, CFR. CFR stands for Cost and Freight. With CFR, the seller arranges and pays for the freight services to the named destination port or place. However, the buyer is still at risk once the cargo's loaded onto the vessel. Just like with CIP and CPT that we discussed earlier, the cost and risk transfer at two different points there. Another key thing to look at when choosing an Incoterm is to remember where that risk transfers. It's not always at the same time as the cost and carriage of the shipment. Next up, we got CIF, which stands for Cost, Insurance, and Freight. CIF, it's just like CFR, but we add insurance into the mix of costs that the seller is responsible for.
Even though the buyer is still technically at risk of the loss, the seller must provide marine insurance to the buyer for the ocean voyage. Unlike CIP, the minimum coverage required on this one is Cargo Clause C, which is not the same as all risk, as I explained a little earlier. Cargo Clause C, again, limited form of coverage that only covers certain risks, such as fires, explosions, vessel collisions, vessel sinking, or general average, which Chris kind of got into earlier as well, if there's a emergency on board and the voyage has to be rescued. Very limited. Still has some coverage, but just something to keep in mind if you do use the CIF Incoterm, is to make sure that you do have a little bit more broader coverage to cover any other issues that may happen. All right. DAP.
DAP stands for Delivered at Place. With DAP, the risk transfers to the buyer at the named place, which is usually somewhere on the destination side, on the other side of the ocean there. The seller is responsible for most of the move, and the buyer is basically just responsible for all costs and risk from the named place. With DAP, the carriage, cost, and risk, they all line up again. Nice and easy, much cleaner. Again, this is one of those terms that, if agreed upon, the seller's more responsible for most of the heavy lift there. DPU. Basically the same as DAP, but with DPU, the seller unloads it. DPU stands for Delivered at Place Unloaded. This is the only term where the seller is responsible for final unloading of the goods.
This was a new Incoterm actually introduced in 2020 to replace DAT, which was Delivered at Terminal, which tended to confuse people. They just updated it with DPU, the cost and risk transfer after unloading at the named place. All right. This is actually the last one we're going to talk about, the last Incoterm. Last but not least, DDP. The seller is responsible for basically everything. They're responsible for contracting the carriage to the named place, ready for unloading. This is also where the risk transfers. The seller is responsible for import customs, and duty fees. That's a big key differentiator there as well. As many of you are probably aware, that's a pretty tricky subject. Customs can get complicated, and duties can be variable, to put it lightly.
This is the Incoterm where pretty much the opposite of EX Works, where EX Works, the buyer's responsible for nearly everything. DDP, the seller is responsible for nearly everything. Back to you, Brendan or Chris. Sorry.
Yeah, back to me.
Too many names on the screen.
Thanks, Mark. Thank you for the Incoterms lesson. We talked a little bit about managing risk throughout this webinar, but how can we apply all those three-letter acronyms and this new knowledge of Incoterms to help you control costs for your organization? For starters, next slide, please. You can educate your purchasing team or your sales team to be cautious about agreeing to Incoterms haphazardly. As we've demonstrated here today, the line between you're on the hook for the cost or the seller or the buyer's on the hook for the cost, it's the difference of three letters, right? If your team is completely oblivious to how the concept of Incoterms works, you may see something like a bonus or a commission check go down faster because they accidentally agreed to free shipping, right?
Nothing eats up your profits like unexpected costs, and that's what these three letters in a sales agreement amount to. Speaking of which, you've probably heard there's no such thing as free shipping. It's very true that some sellers pad their freight charges to not just cover the cost, but to cover their administrative costs, or to go further and treat it as an additional revenue stream. A change in Incoterms and taking control of your supply chain could produce a greater savings than you expect. I know some people out there want an easy button, but for us control freaks, choice in carrier can increase your confidence in the process while minimizing anxiety. Control also typically means a higher degree of visibility. That means better planning, better forecasting, fewer surprises, tighter supply chains.
Tighter supply chains can mean less dwell time, less hold time in your inventory. Fewer surprises means less surprise, unexpected demurrage or detention bills. Better visibility is never a bad thing, right? Lastly, while insurance is great, losses in general are disruptive, and they create soft costs as you resolve those issues. Carrier choice, being able to be the one that selects a carrier based on their past performance or their claims ratio. These are things that you can bring to the table when you have that control. To our sellers on the call, EX Works, EXW, that might sound like your easy button, but in reality, what I find that people are most risk adverse to when they sell and they opt for EX Works, they don't want the export customs responsibilities.
Perhaps they're not familiar with filing an export declaration, or they just don't have the time to be bothered, right? The reality is, in the United States, you cannot fully escape the obligation to understand how these things work without running risk of going afoul of the U.S. regulations. Since you have to understand these things anyways, you may want to consider taking it a step further, so you can also increase your control and decrease your cost along the way. To our buyers, DDP might sound like an easy button, but managing a customs clearance overseas, where you may have no legal presence, can be extremely challenging.
You can definitely feel like the cards or the deck are stacked against you when you're trying to clear customs in China with third-party representation and you don't have anybody in the country that actually works for you or on your behalf, except for the party you paid a small sum to help you clear customs and use their name. They can leave you high and dry, and you're very much at the mercy of foreign customs. If you buy on DDP, you're relying also on the seller to price in customs duties and taxes, which may mean another opportunity for markup, higher cost than actually exists. That can be tough to effectively do no matter where you're at.
If you've been paying attention throughout 2025 in the United States, imports became considerably more challenging when the Trump administration started to roll out all sorts of new tariffs. Our tariffs in the United States have gone way up, and if these overseas buyers are selling to you on DDP, you're really taking on faith that they know what the heck they're doing, and that they're building these costs inappropriately. Into the equation appropriately, sorry. Speaking of those tariffs and the Trump administration, you may be aware that at least IEEPA was struck down, and parties are currently lining up for a duty refund from CBP. If you purchased under DDP Incoterms, chances are good you are not the Importer of Record, and you are not the party who can claim the duty refund, the IEEPA refund.
Only the Importer of Record who was representing the seller can claim that refund. In order to get your refund, in order for that to not be a sunk cost, you have to go back to your supplier and demand a credit. Depending on your relationship, that may not be a practical reality. That brings us to the end of our slide content here. Before we go, we do have a brief exercise for you all to play along with in the chat. I'm going to run through three short scenarios. I'd love for you folks to chime in and tell us whether the problem that we lay out is going to be the responsibility of the buyer or the seller. First up, buyer or seller?
If a ship runs aground from China to L.A., the buyer and the seller agreed to EX Works terms. In this scenario where the ship runs aground, who's responsible for any damage that occurs under EX Works? Look at this bunch. Great bunch here. Everybody gets it, the buyer. EX Works is the easy button for the seller. It means the buyer's taken on all the responsibility. This stranded boat is going to be the problem for the buyer. Second up here, we have another buyer or seller. A container dropped during loading, smashes on the deck of a vessel. Whose financial problem is this? Is it going to be the seller or the buyer? I'm glad to see so many people were awake in the middle of the seminar, didn't drift off. That's right, this is the seller.
The risk only formally transfers once the goods are successfully, keyword, operative word there, successfully loaded on board the vessel. Our third exercise, buyer or seller. A unit load device, a ULD, which is another word for airline carton or airline pallet was sucked into the jet engine on a shipment headed to London. The agreed terms were DDP. Who is responsible? Look at this bunch. We got a lot of great people participating today. That's right. This is the seller. DDP is the easy button for sellers. Sorry. Yeah. DDP is the easy button for buyers. That means the seller took on all the responsibility, and they are responsible until it reaches the buyer's door. In this situation, the seller's problem. I see someone said airline.
Yes, this is a problem for the airline as well, but I'm sure they're going to be just fine. With our remaining time, we're going to open it up for some Q&A. We do have a Q&A box that's open. Please, if you have any questions, feel free to chime in at this time.
Chris, if you don't mind, I'll go ahead and read them to you and Mark.
Sure.
The first one that came in, let me see if I can find it here. It's a big scroll of all these answers. Very good. It comes in from David. His question is, we have customers that ship EX Works where the customer is accountable for the carrier and the freight cost, but we owe the duty or tariffs. What Incoterm would cover that scenario?
Interesting. This would technically be kind of a modified Incoterm. Brendan, if I have that correctly, they're buying under EX Works. Is that right?
Correct.
All right. They're buying under EX Works. Who's responsible for the duties?
Customer is accountable for the carrier and the freight cost, but we, I'm assuming that's David, owe the duty and tariffs. What Incoterm would cover that scenario?
That is interesting. Usually, you're on the hook for whoever is responsible for main carriage, and then the actual clearance is going to be responsible for duties and taxes. It sounds like the seller is paying for the duties and taxes, even though the buyer is paying for main carriage. Do I have that correct? I don't see the question itself, so I'm a little thrown here.
It's in the chat, but it's way up at the top.
Actually, my chat starts to time out, because I got to go keep clicking links, so sorry about that. Okay, EX Works, customer's accountable for the carrier freight charges. We owe the duties and tariffs. I'm assuming David is the customers that ship, so I'm assuming David's the buyer. Customers that ship EX Works, customer's accountable for the carrier. Okay, that's not traditional EX Works, right? Because under traditional.
David has given us some more insight. The seller is responsible for duty tariffs, and David is the seller.
Interesting. Okay. Covering duties and tariffs, but not the actual transportation responsibilities. Very unusual. Not a typical Incoterm, it's kind of like a modified Incoterm. You could say it's EX Works duty paid, right? It's important to note that Incoterms are guidance. They can be legally binding, as Mark mentioned, when they're included in sales contracts, but the ICC, the International Chamber of Commerce, that writes the literal book on Incoterms, has made it clear that you can modify them within the scope of your agreement. As long as you define who's responsible for what, and both parties mutually agree, perfectly acceptable. David, what you guys are doing is fine. I would just be certain to list it out as detailed so that there's no gray area over who exactly is responsible for what.
From what it sounds like, it sounds like what you could call EX Works duty paid, where the seller is taking responsibility for duties and taxes and perhaps customs clearance. Not a perfect box that that fits in, but something that the Incoterms have taken into account over the years. Hope that helps.
Thank you, Chris. Got a couple more. This one coming in from [Jimena]. Please forgive me if I'm mispronouncing your name. "CIF port of destination. Can you add insurance Cargo Clause A, or should you change to a better Incoterm?" This is in the Q&A box if you want to read it.
Mark, this one's all insurance -related, if you wouldn't mind.
That's a great question. CIF, as we mentioned, is Cargo Clause C, so more limited in terms of what's covered under that. I always say it's better to have your own all-risk policy that protects you, in case something does happen. You don't necessarily need to change the Incoterm. I guess that would be option one. If you wanted to discuss updating that CIF Incoterm to the other one that we talked about that includes insurance, CIP, which picks up the coverage a little bit into all-risk. That's option one, updating it to CIP. If you have shipments moving under CIF, yes, I would definitely recommend getting a policy, all-risk policy, that includes ocean transit.
What is kind of nice about that, if you're still shipping under CIF and something happens to the shipment, that insurance, if it's one of those Cargo Clause C perils, like the ship sinks or collides with another ship or the general average thing, that peril will still be covered under that limited coverage. If something else happens that is not covered under those Cargo Clause C, like a fire or theft or something like that, or water damage, most cargo insurance all-risk policies have something called a difference in conditions clause. Which if there are two insurance policies at play covering the same portion of transit, your policy, the all-risk policy, will take the difference in conditions there and will respond to that. More than one way to address that.
Yeah, if you want to update it to CIP to make it nice and clean and easy, it's all-risk all the way up until your responsibility, that's probably the cleanest way to do it. I always recommend having your own all-risk policy anyways just to take over, especially once the risk ends there, once the insurance ends on that too. It's good to be safe than sorry.
Thank you, Mark. We do have a few more questions, so let's keep rolling. This one comes in from Rebecca, also in the Q&A. Question. There we go. Chris, take it away.
Sure. Rebecca asks, "How do export crating and Incoterms align?" Great question. If you were paying attention, you might have noticed we only briefly mentioned things like loading and unloading. Loading and unloading actually are defined by Incoterms. Crating and packaging are not. In fact, the only real mention you'll see is under EX Works, where it states the seller is only responsible for having the goods packed made available at the seller's premises. The Incoterms really don't control for a scenario where the cost of packaging is passed along in the transaction. Perhaps that could be included in your normal sales, right? It's not uncommon to see that included on a commercial invoice. There's really no Incoterm that dictates, as a standard definition, which party is responsible for packaging, because it's always assumed that the seller is responsible for packaging in the way that these were written.
Great question, though.
Thank you, Chris. The next one is, "Will this recording be shared?" From [Atharva]. Yes. This recording is happening right now. Once we send out our survey, please take about 30 seconds and complete that survey. Once you do that, you'll be sent to a landing page that will have the slide deck itself, a recording of the presentation, and some additional useful information for your use. Next question under the Q&A comes in from Courtney. "Under DDP, who is responsible for ensuring import documentation accuracy, and how does the buyer verify compliance?" Again, this is in the Q&A box if Chris or Mark you want to read it.
I'll take a stab at this one.
Sounds like a compliance one right up Chris's alley. I'm sure you've seen this before.
Courtney, that's a tough one. That's a really tricky one.
Yeah. Good question.
Forgive me for geeking out on you folks for a moment. In the United States, we have this thing called the Customs Modernization Act of 1993, the Customs Mod Act, which basically states, ultimately, the Importer of Record is responsible for the accuracy of their customs entries. Not their broker, not the seller, it's the importer. The answer to your question depends on who is going to be listed as the Importer of Record. Under DDP, it is possible that the seller perhaps has U.S. representation and that that party is going to be the Importer of Record. Perhaps they have a foreign Importer of Record number, and they're going to act as the foreign Importer of Record here in the United States.
Perhaps their customs broker is the kind of broker that will act as the Importer of Record, which is kind of uncommon in our world because of what I just highlighted with the Customs Mod Act. It doesn't make sense to take on that extra liability. In all those scenarios, whoever's going to act as the Importer of Record is ultimately responsible for the accuracy of what is presented to Customs. If you're buying under DDP Incoterms, and you find out that their assigned broker contacts your organization and says, "Hey, what's your EIN number? I need to clear Customs, and I'm going to do it in your name." That's when you need to pump the brakes and say, "Well, hold on a second. If you're clearing it in our name, how do I know that you guys are going to do this in a compliant fashion?
I didn't realize that I was agreeing to act as Importer of Record. DDP means Customs duties and taxes." That would be a scenario where perhaps a more robust conversation needed to be had at the time of sales. In any scenario, you expect that all parties are going to contribute as needed to come to a consensus on accuracy. The broker can help classify, but they tend to know the least about the product itself. It needs to be a combination of the manufacturer or the seller, the broker, and the U.S. party. At the end of the day, whoever's the Importer of Record is the party we should be addressing and saying, "Do you believe that these are the classifications that apply to this entry?" Because the buck stops with the importer. Another pitfall of DDP.
You are beholden to how their chosen broker is going to conduct themselves. If you're buying under DDP, it would make sense to have those conversations to make sure that you're not going to be exposed more than you anticipate. Worth pointing out, in order for somebody to clear Customs on your behalf, they have to have a power of attorney. Unless you're signing power of attorneys willy-nilly, you won't accidentally find yourself in this situation. Hope that helps, Courtney.
Thank you, Chris. Great answer. The next one comes in from Mariana Andrade. She says, "For example, in CIF Puerto Quetzal, the cost for unloading the containers from vessel to the yard at destination port, not part of the DTHC, should be included with the ocean freight paid by the seller, or should it be collected from buyer?" That doesn't translate well saying out loud. Chris, can you see it in the Q&A box?
I can see it. Let's see. CIF Puerto Quetzal. I did not say that right, so don't quote me, folks. Unloading containers from the vessel. The cost for unloading containers should be included in the ocean freight paid by seller. If we were to consult back to our Incoterms chart, you'll note that the CIF bars actually end at the point between main transport and onboard vessel point of discharge or unloaded at port of discharge. Technically, CIF does not include unloading at destination. Now, it's possible that the seller works with a carrier that does include that cost in the ocean freight, and it will be customary at that destination point for the cost of freight to be inclusive of unloading.
That's just one other detail, one other fine little detail that you may want to bang out in beyond the just acronym of the Incoterm to ensure there's no confusion, because it does depend on where you're operating in the world and what is customary there. On paper, CIF would typically mean that the buyer is on the hook for the terminal charges at the unloading port. Hope that helps.
That's a good answer. Nailed it. Just A lot of this stuff, like you said, comes back to the actual contract of carriage with the carrier. Incoterms are pretty general in the sense of who's responsible for what, but some of the real specifics, you'll have to just verify that bill of lading and the contract of carriage just to see exactly how far that nominated carrier's taking it. Because usually that'll all be kind of included in the overall contract of carriage for the goods moving overseas.
We have one last question here I'd like to tackle, from Heather. Which terms are available for domestic shipments? It's almost like Heather is a plant for my purposes here. I love this question because what does the N in Incoterm stand for? International. Incoterms are meant for international transactions. They're really not meant for domestic shipments. With that said, oh boy, I see people use FOB my warehouse domestic all the time. It's a domestic shipment. There's no ship, there's no boat, right? What are you putting it on board, right? It's a water-only term. You can't use that for trucking from Virginia to Kentucky. That makes zero sense. We see it used improperly all the time. Incoterms do not apply to domestic shipments. With that said, you can do what you want.
As long as everybody understands their responsibilities and that they're defined somewhere in writing in a sales contract or a sales agreement, whatever it may be, and everyone mutually agrees, all parties understand their responsibilities, that could go off without a hitch 99 out of 100 times. Best practice is to use things as they were intended. Do it properly so that way you don't create any gray areas or any ambiguity that could result in any unexpected risk. I hope that answers your question, Heather.
Yeah. Just to add to that a little bit before we wrap up, there are a specific list of terms that are specific for domestic. They're called the UCC. Could probably have a whole another webinar about the UCC. As Chris said, we see this all the time where Incoterms, international ones, are used on domestic shipments. I see them on the insurance side coming in in terms of claims and that sort of thing. Just understand it just comes down to understanding, make sure that the seller and the buyer understand what the intent is. I've seen it used both ways, but there is a specific list of codes for domestic shipping called the UCC, that would be better suited for that. They're very similar to Incoterms, but they're different, for sure.
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