Understanding 13 Key International Shipping Terms: Cost and Risk Allocation

When working with cosmetics manufacturers and logistics providers, it’s important for both brands and factory clients to understand the different shipping terms that dictate who bears the cost and risk during the shipment process. Here, we explore 13 key international shipping terms and break down the responsibilities for each party.

1. FOB (Free On Board)

• Cost borne by the seller: The seller is responsible for all costs until the goods are loaded onto the ship at the port of shipment.
• Cost borne by the buyer: The buyer covers freight, insurance, and import duty from the point of shipment.
• Risk transfer: Once the goods are loaded onto the ship, the risk transfers to the buyer.

2. CIF (Cost, Insurance, and Freight)

• Cost borne by the seller: The seller covers the cost of goods, insurance, and freight to the destination port.
• Cost borne by the buyer: The buyer is responsible for import duty and customs clearance once the goods arrive at the destination.
• Risk transfer: Risk is transferred to the buyer once the goods are loaded onto the ship.

3. CFR (Cost and Freight)

• Cost borne by the seller: The seller covers the cost and freight to the destination port.
• Cost borne by the buyer: The buyer is responsible for insurance, customs clearance, and import duties.
• Risk transfer: Risk is transferred to the buyer when the goods are loaded onto the ship.

4. EXW (Ex Works)

• Cost borne by the seller: The seller is only responsible for preparing the goods at the factory or warehouse.
• Cost borne by the buyer: The buyer assumes all costs, including freight, insurance, customs duties, and transportation from the seller’s location.
• Risk transfer: Risk is transferred to the buyer once the goods are available at the seller’s premises.

5. DDP (Delivered Duty Paid)

• Cost borne by the seller: The seller takes care of all costs, including delivery, insurance, customs duties, and any fees at the destination.
• Cost borne by the buyer: The buyer incurs no costs until the goods are delivered.
• Risk transfer: Risk transfers to the buyer only when the goods are delivered to the buyer’s site.

6. DAP (Delivered at Place)

• Cost borne by the seller: The seller covers transport costs to the buyer’s destination.
• Cost borne by the buyer: The buyer is responsible for customs clearance and import duties at the destination.
• Risk transfer: Risk transfers to the buyer when the goods are delivered at the agreed-upon location.

7. CPT (Carriage Paid To)

• Cost borne by the seller: The seller pays for the transportation of goods to the carrier’s location.
• Cost borne by the buyer: The buyer is responsible for import duties, insurance, and customs clearance.
• Risk transfer: Risk transfers to the buyer once the goods are delivered to the first carrier.

8. CIP (Carriage and Insurance Paid To)

• Cost borne by the seller: The seller covers transportation and insurance to the buyer’s destination.
• Cost borne by the buyer: The buyer is responsible for customs clearance and import duties at the destination.
• Risk transfer: Risk transfers to the buyer when the goods are handed over to the carrier, even though the seller covers insurance.

9. DAT (Delivered at Terminal)

• Cost borne by the seller: The seller is responsible for the cost of delivering the goods to a terminal at the destination port or terminal and covers unloading costs.
• Cost borne by the buyer: The buyer is responsible for customs clearance, import duties, and any costs beyond the terminal.
• Risk transfer: Risk transfers to the buyer once the goods are unloaded at the terminal.

10. DPU (Delivered at Place Unloaded)

• Cost borne by the seller: The seller covers the transportation and unloading costs at the buyer’s destination.
• Cost borne by the buyer: The buyer is responsible for customs clearance and import duties after the goods are unloaded.
• Risk transfer: Risk transfers to the buyer once the goods are unloaded at the agreed-upon destination.

11. FAS (Free Alongside Ship)

• Cost borne by the seller: The seller covers costs to bring the goods alongside the ship at the port.
• Cost borne by the buyer: The buyer is responsible for loading, freight, insurance, and customs duties.
• Risk transfer: Risk transfers to the buyer when the goods are alongside the ship at the port.

12. FCA (Free Carrier)

• Cost borne by the seller: The seller covers the transportation costs to deliver the goods to the carrier.
• Cost borne by the buyer: The buyer is responsible for insurance, import duties, and any transportation after the goods are handed over to the carrier.
• Risk transfer: Risk transfers to the buyer when the goods are delivered to the first carrier.

13. DPU (Delivered at Place Unloaded)

• Cost borne by the seller: The seller is responsible for the transportation and unloading of goods at the buyer’s location.
• Cost borne by the buyer: The buyer covers customs clearance and import duties.
• Risk transfer: Risk transfers when the goods are unloaded at the agreed-upon destination.

These shipping terms define the distribution of responsibilities, including costs and risks, between the buyer and seller. Depending on the chosen term, the point at which risk transfers and which party pays for transportation, insurance, and customs duties varies. Understanding these terms is essential for brands and factories engaged in international cosmetics trade, as it helps them to optimize logistics and cost management.