Incoterms 2020: Importance in International Trade & Changes | Drip ...

A successful international trade can take place only if both the countries involved in the process hold a common ground of communication. Every country has its own set of rules and regulations which might differ from that of the trading country. This difference can create misconceptions which, in turn, can potentially affect the trade business between the two parties. For this reason, there are a series of commercial terms that are officially used in the international trade business. These are referred to as “freight terms” in the official language.

What are freight terms? 

Freight terms are the words that define the costs, responsibilities, obligations, and risks involved for both parties in the shipping process. These terms are used in the shipping contracts, trade quotes and specification of general rules and regulations. The ICC (International Chamber of Commerce) publishes most of the shipping terms which are popularly known as “Incoterms” in the world market. These terms are legally accepted by almost every government, trade authority and practitioner in the global shipping industry. The most commonly used freight terms are:

  • Bill Of Lading (BOL) – It is a legal document that is issued to the shipper with all the details of the freight shipment. It specifies the freight class and rate, tracking number, details of the consignee and shipper both along with other necessary information. Additionally, it also acts as an invoice after the freight is delivered successfully. 
  • Linehaul – Different carriers charge different freight rates depending upon various factors. Linehaul defines the freight ‘route’ and the mileage. 
  • Break Bulk – It is used to define loose materials like barrels, drums, wooden containers, etc. which cannot be shipped in the standard containers. 
  • Carnet – It is effectively a passport for eligible goods in countries and is used as a legal international custom for temporary duty-free entry of freight items. 
  • Mover Bill – It is a document that is used for initiating the transport of any part of freight which gets separated from the from its main body under any unforeseen circumstances. 
  • Cellular Vessel – It is a container ship used for efficient storage of freight containers on top of one another. It is mostly used in the international trade of large consignments. 

These are only a few examples of freight terms. There are many more words or groups of words that hold specific meaning in the shipping industry. 

Why Are These Terms Important? 

It is more of a duty than a responsibility of every trader and shipper to know and understand the freight terms properly. These are used in the shipping contracts and misconception of even one single term can cause chaos and disturbance in the process. They are much more than mere shipping instructions. 

For instance, suppose an importer does not know the meaning and importance of the Bill of Lading. Now when he receives the consignment, he would not know what to do with that bill. He can either throw it or displace it somewhere and it gets destroyed. Further, if there is any problem with the freight, then he would not be able to produce the bill. In this scenario, not only he would suffer loss but also a clinch on his reputation as a trader. This is not a desirable situation for any tradesman who is trying to expand his business internationally. Thus, it is extremely important to understand freight terms for successful sustenance in the world trade market. 

Every industry has certain limitations and business policies that are predefined by the world-leading authorities. This theory applies to the international trade industry as well. A wise tradesman is one who understands these limitations and learns all the required formalities, including the freight terms.