5 Shipping Terms Expanding Businesses Need to Know

Intro

Expanding your business overseas, into new territories and markets, can significantly increase your revenue and profits. But, like any form of expansion, there are challenges to overcome. One of these is familiarizing yourself with the terms used in the international trade landscape.

There are dozens of acronyms out there that can be difficult to decipher, from “BoL” to “FCL” and “LCL”. It’s tempting to just work with a freight forwarder or partner who can translate all the jargon for you. However, getting accustomed to international shipping terms yourself will be helpful in the long run.

The more you know about the terms you’re going to encounter, the easier it is to make supply chain decisions, and to optimize your shipping strategy. So, which terms should you know?

Incoterms

Let’s start with perhaps the most significant set of terms you’ll need to understand in order to ship internationally. Incoterms, or “International Commerce Terms”, were created as common codes of contract for the global trade landscape.

They’re frequently updated by the International Chamber of Commerce, and serve two purposes: determining the point when responsibility for the shipment transfers from the owner to the buyer, and determining who pays for shipping costs.

You can find a full list of the latest Incoterms on the ICC website; however, they usually fall into three categories:

• Ex Works (EXW), FAS, FOB, and FCA (Free carrier): When you see these terms, the buyer is responsible for paying all of the shipping costs.
• Group C (CFR, CPT, CIF, and CIP): Under these terms, the seller pays the main shipping costs and includes them in the price of the product.
• Group D (DDP, DPU, and DAP): Here, shipping costs are paid by the seller, who is also responsible for navigating the risks involved in shipping the cargo.

1. Bills of Lading and Waybills

A “bill of lading” is a legal document between the company or entity shipping the goods, and the carrier transporting the goods. It outlines the type of goods to be transported, their quantity, destination, freight rates, and other factors, like if the shipment requires any special instructions.

There are many different kinds of bills of lading, such as original, straight, switch, and express bill of lading options, which serve specific purposes. Primarily, the bill of lading serves as a receipt of goods, a contract, and a title document, all in one. These documents are essential for ensuring the smooth and timely delivery of goods across the world.

There’s often some confusion among expanding businesses about the difference between a bill of lading vs waybill. That’s because both documents contain details about the shipment, and act as both a receipt of goods and an insight into the shipment method being used.

While a bill of lading is a legal document detailing the quantity, type and destination of goods being carried, a waybill is a transport document that provides evidence of a contract for the receipt and transportation of goods. However, it doesn’t convey ownership. This is why waybills are often used when goods are paid for in advance.

Shipping Weight and Volume Terms

There are many different terms that refer to the weight and volume of packages being shipped overseas via different methods. Some of the most common terms are FCL and LCL.

FCL, or “Full Container Load”, refers to shipping processes where you hire an entire container for your own products. You don’t necessarily need to fill the container to the brim, but you purchase the entire space, which means no other products from other companies will be stored or shipped inside.

LCL takes a different approach: LCL or “Less than Container Load” shipping means you hire a fraction of a container, and store your goods alongside other consignments. This is a common choice among companies that don’t have large shipments to send overseas, but still can’t afford to miss out on delivery deadlines.

Cargo Insurance Terms

Insurance is essential to protecting your business and its assets, regardless of which shipping method you use. Carriers will often provide minimal compensation if a container is damaged or lost during transit.

Most insurance providers will classify the level of protection you receive using “Institute Cargo Clauses A, B, or C”. Typically, A covers you for all potential risks that your cargo might encounter, making it the most expensive, but most reliable, form of insurance. B and C provide coverage against certain risks, which make them less expensive but also less comprehensive.

Make sure you consider your options carefully when choosing a coverage option. Notably, depending on your location, you may also be able to apply for credit insurance. This covers the money you’re owed from your sales if a customer can’t, or won’t, pay for your products.

Invoice and Financial Terms

Invoices are a common part of any international shipping process. A commercial invoice is a simple receipt that includes information about the buyer, seller, and origin of the goods. It also features the correct Incoterm to determine who is responsible for what in terms of risk and payments.

Interestingly, you do not have to design them yourself. Instead, you can use Invoice Templates that are available online. You have to view, choose, and use the one you like.

Pro forma invoices are slightly different. They include similar content to a commercial invoice, but they’re specifically designed for items that are being transported to another country but aren’t necessarily being sold there. This could include items being shipped as samples for a trade show.

Another, particularly common financial term used in international shipping is LoC, or “Letter of Credit”. This is a document issued from one bank to another that guarantees payments will be made at a specific time, for a specific amount. After you receive a letter of credit from your buyer, you can rest assured you’ll be paid according to your agreed schedule.

Navigating International Shipping Terms

With so many different terms to understand in the international shipping landscape, it’s easy to see how companies can get confused. The good news is that there are plenty of resources available online to help you expand your knowledge. Plus, if you work with reliable partners and freight forwarders, they can often help you understand the terms most important to your business.