7.6 Contractual Terms In Transportation

As a transportation manager, once you select the right mode and carrier, you have to manage the shipping process. Getting your documentation right is key to obtaining hassle-free service. You need to pay particular attention to the bill of lading (B/L or BoL). The B/L states the contractual shipping terms and acts as a receipt. As such, the B/L defines the following:

• Ownership: The B/L confers title to the shipment, defining when ownership transfers from the seller to the buyer.

• Liability: The B/L defines when liability for the shipment transfers from the seller to the buyer.

When you hear the phrase shipping terms, most of the time people are referring to FOB (free on board)Shipping term that indicates which party is responsible for the transportation arrangements, the ownership of goods and risks until a given point in the shipment. The term is usually used with a location to specify the FOB type. (see also FOB Destination and FOB Origin). terms. The simple term FOB originShipping term that indicates that the buyer is responsible for choosing and paying for the transportation and bears all the risk from the time the shipment leaves the supplier. means that the buyer is responsible for choosing and paying for the transportation and bears all the risk from the time the shipment leaves the supplier. FOB destinationShipping term that indicates that the seller is responsible for choosing and paying for the transportation and bears all the risk from the time the shipment leaves the supplier. shifts ownership, risk, and responsibility for transportation to the seller.

You can modify basic shipping terms through negotiation by adding the terms Prepaid or Collect and Charged Back or Allowed. For example, if you use Prepaid, the seller pays the carrier, even if the terms are FOB origin. Figure 7-9 provides a simple guide to shipping terms. For example, if you have a highly efficient private fleet like Walmart, you might negotiate FOB buyer. You would then seek to negotiate a lower per-item price for taking responsibility and risks for transit. Of course, if you as a buyer negotiate FOB seller terms, you can be certain that your supplier has added freight costs (including risk and management) into the price of the item. The key is to know each party's capabilities and do the analysis to know how to obtain the lowest total landed costthe total price of a product once it has arrived at a buyer's door. The landed cost includes the original price of the product, all transportation fees (both inland and ocean), customs, duties, taxes, insurance, currency conversion, crating, handling and payment fees..

Global shipments are governed by IncotermsStandardized international commercial terms that define obligations, costs, and risks in the delivery of goods from the seller to the buyer. The use of incoterms is strongly encouraged to provide greater clarity in responsibilities associated with international shipping. , which are standardized international commercial terms that define obligations, costs, and risks in the delivery of goods from the seller to the buyer. Specifically, Incoterms clarify who is responsible for these 11 activities:

• Export customs declaration

• Transportation to the port

• Unloading at the port

• Loading charges at the port

• Long-haul transportation fee

• Unloading at import location

• Loading to the next mode of transport

• Transport to the next destination

• Insurance

• Import customs clearance

• Import taxes

Figure 7-10 breaks down popular Incoterms. For instance, if you choose ex works (EXW), the buyer is responsible for everything. By contrast, if you ship delivered duty paid (DDP), the seller is responsible for everything. Which option should you choose? Because global transportation is complex—and costly when you make a mistake—you probably want to hire a reputable third-party provider (3PL) like CH Robinson, DHL, Keuhne + Nagel, or Nippon Express to help you sort through the details.