Incoterms are the global, universal terms used to set out and specify the obligations for delivery of goods in international contracts by the International Chamber of Commerce.

When negotiating with a vendor for the delivery of goods items or equipment to the project site location, there are a few items worth noting, which can have a serious project programme implication and perhaps a large cost impact.

These may have been purposely overlooked or ignored by the vendor in his bid submission or excluded to gain that competitive commercial edge.

It may even be that perhaps they were not addressed during the tender bid evaluation because all documentation was silent on this issue.

Unless a project has been contracted to a global freight forwarding carrier to handle all its project needs on a door to door basis, there will be many pitfalls that procurement, as a logistics exercise, will have to be wary of when handling all the freight issues.

As a matter of course, the RFQ document should state that vendors’ offers shall be fully inclusive of all packing, freight charges and associated costs which should be identified separately as a check to ensure that this item is not unduly exploited as a further additional income source. Costs would typically be in the region of 5% to 7.5% of prime costs unless there are specialist transportation services required due to the nature of the consignment.

Typically the most common term used is ‘Delivered Duty Paid’ (DDP) where the seller is liable for all costs and risks including duties, taxes and all other associated customs charges to deliver the consignment to the appointed location. If however the buyer, client or owner can recover or have waived the relevant import duties and taxes, perhaps because of agreement with governmental bodies and authorities, then 'Delivered Duty Unpaid' (DDU) would be applicable. These represent the most common and comprehensive obligations placed on the seller for delivery.

For oil and gas installations, both onshore and off shore then 'Free Along Side' (FAS), either to ship, rig or quayside would be more appropriate. However, here it is the buyer's responsibility to arrange and provide all off loading facilities such as quayside or floating cranes and tugs. See photograph links below.

Alternatively the minimum obligation the seller may offer is ‘Ex Works’ (EXW) otherwise known as ‘Factory Gate’. Here, the buyer has to bear all costs and risks in collection, packing, local transportation, obtaining customs export declaration permits, sea or airfreight costs, duties, taxes, customs clearance and local delivery transportation and offloading etc which can add significantly to the project costs if not allowed for.

There are of course many other Incoterms applicable to shipment and delivery of goods, not all of which would apply in the context of our examples. Without doubt it would be highly advantageous to employ the services of a specialist freight carrier to act as an import / export agent as the penalties for failure could well prejudice the project’s success.

An aspect of importing goods into a country, which should not be over looked, is obtaining a local customs and excise waiver from local taxes, imports and duties. This practice is generally much the same, irrespective of the countries or the project’s location. The client or owner obtains, through the relevant governmental body or authority, dispensation and tax breaks to construct a much needed facility in that country, where for whatever reason, the level of support may well extend to actually subsidising the construction.

This dispensation is crucial in ensuring there are no hold ups or issues in the process of clearing goods in country for local delivery and should be obtained and cleared with the relevant authorities at the beginning of the project before goods and equipment are expected to arrive.

For example, on a large and politically sensitive infrastructure project in Asia, the author experienced major problems in clearing specialist manufactured equipment through customs due to zealous and over-eager officials who frustrated the process to suit their own ends. They stated that certain part or parts of manufactured equipment could be in fact obtained in country, even though these had in fact been imported in the first place, and thus the equipment as a whole was liable to duties being levied. This situation was eventually resolved when taken to the highest authorities.

Goods were stuck in port for weeks as opposed to a day or two until the situation was resolved. All this was happening whilst the project had the complete blessing and issuance of necessary clearance papers from the appropriate authorities.

In addition to obtaining the above waiver documentation, each and every package (not just the consignment as a whole) will need to be suitably identified and referenced to the project to ensure full transparency with the authorities.

A typical example is the attached ‘Advanced Notification of Customs Duties / Sales Excise Duties Excemption to be by Provided by Employer for Information and Clearance Purposes’.