Steel Buyers Basics
Steel Buyers Basics – Gauge, Thickness & Weight – Part 1
Within the construction market, which represents more than 50% of the flat rolled steel consumption in the United State, there is often confusion about gauges, gauge numbers, thickness and weights.
The most common gauge system used in both Canada and the United States is the Manufacturers Standard Gauge for Steel Sheets (MSG). The MSG was developed having a definite thickness equivalent for each gauge number. In the standard gauge system the density of steel is 489.6 pounds per cubic foot (one foot wide by one foot long by one foot high). This equates to 40.80 pounds per square foot by 1 inch thick.
Many of you are well aware of another calculation which equals 41.82 pounds per square foot by 1 inch thick. Over a period of time the value for sheet steel (weight) was found to be close to 2.5 percent heavier than the 40.80 lbs/ft squared by 1 inch. This was due to the center of the sheet being slightly heavier than the edges (called a crown) and the 2.5 percent was to provide a more accurate calculation. The 41.82 pounds per square foot by one inch thick has been commonly used to express the relationship between thickness and weight for sheet steel.
Past domestic rolling mills and hot dipped galvanizing lines did not have the sophistication which exists at today’s domestic and most foreign steel mills. The older mills were not able to keep consistent thickness control of the base metal. At the same time the early hot dipped galvanizing lines did not have tight tolerance controls over the zinc coating being applied to the steel. The combination of these two issues brought about gauge charts which referenced steel in theoretical nominal weight terms. Theoretical meaning the thickness was based on an average (+/-) based on historical references. Thus 24 gauge galvanized became .0276” while the standard MSG for cold rolled steel 24 gauge is .0239”.
How did we get from thickness to weight? For 24 gauge galvanized steel we take the .0276” X 41.82” = 1.54232 lbs. Where did the 1.156 lbs per square foot number which is referenced on most gauge charts supplied in the industry come from? The only answer I have (at the moment) is that the .0276 was actually rounded down from .0276423 some time back in history. I am looking for historical references to see if I can find a definitive answer to this question. If you have one or can forward me to more information I would appreciate the help. However, the 1.156 pounds per square foot for 24 gauge galvanized is the most commonly used number in construction related charts such as SMACNA (Sheet Metal and Air Conditioning Contractors National Association) guidelines for galvanized duct.
So, where does the confusion come from? When purchasing from domestic steel mills back in the 1970’s, 1980’s and 1990’s it was common to buy steel either on actual scale weight (you paid for what the coil weighed) or on theoretical minimum weight whereby you paid for the “theoretical” calculated weight. The theoretical minimum calculation was based on the thickness ordered (in inches) and used the 40.80 value for pounds per square foot 1” thick (MSG) times the linear footage and the width of the coil in feet. The key here being the customer paid for the footage received not the actual scale weight of the coil.
At the same time organizations such as SMACNA were putting out gauge (thickness) guidelines for their membership which referenced minimum thicknesses and maximum thicknesses. 24 gauge galvanized became .0236 minimum with a .0296 maximum and a “nominal” decimal of .0276.
A mill buyer could then order the minimum to gauge (.0236) knowing the ASTM tolerances at the time (-0+.006) would not put the material outside the SMACNA guidelines. Back in the 1970’s when I started in the business many mills would roll material to the heavier side of the thickness tolerance either due to poor rolling practices or to take advantage of actual weight billing (the thicker the steel the more the weight – more weight = more billing since steel is sold on weight).
In an effort to compete with mills that had better rolling practices mills began offering theoretical minimum weight billing (TMW) so when a company ordered .0236” galvanized they only paid .0236 X 40.80 or .9629 pounds per square foot.
Then someone figured out there was quite a difference between .9629 pounds per square foot and 1.156 pounds per square foot in 24 gauge galvanized steel. I will cover the results of that discovery in Wednesday’s edition of the STEEL MARKET UPDATE.
Steel Buyers Basics – Actual, Minimum & Nominal Weight – Part 2
For the sake of understanding the majority of what I will discuss today has to do with the way service centers sell steel to their customers and not how mills and trading companies sell their products. I need to spend a moment talking about “weight”. Steel coming out of the domestic and foreign steel mills is sold by weight. In the flat rolled steel market the domestic mills (most, but not all) offer two ways of purchasing – actual scale weight (you pay for the weight you receive) and theoretical minimum weight (TMW) where you pay for the footage you receive and the weight is calculated based on that footage and the decimal ordered. I discussed the density factors for steel in Monday’s edition of this newsletter.
Service centers in the United States sell flat rolled steel in various ways – actual scale weight, theoretical nominal weight (sometimes called actual book weight), theoretical minimum weight, price per piece, price per square foot. Not all service centers offer each of these options but, most of the larger service centers offer multiple billing options for their customers. Each and every one of these billing methods is recognized in the steel community as being legitimate ways to sell steel. However, abuses can and do occur and that is the reason for this series of articles.
I want to concentrate on three billing methods today – actual scale weight, theoretical minimum weight (TMW) and theoretical nominal weight (TNW or Actual Book Weight).
1. Actual scale weight is where you pay for the weight you receive and to insure it is accurate the company receiving the product weighs the steel on a certified scale.
2. When steel is ordered based on a theoretical minimum weight (TMW) basis the customer pays for the decimal ordered (for example - .0356”) and the weight is calculated based on the linear footage times the width (equals the square footage) times the density factor for .0356” which I have calculated to be 1.453 pounds per square foot.
3. Theoretical Nominal Weight (TNW or Actual Book Weight) is based on the nominal decimal and the weight is calculated using the nominal steel density factor. Using the 20 gauge example above the nominal decimal is .0396 and the density factor is 1.656 pounds per square foot.
What really makes this interesting is when you actually compare the same coil using the three billing methods – what do you think you will get for the billing weight? More importantly how do you protect yourself from being over-charged?
We will cover this and more in the next section.
Steel Buyer Basics – Buying from a Service Center – Part 3
This section is on Buying Basics for OEM’s & HVAC companies purchasing from a service center.
As I have mentioned in the Part 2, actual scale weight billing is based on the certified weight of the coil received. Most steel mills allow for a +/- 1% deviation due to the altitude changes and slight differences in scales. I can tell you from experience all large service centers weigh their incoming steel and note any weight discrepancies. With the current pricing levels for steel it would pay for all customers to have a scale and to keep it maintained and certified. Having a scale will help prevent some billing headaches but, it will not cure all ills.
Buyer Basics for those buying from other than a domestic steel mill or trading company – do not assume the service center or wholesaler you are working with understands what billing method you are requesting at the time of the initial quote. A request for quote for 20 gauge galvanized without any further instructions is the equivalent of opening “Pandora’s Box.” I will explain.
First, requesting steel by gauge number rather than decimal is one of the first sins in the steel business. Steel should be purchased by the thickness requested and, in my opinion, using the minimum thickness possible based on your industry standards. For 20 gauge steel the SMACNA standards, which are used across many areas of the steel business, calls for a thickness range between .0356 on the low end to as thick as .0436. The difference between the minimum allowable thickness and the maximum allowable is 18.35%. I don’t know too many companies that can afford to lose 18.35% right up front due to poor ordering practices.
Second, request the specific billing method – in writing – you wish to be quoted. Right here I need to make a statement – it is not a sin to buy or sell steel based on theoretical nominal billing. I can actually see a benefit to those companies who use nominal weight calculations when bidding a job and the ease of transition from bid to purchasing to production could be a benefit to that organization. Many companies prefer to buy steel based on actual scale weight – which means they pay for the steel they receive. These companies need to have a scale and need to be quite clear as to the thickness requirement they may have. Most mills are able to meet half ASTM thickness requirements and I would recommend you order your material to the light side or minimum side of the gauge required. Then check the steel’s thickness when you receive the material.
When buying on nominal weight you recognize you are buying based on a theoretical calculation and not what the coil actually weighs. The billing is based on the footage in the coil and a number of service centers have figured out over the years steel lighter than the minimum decimal has more footage than steel ordered thicker. At the same time a number of service centers have worked on transitioning customers to “Actual Book Weight”, “Book Weight” or other references made to confuse a buyer into buying based on the theoretical nominal weight calculation and not on actual scale weight. I will go into this in more detail in my next installment of “Steel Buyer Basics.”
Steel Buyers Basics – Theoretical Nominal Weight Billing – Part 4
Hello? This is John Packard of Paragon Metal Services. I need to buy a load of galvanized coils. Can you sell me a load of 20 gauge by 60” coils?
The cardinal sin of Steel Buyers Basics has been broken by the above caller (me). I have called a service center and asked to buy steel using the gauge number instead of referencing my minimum thickness requirement. Secondly, I did not ask for a specific billing method. Why? I assume the service center knows their business and they will “treat me right.” If this sounds like your company – we need to talk.
I spent most of my career selling steel, purchasing steel and managing service centers. I also have trained a number of sales people over the years. A buyer who does not dictate exactly what they want to buy is one who will have the terms and conditions determined for him. A good service center will either ask you for the missing information or explain to you what they have available to sell and the billing method they are using. Don’t get me wrong – there are a lot of excellent service centers and wholesalers out there. The vast majority fit into the excellent or good category. However, there are those precious few….
Some service centers use the “kiss, don’t tell” rule. Many times standard billing procedure is for “Actual Book Weight”, “Book Weight” or Theoretical Nominal Weight Billing (which was explained in earlier editions of the Steel Buyers Basics published last week). When a sales person knew someone was “confused” the customers would be told the company was billing them on “Book Weight” or based on “SMACNA weights” if they were in the HVAC business. The customer was “informed” they were being quoted “Nominal” weight but, no time was spent explaining exactly what the billing method was. After all, the customer is in the business. They should know the difference between Actual Scale Weight and Actual Book Weight.
If the sales person was “good” they would go on to explain to the customer that their company would supply them light to gauge coils to maximize their linear footage. What a wonderful company to deal with! Then they were quoted a nominal weight price – which is less than the actual weight price because the weight is inflated – thus reducing the cwt price of the steel.
The more weight a coil can gain compared to the original actual scale weight the less the cwt needs to be to cover the original cost.
Huh? Come again? More about the secrets to nominal weight billing in the next installment of Steel Buyers Basics….
Steel Buyer Basics – Theoretical Nominal Weight – Part 5
Theoretical Nominal Weight (TNW) has been around the longest and is probably the least understood by many of today’s buyers and sellers. TNW is also called “nominal”, “book weight”, “actual book weight”, “SMACNA weight”.
For steel buyers, one of the key basics is the understanding there are different ways to buy steel. Steel buyers that are aware of the different methods and recognize the terminology and weight calculations will lessen the risks of their company ever being taken advantage of by another company. All steel is not created equal. Weight is weight only when it is actually weighed. Otherwise, theoretical calculations come into play which will adjust the weight based on footage and the nominal/actual density factor of the steel (see previous editions of STEEL MARKET UPDATE for more explanations).
I can tell you the Nominal weight of any galvanized coil in your inventory if you give me the gauge, width and linear footage. No scale needed. All I have to do is look at a SMACNA or similar gauge chart. For example 24 gauge has a nominal thickness of .0276” and the nominal weight based on the chart is 1.156 pounds per square foot. Multiply the footage X 1.156 X width in feet = nominal weight.
Let’s look at specific coil example – we have a 24 gauge coil which has 3,000 linear feet and is 48” wide (or 4 feet). We take 3,000 X 1.156 X 4 = 13,872# (nominal weight).
Now let’s say this same coil has an actual thickness of .024” – how do we calculate the weight of the coil if we don’t have a scale? Most service centers use the formula of 40.8 pounds per square foot X thickness = pounds per square foot (40.8 X .024 = .9792 pounds per square foot). Using a similar calculation as for Nominal weight above – 3,000 X .9792 X 4 = 11,750 is the theoretical actual weight of our test coil. For the exact weight – it is best to use a scale.
Confused yet? There are literally dozens – maybe hundreds of companies just as confused as you may be right now. However, the key is look at the difference in the weights off the same coil – our Theoretical Nominal Weight coil weighs 13,872 pounds. That is the weight a customer would be billed on a Nominal Weight (Book Weight, etc.) order. However, if the coil is actually taken to a scale it would weigh very close to our second calculation – 11,750 pounds. The difference between the two coil weights is 2,122 pounds – more than a ton difference. The Nominal coil’s weight is inflated by 15.3%. It is not a sin to sell steel based on Nominal weight billing. As long as the price difference for our sample coil above on Nominal Weight pricing is 15.3% lower than the Actual Weight pricing offered by the supplying company.
Now let me show you a secret: If someone purchases the 24 gauge galvanized coil as .0225” instead of the minimum decimal shown on the SMACNA and other standard gauge charts – let’s see what happens when it gets billed on Theoretical Nominal Weight?
First, let’s see how much the coil weighs on actual weight using our calculation. We need to get the weight for pounds per square foot for .0225. To do this we multiply 40.8 X .0225 = .918 pounds per square foot. Then we take the linear footage (3,000) X Width in feet (4) X pounds per square foot for .0225 (.918) = 11,016 pounds.
Now the calculation to get the Nominal Weight of the coil is exactly the same as my first example at the beginning of this article = 13,872 pounds. The difference between our .0225 coil weight and the nominal weight is 20.5%. If it is sold for the exact same price as the .024 coil on Nominal Weight Billing – the company selling the coil makes an extra 5.2% profit. The company buying the coil has material which is technically “under gauge” – lighter than the industry guidelines for 24 gauge. The real “sneaky” companies will sell the Nominal Weight coil for just below their Actual Weight pricing – thus gaining a tidy profit for themselves.
These billing methods have been around for decades and have been used by many companies over the years. Some play fair and some don’t. Learn to tell the differences between those that do and those who don’t. Buy a micrometer. Specify exactly how you want to purchase your steel – by decimal and billing method. Provide written purchase orders with thickness, coating weights, qualities and billing method clearly market on your documents. Also, read the order acknowledgements you get from your suppliers. Know how to check your coil’s billing weight.
Folks, it gets even better. Have you ever heard of Theoretical Max Weight?
Steel Buyer’s Basics – Part 6 – HARDI Calls for “Contractor Caution”
This is a “Contractor Caution” statement issued by HARDI. Much of this information is directed at the HVAC and construction industry. I am not so naïve to think this is not an issue within other areas of the flat rolled steel marketplace. I thought it would be of interest to anyone in the flat rolled steel market (especially galvanized steel) to be aware there are organizations trying to make a difference.
The Heating, Airconditioning & Refrigeration Distributors International (HARDI), a trade organization dedicated to the wholesale distribution networks for the HVACR (Heating, ventilation, Air Conditioning & Refrigeration) industry, has put out a warning to all HVAC contractors regarding their purchasing practices for galvanized steel.
The moderator of the HARDI Steel Interests Group, Arthur Franklin or S. Franklin and Sons, issued the following statement to Steel Market Update:
“There are some resellers of steel (to both wholesalers and large end users) who have been caught both cheating and/or using deceptive sales practices. HARDI wholesalers have found problems such as improperly stenciled steel, misrepresentations of non-stenciled steel, misrepresentations of billing methods, and lack of knowledge of the subtleties of the steel ‘extras’ within a given gauge. These items can make a dishonest quoted price appear to be a better deal than the honest price when in reality it is not.
Our group is working on ways to educate ALL buyers of steel (other wholesalers and our customers) on how to specify and verify their purchases BEFORE they are made into ductwork. For example, many of us already are showing our customers how to check zinc coating weight using a portable coating tester when they receive steel to verify that it meets the specifications required by their jobs. Coils should be weighed, sheets counted and a micrometer used on all material to be sure it meets gauge tolerances. My fellow HARDI wholesalers and I are extremely interested in a ‘level playing field’ both when we buy steel from service centers and when we sell steel to our contractors competing against both service centers and other wholesalers. Ultimately, we are also extremely concerned for our contractor customers because if an installed job is found not to meet specification, the potential financial liability to correct the problem is enormous.” Arthur Franklin, S. Franklin & Sons – HARDI Steel Interest Group Moderator.
I wanted to get this message out – to contractors and other galvanized steel end users, to wholesalers who purchase from service centers, to service centers who may be involved in the practices mentioned above (and shown in the HARDI detailed statement to follow) and to steel mills. Why steel mills? I took a personal interest in the issue of mis-stenciled steel when I represented a domestic galvanizing mill. I was confident the mill I represented’s steel (as well as other mills) was being intentionally stenciled with a G90 coating weight by the service center – even though the steel was purchased as something other than G90.
I no longer represent any domestic steel mills – however, I feel that the mills have an obligation to recognize what I believe to be fraud being perpetrated on unsuspecting, hard-working companies by one or more of the mill’s customers. My personal opinion (and you know what opinions are worth) is the steel mills, service centers, wholesalers and other associated trade organizations need to put a stop to the company(s) which are involved in deceptive practices.
Service centers – think of it this way – one rotten apple spoils the barrel….
HARDI has chosen, as an organization, to get involved using their organization to try to bring in other trade associations such as SMACNA to educate their membership and their customers of these problems. Discloser: I am a member of HARDI and I did not write their report below.
Steel Buyer’s Basics – Part 8 – Theoretical Maximum Weight
This is the eighth in a series dedicated to educating buyers, sellers and management regarding some of the issues related to flat rolled steel purchasing. An unusual billing practice is Theoretical Maximum Billing for galvanized steel.
In past issues I discussed gauge and the allowable thickness for minimum, nominal and maximum per gauge as well as billing methods such as TMW (theoretical minimum weight), Actual (scale weight) and TNW (theoretical Nominal Weight).
A couple of years ago a number of service centers started reporting to me that they were losing orders and they could not figure out why. Over time it was discovered the supplier(s) were using a new billing method – similar to the TNW billing method but instead of using the nominal decimal and corresponding weight they were using the maximum allowable decimal.
Using the SMACNA (Sheet Metal and Air Conditioning Contractors National Association) gauge chart provided to me by a HVAC (heating, ventilation, air conditioning) wholesaler – and taking 24 gauge as my example this is what I found: The minimum allowable thickness for 24 gauge galvanized is .0236”, the nominal to gauge is .0276” and the maximum allowable thickness is .0316”.
The SMACNA chart shows weight per square foot for each thickness referenced above as: .0236 = 0.9590 lb/sq ft., .0276 = 1.156 lb/sq ft. and .0316 = 1.285 lb/sq ft.
What the supplier(s) were choosing to do was to use a theoretical calculation to derive the coil’s weight (scale weight irrelevant). This is accomplished by taking the linear footage of the coil and running a calculation using the 1.285 lb/sq ft. or the maximum allowable weight for 24 gauge. Example: If we have a 60” wide coil with 5,000 linear feet of steel in the coil – this coil would weight = 32,125# (5,000 linear feet X 5 width in feet X 1.285 lb/sq ft = 32,125#). The actual thickness of the coil is irrelevant other than being within the gauge tolerance for 24 gauge. The kicker is the coil may have an actual thickness of .0236” and using the same calculation using SMACNA’s weight per square foot for .0236 the coil should weigh = 23,975# (5,000 linear feet X 5 width in feet X 0.9590 lb/sq ft = 23,975#).
The difference between .0236 weight and the maximum .0316 weight (per SMACNA) = 25.4%. This means the supplier can resell the coil for the same hundred weight price they paid the mill (example: $65.00/cwt) and, using the theoretical maximum weight billing method, their profit would be 25.4% on that coil.
Buyers need to be aware of the billing method being used as they purchase their steel. There is nothing wrong with purchasing on a “theoretical” basis. However, I would recommend any theoretical buyer to check the calculations of weight coming out of a reseller to make certain you are indeed getting what you paid for.
Buyer’s Basics – 1) present your request for quotation (RFQ) in writing. 2) Identify the decimal thickness you wish to purchase and whether it is a minimum (thickness cannot go below decimal requested) or nominal (supplier is allowed a range +/- usually half ASTM standards above or below decimal requested). As you can see from my example on 24 gauge above it is not in your best interest to request steel by “gauge”. 3) If you have restricted or a specific decimal requirement spell it out in your request (such as half ASTM standards). 4) Identify the billing method you wish to be quoted – Actual scale weight, Theoretical Minimum, Theoretical Nominal, Price Per Piece (or, PPS = Price Per Sheet), etc. 5) If you are requesting a coated product – galvanized, Galvalume, aluminized, Galvannealed – spell out the coating weight required. 6) Ask your supplier to supply a written quotation and to note any deviations or exceptions to the original RFQ (request for quote) as well as how long the pricing is valid. 7) Write out a purchase order with all of the information contained in your RFQ. 8) Inspect the steel upon receipt – including the BOL (bill of lading) and tags. 9) Carefully read the invoice upon receipt – pay particular attention to the billing method on the face of the invoice. If it is not on the face of the invoice read the small print on the back of the invoice. Some companies will put statements on the back stating the billing method is “nominal” or some other verbiage which may not agree with your original billing request. 10) Take care of those suppliers who take care of you. Sometimes the “lowest” price is not all it is cracked up to be.
Steel Buyer’s Basics – Part 9 - Reader Feedback
I thought my readers would appreciate some comments from a company located in the Northeastern section of the United States:
“John, Good Morning! I am not looking to be a contributor to your newsletter, but I did want to write to you about the TMW info you provided.
About 6 years ago, I had “an itch I needed to scratch”. [Company name omitted at customer’s request] was quoting items and we were always 8% - 15% high. I hired an outside consultant to view our information and we gave him our customers’ names for him to contact. After 6 months of information gathering, we found that most of the service centers from Pittsburgh to the East Coast used the practice of nominal theoretical weight. Specifically, they were purchasing products at a minimum thickness and billing on the nominal thickness. Example…16 ga Cold Rolled was purchased as .0535 min and invoiced as .060 thick. A quick 10% difference!
We went to each of the customers who were being billed on nominal theo weight and many of them were not aware. Those who were, we began to invoice in the same manner, for that is what the customer wanted. Others were appalled. Our best answer was to go to per sheet pricing and that worked very well. Six (6) years later, the nominal theo weight still exists.
Two other quick schemes…a good customer of ours recently tested their Galvanized coils and found that two of our competitors were using G-30 for a G-90 application. Needless to say, the purchasing agent was fired and lots of coils were returned.
One scheme you did not discuss, which happened to us, very recently. One of our best customers caught two suppliers short shipping on piece counts. We educated the customer about nominal theo weights and they went to per sheet pricing. During a physical inventory, the customer counted sheets in bundles and found two to three sheets missing in each bundle. When they went back to their production run schedules, they found that this was going on for a good period of time. Needless to say, those suppliers (our competitors), were tossed out of this customer.
Billing weights continue to be a daily battle. Many of your larger, multi-branch service centers will only invoice on theo weights. You will also find that warehouses selling plate and billing theo wgts will do so on sheet product, too.
Stay well. Your newsletter makes a difference!”
The writer above presents examples of the subject of a number of my previous Steel Buyer’s Basics articles. Buyers need to understand billing methods and, perhaps more importantly, the company needs to understand how to find billing discrepancies – preferably when the steel arrives or when the paperwork is received (read the invoice – front and back – compare to BOL, tags, receiving paperwork, etc.).
The above company points out a subject which was going to be another article for me to tackle – short sheet counts. A number of companies have gone away from billing by “weight” preferring to be billed by sheet or by piece. In price per sheet billing the thinner the steel the easier it is to short sheet the customer (bill for more sheets than received). Suppliers know it is a hassle to count a hundred plus sheets per bundle – so most don’t. Over time a few sheets missing per bundle can add up to real dollars and cents. You should spot check your sheet counts upon receipt and secondly, once the bundle is opened your plant people should keep a running tabulation of material used and inform the purchasing department (and accounts payable) about bundles which are missing sheets.
Steel Buyer’s Basics – Part 10 – Inco terms
Inco terms = International Commercial Terms – Terms used to divide transaction costs and responsibilities between buyer and seller and reflect state-of-the-art transportation practices. Or, the point at which risks transfers from the seller to the buyer.
I don’t know about you, but it used to drive me crazy how many customers didn’t understand what “fob” meant. Heck, for the first 5 years in the steel business I didn’t know what “fob” really meant. When I started selling foreign steel a new set of terms kicked in making it even more confusing. So, I thought it might be a good idea to review the most popular Inco terms and, once and for ever, come to an understanding of what “fob” is suppose to mean:
FOB – “free on board” – The buyer has to bear all costs and risks of loss or damage to the cargo from the point of origination (point where steel is loaded such as a mill, port or warehouse). Seller is responsible for loading material on a truck, railcar or vessel. When I represented Winner Steel all material was sold fob Sharon, PA. However, the mill would then agree to pay the freight. The terms then became, freight prepaid, fob Sharon, PA. The buyer was still responsible for the risks of loss or damage to the cargo.
EXW – “ex-works” – the seller’s responsibilities end when the cargo is released to the buyer or their agent (freight forwarder, broker, etc.). The buyer is responsible for freight, insurance, export and import clearance, and all paperwork and port charges. The buyer assumes all risks of loss or damage to the cargo.
CFR – used to be called C&F – “cost and freight” – (usually followed by the port of destination) means the seller delivers when the cargo pass the ships rail (loaded onto the vessel) in the port of shipment. The seller pays the freight to the final discharge port. The risks of loss or damage as well as any additional costs due to events occurring after the time of delivery are transferred from the seller to the buyer. The seller is responsible to clear the cargo for export. This term is used only for ocean and inland waterway transportation.
CIF – “cost, insurance and freight” – (usually followed by the port of destination) - another sea or inland waterway term – The seller delivers the cargo when it passes the rail of the vessel for shipment (loaded on the vessel). The seller is responsible for the freight to the final destination, but the risks of loss or damage as well as any additional costs due to events occurring after the time of delivery, are transferred from the seller to the buyer. However, the seller is required to purchase marine insurance against the buyer’s risk of loss or damage of the goods during transit. The seller is responsible to clear the cargo for export.
CIP – “carriage and insurance paid to” – It is the correct term to be used in place of CIF for shipments in containers or by air.
FCA – “free carrier” (followed by the port or named place) – the seller delivers the cargo to the primary carrier and all risks of loss or damage pass to the buyer at this point. The buyer then pays all transportation costs from the “named place of origin”. The seller is responsible for clearing customs at the port of export and paying any related customs expenses. FCA can be used for all modes of transportation including intermodal. FCA is also used in place of FOB in air freight transactions. FAS – “free alongside ship” – seller pays for transportation of cargo to the port of shipment. The buyer pays loading costs, freight, insurance, unloading costs, duties and any transportation to the final destination. This is invariably used for bulk shipments. The vessel must already be berthed to be considered “alongside.” Risks transfer to the buyer once material is “alongside” the ship. Other Inco terms exist but the ones mentioned above should cover those you might run across as you do business here in the United States. For more information on Inco terms you can go to Wikipedia and search for Inco terms.