APPAREL-INDUSTRY

(IMPORTANT TERMINOLOGY)

           

Hello Everyone !!!! Today we are going to learn about basis terminologies which are being used in apparel industry . This is also important which helps us to deals with daily activities and will get through it in our career phase of this industry. So lets start…

INCOTERMS:

INCOTERMS is the combination of IN – International, Co – Commercial, Terms – Terminology. It is very important in readymade garment export business. INCOTERMS or The delivery terms are governed by the international chamber of commerce (ICC). They issue international commercial terms also known as INCOTERMS which governs all the exports and imports made around the globe. These terms are widely used in international purchase processes. 

Mostly in the garment industry, FOB (Free on board) delivery term is followed and is commonly known as FOB pricing. Sometimes CFR (Cost and freight) is also followed. It is imperative to understand the different delivery terms available and select the appropriate one for the export of goods as per the requirement. In this section, the various delivery terms are discussed. In this article I also discussed about INCOTERMS 2000.

For example, when importing the fabric from another country, the merchandiser must deal with the supplier for transportation or shipment of the fabric based on incoterms, namely, EXW, FOB, CIF, DDP, etc. based on these, who can bear the transportation cost can be decided. Whatever type of incoterm used, all the cost should be claimed from the buyer. For instance, if the fabric is purchased under EXW incoterm, the merchandiser should add the cost of transportation in addition to the custom clearance charges and fabric cost while determining the cost of the garment.

INCOTERMS 2010:
There are 11 terms or rules as per INCOTERMS 2010. The responsibility of the buyer and seller as per each delivery term is explained with the chart shown in below Figure-2. The chart shows the activities carried out in shipment ranging from export customs declaration, carriage to port of export, unloading of truck in port of export, loading on vessel / airplane in port of export, carriage to port of import, insurance, unloading in port of import, loading on truck in port of import, carriage to place of destination, import customs clearance and import duties and taxes payment. It says who holds responsibility for the goods and also for the cost incurred during shipment very clearly. The different delivery terms are explained below for more understanding:

Figure-2: Responsibility and allocation of costs as per INCOTERMS 2010

Ex works (EXW):
As per this delivery term, the seller gets the goods ready for shipment and informs the buyer about the shipment being ready. It is the buyer’s responsibility to take the material from seller place of manufacture to his place. The buyer takes care of export customs declaration and all other activities thereof till the material reaches his place. The entire risk of shipment is on the buyer in the case of ex works. This kind of term will normally be used to quote the pricing of the product apart from the delivery charges so that it will be easy for the buyer to calculate the product cost. However, if the buyer has good knowledge and presence in the exporting country with enough people working for him, then he can opt for EXW and transport the goods. If buyer is new to the exporting country, then it is better to avoid choosing this delivery term as he will not have any knowledge about the legal and export procedures followed in the exporting country and hence avoid the cumbersome process.

Free carrier (FCA):
When FCA is used, then seller obtains export clearance and carries the material to the designated place as instructed by the buyer. It could be like handing the material over to the carrier or placing the material in seller’s own premises for the buyer to come and take it. This term is eclipsed nowadays by FOB. As per FCA term, if the material is placed anywhere outside the seller’s premise, then unloading the material from the transport vehicle and loading on to a vessel becomes the responsibility of the buyer. If the material is kept in areas where it is under seller’s control, then seller is responsible for loading the goods on to the buyer’s carrier.

Free alongside ship (FAS):
In FAS delivery term, the seller delivers the goods alongside the buyer’s vessel at the named port of shipment. The export clearances, carriage of material to port of export and unloading of truck in the port of export are all responsibilities of the seller and once material is unloaded at the port of shipment and placed alongside the vessel, then the responsibility shifts to the buyer. This term should only be used for non-containerised sea freight and inland waterway transport.

Free on board (FOB):
It is the most commonly used pricing term in apparel export. As the name indicates, the seller spends money and holds responsibility of the goods till he loads the material on to the buyer’s vessel. The buyer pays the cost for transportation (sea / air), insurance fees, bill of lading fees, unloading and transportation of goods from port of destination. Due to FCA being advocated in 1980, FOB has to be used only for non-containerised sea freight and inland waterway transport. However, in the real time scenario, FOB pricing is used for all modes of transport. Sometimes it leads to contractual risks.

Carriage paid to (CPT):
As per this delivery term, seller’s responsibility increases. The seller has to pay for the transport (sea / air), unloading of goods at named port of destination and transporting the goods to the named place of destination. The seller bears all the cost till the material reaches the place of destination. Sometimes, the unloading costs at the port are borne by the buyer; however that has to be mentioned in the contract clearly. If buyer requires insurance, then carriage and insurance paid (CIP) should be followed.

Cost and freight (CFR):
The seller pays for the carriage of the goods to the named port of destination. But the risk is transferred to the buyer once the material is loaded on to the ship in the country of export. Insurance and delivery cost at the named place of destination should be borne by the buyer. Sometimes cost for unloading in the port of import belongs to seller as per the contract requirements. In this case, seller pays the money for transport but the risk of transporting the material belongs to buyer. So if there is any issue in transit, it is at buyer’s risk.

Cost, insurance and freight (CIF):
It is similar to CFR, with the exception that the seller has to pay for the insurance for the goods in transit till it reaches the port of destination. This delivery term requires seller to insure for 110% of the value of items shipped. CFR should only be used for non-containerised sea freight and for all other modes of transport, CIP should be used.

Carriage and insurance paid (CIP):
CIP is similar to CFR where seller pays the insurance for the goods till it reaches the port of destination, with the exception that CIP can be used for all modes of transport whereas CFR can only be used for non-containerised sea freight.

Delivered at terminal (DAT):
The responsibility of the seller increases in DAT where the seller delivers the material at the named terminal. All the costs of transport, insurance and unloading at port of destination are borne by the seller. Loading at the port of destination and carrying to buyer’s place is done by the buyer. The terminal can be a sea port, airport which is having a facility to store the material for taking it to the buyer’s place later. All cost like import duty, taxes, customs, carriage costs, etc., after unloading at the terminal should be borne by the buyer.

Delivered at place (DAP):
DAP means that the material is ready at the buyer’s place for unloading. Hence all the costs till the material reaches the named place of destination is borne by the seller excluding import customs clearance and payment of import duties and taxes. However, the risk passes from seller to buyer once the material reaches the port of destination although the costs are borne by the seller. The unloading at the named place of destination should be done by the buyer. These type of delivery terms are used only when the seller has a strong foothold in the buyer’s country as new exporters may not be aware about the carriage facilities and transport regulations in the buyer’s country.

Delivered duty paid (DDP):
The most responsible person as per this delivery term is the seller. All the obligations till the material reaches the named place of destination is completed by the seller. Seller pays all the charges including import duties and taxes and takes care of import clearance also. This type of term is very risky for a new exporter who is not aware of the import policies of the buyer’s country. The only responsibility of the buyer as per this term is that he has to take care of unloading at the named place of destination. This term is similar to a non-INCOTERM called free in store (FIS). It is a very risky term for the exporter as he / she may not be aware of the extra unforeseen costs at the buyers place and also delay in delivery.

INCOTERMS 2000:
In INCOTERMS 2000, there was four more delivery terms used. However, they have been replaced in INCOTERMS 2010. These four terms may still be found in some contracts and hence it is essential to know about these delivery terms too.

Delivered at frontier (DAF):
This term is used when rail or road transport is used especially in European countries where rail / road transport is very common between two countries. Seller pays transportation cost till the named place of delivery at the frontier. Buyer takes care of customs clearance and carriage costs from the frontier. The risk is transferred from seller to buyer at the frontier.

Delivered ex ship (DES):
In this delivery term, the passing of risk from seller to buyer happens only when the material reaches the port of destination and material is ready for unloading by the buyer. Unlike CFR and CIF, seller not only agrees to bear cost, but also assumes the risk and responsibility till the material reaches port of destination and is ready for unloading.

Delivered ex quay (DEQ):
It is similar to DES, with the exception that the risk is passed on to the buyer from the seller after the goods have been unloaded at the port of destination. This helps in avoiding buyer paying for products damaged during transit.

Delivered duty unpaid (DDU):
It is similar to delivery duty paid INCOTERM, with the exception that the import duty alone is paid by the buyer and all other costs, responsibilities, risks, obtaining import customs clearance are of the seller till the material reaches the named place of destination and is ready for unloading by the buyer. It is a risky INCOTERM for the seller similar to DDP.

The above INCOTERMS explain the various delivery terms used in export and as a merchandiser, knowledge about these INCOTERMS will be very handy when there is a need for discussion (damaged material, shipping delays, material lost in transit, insurance claims, passing of risk and responsibility, etc.) on delivery terms with the buyer. The highlight of INCOTERMS is that any term that is mentioned in earlier versions can also be used when mutually agreed by the buyer and seller.

1. Apparel industry:

The manufacturer who engaged in the manufacturing of clothing. It is also known as the garment business.

2. AQL:

AQL is related to the quality of products. In textile factory Acceptance Quality Level is shortly denoted by AQL.
For more information about AQL, kindly 

3. Air Way Will:

Air Way Will is an export document .the carrying agreement between exporter /shipper and air carrier which is obtained from the airline used to ship the goods. It’s a receipt of goods received given by airlines.

4. Base Fabric:

Basic fabric is grey fabric. Fabric is the main raw material of garments because major parts of garments are fabric. Initially this fabric is get used for sampling.

Gray fabric

5. Book Inventory:

This term is related to fashion accounting. Inventory book means the dollar value of inventory, as stated in accounting records.

6. Buying Office:

It is an independent or store owned office which is located at a market center and buys for one chain or for many stores. Buying office is also known as buying house. For more about buying house kindly 

A Buying office

7. Buying Plan:

It is a document of a general description of the types and quantities of merchandise that a buyer/ importer expect to purchase for delivery within a specific time. It is also known as purchase order(PO).

8. Bill of Lading:

Bill of loading a document which provides the terms of the contract between the exporter/shipper and the transportation/logistic company to move fright between stated points at a specified charge. It’s a receipt of goods received given by logistic company.

9. Contractor:

It is an independent producer who does the sewing (sometimes cutting) for the manufactures, is called as sample worker.

10. Cutting Order:

Cutting order is a company document to maintain cut and produce a specific quantity of garments.

11. Cut-to-order:

A cutting order based on order received. It relates to sampling department and product development department.

12. CPM:

CPM stands for Cost per Minute. CPM can help to find out per hour, shift, day and week cost of garments.

13. CM:

CM is related to the commercial parts of garments merchandising. The full meaning of CM is Cost of Making. That cost may include with trimmings, Cutting, making, trimmings cost, cost of making time etc.

14. CAD:

CAD is related to the fabric cutting in garments industry. The full meaning of CAD is Computer Aided Design which is used as a theoretical tool to design and develop garment products.

CAD Design by soft wear

15. C.F.R:

C.F.R means cost and freight. It indicates that the exporter will deliver the products onto vessel and pay all the normal charges to get the cargo to the named port/seaport.

16. C.I.F:

C.I.F means Cost Freight and Insurance. A pricing term under which the seller pays all expenses involved in the placing of products on board and in addition prepays the freight and insures the goods to an agreed destination.

17. Cut-off-date:

Cut –off-date is a last date till which a shipping line will accept the packed goods for a particular vessel or ship. Usually it is 5-8 days before actual ship moving date.

18. Down-charge:

Down-charge is a less cost because of fewer trimmings into finished product. If buyer says he wants just finished product without any trimmings or embroidery or prints we should down-charge the buyer means we will decrease production cost.

19. Desk-loom:

This quarter sample(10x20cms)  yarn dyed check or strips swatch to get approval of checks or strip’s repeat and size. Usually this loom is made on a hand loom or baby loom. Desk-loom is a term used only for woven checks and strips and not for hosiery strips.

20. Dummy:

Dummy is an artificial human body like doll which is used to get actual human body shape for measurement garments fittings.

Dummy used for basic block

21. Ex- works:

Ex-works means point of origin- a pricing term under which exporter s’ only responsibility is to clear the goods for export and make them available to the buyer at agreed destination.

22. Fabrication:

Fabrication is the process of garments fabric preparation before bulk production that’s why, fabrication is known as a pre-production procedure .The main object of fabrication is selection of appropriate fabric for a garment.

23. Factory out Late Stores:

The store that sells the manufactures overrun directly to consumers.

24. Fashion Director:

The fashion expert of an organization who works with buyer or designers.

25. F.C.L:

F.C.L denoted the full container load. This is the good sign of both buyer and manufacturer. Normally this part handle commercial department in a garments.

26. Free on Board:

The exporters’ undertaken to load the products on the vessel to be used for ocean/ sea transport.

27. Grading:

Grading a procedure of either increasing or decreasing the size of the sample pattern. The process of making a sample size pattern larger or smaller to make up a complete size range.

28. Gross Margin:

Gross margin is related to calculation of manufacturing cost. The difference in dollars between net sales and the net costs of merchandise/ product during a given period.

29. Knit-down:

This is small knitted fabric swatch (which is knitted as per buyers artwork like checks or strips to check the repeat and size) which merchandiser sends to the buyer for approval is known as knit –down.

30. Lab-dip:

This is 10×10 cm swatch dyed in laboratory of mill for checking color standards given on pantone is known as lab dip. This swatch is dyed to get color approval from buyer. Merchandiser has to prepare 4-5 lab dip option for each color because he has to keep one as counter.

Lap-dip of different color

31. Lead Time:

From the date of placing an order to the delivery date this period is known as lead time. Generally lead time is 90-120 days. Lead time is also called as preparing time for order execution.

32. L/C:

The meaning of L/C is letter of credit which given by the buyer via bank. In a normal words L/C is a document of order which is provide buyer to manufacturer where all the terms and conditions are mention.

33. Line Balancing:

Line balancing is a plan of balancing the production schedule as per the time and action calendar. Line balancing is also applied in garments sewing floor for smooth order execution.

34. L.C.L:

L.C.L stands for Less Container Load. When small amount of order execution then less container load for export or import from manufacturer.

35. Mark Down:

Mark down is known as the difference between the original retail price and a reduced price.

36. Mark-up:

The difference between the original retail price and a raised price. It means the difference between manufacturing /cost price and selling price.

37. Modular Manufacturing:

The manufacturing method utilizing a small group of people who work together to produce a finished garment. It means sample development.

38. Offshore Assembly:

Purchase the fabric and cut it but give it to the other country for sewing is known as offshore assembly. For the example we can say that, fabric purchase and cut in the United Kingdom, but sent to the India or Bangladesh for sewing.

39. Partial Shipment:

If the production is only half done and buyer gave us a permission to ship the first half goods we can ship the first half goods and then remaining this shipment is known as partial shipment. It is also known as prance shipment.

40. Pantone:

Pantone is a universal shade color shade card. It gets used in all industries for DTM (dye to match). There are 6 digit numbers for each color. Pantone depends upon TP (take-pad) and TC (take-card).

Pantone

41. Pattern:

Pattern is a hard thick paper which is used to get the actual shape of different component of a garment. Pattern is also use as guide of a marker paper.

Pattern Paper

42. Style Number:

Style number a series of style which is easy to get the style references.

43. SMV:

SMV stands for the Standard Minute Value. SMV is important topic in garments sewing floor. Standard Minute Value is related with garments time study.

44. Strike-off:

This sample is get done by buyers artwork section to get an approval for print or embroidery and repeat and size for the same. This trail samples made by printer or computerized embroidery, which merchandiser sends to buyer for approval is known as strike –off.

45. Time and Action Calendar: 

Time and action calendar is stands for time and action calendar or Time and action plan. It is also known as issuing plan or production schedule or time and action plan. In order execution process, it’s also denoted as a short form TNA. For more information about TNA, kindly .

Sample format of TNA

46. Thread Run:

Thread run is an important terms in sewing section. The stitching thread and color for the same is known as thread run.

47. Up-charge:

Up-charge is an additional cost which will get added into cost of production as per the buyer’s instructions. It will increase the manufacturing cost. Up charge will get added into these things like embroidery, labels, packing method etc.

48. Vendor:

Vendor is very common word in Ready Made Garments (RMG). In a normal word we know that vendor is a seller, resource, manufacturer or supplier.

49. Vessel-sailing-time:

The time which will get taken by ship or transportation to ship the products is called as vessel-sailing time.

50. Yarn Dips:

It is a same procedure as lab dip. If a fabric is a yarn dyed checks or strips then yarns will get dyed into laboratory and those yarns merchandiser has to send to the buyer for color approval is known as yarn dips.

THE END