FMS How-To: What Are DTCs?

The Foreign Military Sales (FMS) system uses Delivery Term Codes (DTC) to define logistics responsibilities. It’s important for defense companies to be familiar with the DTC “lingo” to understand how transportation logistics will be handled in their FMS case.

What are DTCs?

DTC stands for Delivery Term Codes and is a set of codes used in Foreign Military Sales cases to define logistics responsibilities. The DTC determines at what point the physical materiel changes hands from the US DoD to the foreign government customer (or their agent, such as a contracted freight forwarder).

It’s important to note that in all FMS cases, the legal title transfer takes place at the Point of Origin. From that point, the foreign government customer has legal ownership of the materiel, and thus is responsible for any insurance. In other words, the physical handover may not occur at the same place/time as the legal transfer.

From the FMS Green Book:

The DTC indicates the point in the transportation cycle where responsibility for physical movement of an FMS shipment passes from the U.S. DoD to the purchaser. … The DTC speciﬁes to what point the U.S. will provide transportation, and from that point onward the purchaser provides the transportation.

Are DTCs the same as Incoterms?

International logistics companies around the world use Incoterms, a set of rules established by the International Chamber of Commerce, to define the roles and responsibilities in international transportation. (Wikipedia has a useful description.)

DTCs are similar to, but different from, Incoterms. DTCs and Incoterms are both sets of rules that describe how logistics work for a particular international sale. While some of the rules are similar, DTCs do not correspond exactly to Incoterms. Incoterms are used by international logistics companies; DTCs are used by the DoD specifically for FMS cases. Defense companies should be familiar with both to understand the logistics of their FMS case.

How do DTCs work in FMS?

To understand how DTCs fit in, it’s important to understand the overall framework of transportation in FMS sales. In FMS, the foreign government customer normally pays for all transportation charges, from the point of origin to the ultimate destination. While the customer may request that the U.S. DoD arrange part or all of the transportation, the DoD bills the customer for those transportation costs. Alternatively, the customer may decide to use a freight forwarder to handle the transportation. By requesting a specific DTC code, the customer indicates up to what point they wish the US DoD manage logistics. After that point, the customer takes physical custody of the shipment and arranges for transportation.

The customer indicates which DTC they prefer when they submit their Letter of Request (LOR) to the US DoD. The DTC is later included in the Letter of Offer and Acceptance (LOA – the formal purchasing agreement between the US DoD and foreign government customer).

The most common DTC in FMS cases is Code 5, under which the item is transferred at the port of exit from the U.S. The full list of DTC codes is in the chart below, from the DSCA Green Book (pdf link).

Delivery Term Code

Place of Physical Transfer

2

Staging area or Prime Contractor inside U.S.

3 **

Port of Exit alongside vessel

4

Point of Origin

5

Port of Exit from U.S.

6 **

Overseas Port

7

Final destination in recipient country

8

Port of Exit from U.S. (loaded onto vessel)

9

Overseas Port (landed)

0

Transportation not required or “above-the-line”

** DTC 3 and 6 are no longer used.

And this map (same source) shows graphically what the different codes indicate for delivery of the items.

There are a couple of special cases that we haven’t covered here. For shipments of weapons and ammunition, special rules apply. In addition, cases that are marked with DTC code 0 have “above the line transportation”. We’ll discuss these in a future post.

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