Incoterms

Incoterms

Incoterms are international commercial terms meant to bring clarity to business deals that involve the purchasing and shipping of goods overseas.

They are of particular interest to shippers, such as retailers and manufacturers who import and export goods. This is because incoterms defines who, whether buyers or sellers, are responsible for the shipping and/or insurance of goods through the various legs of transportation in the international shipping process.

Incoterms
Incoterms 2020

EXW (Ex Works)

  • The seller/exporter makes the goods available to the buyer in their own warehouse and is only responsible for packing the goods.
  • The buyer/importer therefore bears all of the costs and responsibilities from the moment the goods cross the warehouse prior to loading. Insurance is not mandatory but should it be required it would be taken out by the buyer as they bear the risk.

FCA (Free Carrier)

  • The seller delivers the goods to an agreed place and bears the costs and risks up to the point of delivery of those goods at the agreed place, including the cost of export clearance. The seller is responsible for inland transport and export customs clearance unless the designated place is the seller’s premises (FCA warehouse), in which case the goods are delivered there and loaded onto the means of transport arranged by the buyer at the buyer’s expense.
  • The buyer bears the costs from loading on board to unloading, including insurance if taken out because they bear the risk when the goods are loaded onto the first means of transport.

FAS (Free Alongside Ship)

  • The seller delivers the goods to the port of origin loading dock and bears the costs up to delivery as well as being responsible for export customs procedures.
  • The buyer is responsible for loading on board, stowage, freight and other costs up to delivery at destination, including import clearance and insurance, if taken out as it is not mandatory. The buyer also bears the risk once the goods are in the loading dock prior to being loaded onto the ship.

FOB (Free On Board)

  • The seller bears the costs until the goods are loaded onto the ship, at which point the risks are transferred as well as responsibility for export clearance and costs at origin. The seller also arranges the transport although the buyer bears the cost.
  • The buyer is responsible for the cost of freight, unloading, import clearance and delivery at destination as well as insurance should they take it out. The transfer of risk occurs when the goods are on board.

CFR (Cost and Freight)

  • The seller is responsible for all costs until the goods arrive at the destination port, including export clearance, costs at origin, freight and usually unloading costs.
  • The buyer is responsible for import procedures and transport to destination. They also bear the risks from the moment the goods are on board, hence, although it is not mandatory the buyer usually takes out insurance.

CIF (Cost, Insurance and Freight)

  • As with CFR the seller bears all the costs up to arrival at the destination port, including export clearance, costs at origin, freight and usually unloading. However, unlike CFR, the seller must also arrange insurance even though the risks transfer to the buyer once the goods are loaded on board.
  • The buyer bears the import and transport to destination costs.

New in the 2020 version of this Incoterm is that the seller must arrange insurance cover in line with what is stipulated in Institute Cargo Clauses (C). In other words, the goods must be covered until their arrival at the destination port. This Incoterm is only used in shipping. It is widely used as it determines the customs value.

CPT (Carriage Paid To)

  • The seller bears the costs until the goods are delivered to an agreed place, i.e., they are responsible for all of the costs at origin, export clearance, the main transport and usually, costs at destination.
  • The buyer is responsible for import procedures and insurance if taken out as it is not mandatory. The risk is transferred to the buyer once the goods are loaded onto the first means of transport arranged by the seller.

This Incoterms is valid for any means of transport.

CIP (Carriage and Insurance Paid To)

  • The seller bears the costs up to delivery at an agreed place at destination, i.e., the costs at origin, export clearance, freight and also insurance which is mandatory.
  • The importer is responsible for import clearance and delivery at destination and takes on the risk when the goods are loaded onto the first means of transport.

DPU (Delivered at place Unloaded)

  • The seller bears the costs and risks arising at origin, packing, loading, export clearance, freight, unloading at destination and delivery at the agreed point.
  • The buyer is responsible for import clearance procedures.

This Incoterm is new and replaces DAT. In effect, it increases delivery options since DAT stated that delivery must take place at the terminal, whereas with the new DPU delivery can take place at an agreed place other than the terminal.

DAP (Delivered At Place)

  • The seller bears all the costs and risks of the operation apart from import clearance and unloading at destination, i.e., all costs at origin, freight and inland transport.
  • The buyer is only responsible for import clearance and unloading.

This Incoterm is valid for all means of transport. Insurance is not mandatory but if taken out the seller bears the cost.

DDP (Delivered Duty Paid)

  • The seller bears all costs and risks from packing and checking in their warehouses to delivery at final destination, including export and import clearance, freight and insurance, if taken out.
  • The buyer only has to receive the goods and usually unloads them, although this can also be done by the seller.

This Incoterm is the exact opposite of EXW, the seller bears all the costs and risks.