WHAT ARE INCOTERMS?

Buying and selling goods in the international trade system can often be complicated with responsibilities, cost and risk to all parties. To help in the import and export of trade, the International Chamber of Commerce (ICC) introduced the International Commercial Terms (Incoterms), which act as the world’s essential terms of trade for the sale of goods.

The Incoterms rules feature a series of three-letter trade terms which all have very precise meanings for the sale of goods around the world. These 11 rules set out your obligations and those of your trading partners (for example, who is responsible for transport, import and export clearance etc.) and, importantly, the point in the journey where risk transfers from the seller to the buyer.

The Incoterms rules are revised every 10 years, with the newest edition being Incoterms 2020.

INCOTERMS FOR ANY MODE/MODES OF TRANSPORT:

EXW – Ex Works (named place of delivery)

This term is often used when making an initial quotation for the sale of goods without any costs included. This term places the maximum obligation on the buyer and minimum obligations on the seller.

EXW means that a seller has the goods ready for collection at his premises (works, factory, warehouse, plant) on the agreed upon date. The buyer pays all transportation costs and also bears the risks for bringing the goods to their final destination. The seller does not load the goods on collecting vehicles and does not clear them for export. If the seller does load the goods, he does so at buyer’s risk and cost. If parties wish the seller to be responsible for the loading of the goods on departure and to bear the risk and all costs of such loading, this must be made clear by adding explicit wording to this effect in the contract of sale.

FCA – Free Carrier (named place of delivery)

The seller hands over the goods, cleared for export, into the disposal of the first carrier (named by the buyer) at the named place. The seller pays for carriage to the named point of delivery, and risk passes when the goods are handed over to the first carrier.

CPT – Carriage Paid To (named place of destination)

The seller pays for carriage of goods up to the named place. Risk transfers to buyer upon handing goods over to the first carrier at place of Import.

CIP – Carriage and Insurance Paid to (named place of destination)

This term is similar to CPT – seller pays for carriage to the named destination point, but risk passes when the goods are handed over to the first carrier. However, with CIP, the seller is responsible for obtaining minimum insurance for the goods while in transit.

DAP – Delivered at Place (named place of destination)

Seller pays for carriage and to the named place, except for costs related to import clearance, and assumes all risks prior to the point that the goods are ready for unloading by the buyer.

DPU – Delivered at Place Unloaded (named place of destination)

This updated Incoterm (previously DAT – Delivered at Terminal) requires that seller is responsible for carriage, delivery of goods to named place and for unloading. The seller will also assume all risk until arrival at the destination place.

DDP – Delivered Duty Paid (named place of destination)

Seller is responsible for delivering the goods to the named place in the country of the buyer, and pays all costs in bringing the goods to the destination including import duties and taxes. The buyer is responsible for unloading. This term places the maximum obligations on the seller and minimum obligations on the buyer.

INCOTERMS FOR ONLY SEA AND INLAND WATERWAY TRANSPORT:

FAS – Free Alongside Ship (named port of shipment)

The seller must place the goods alongside the ship at the named port. The seller must clear the goods for export. This term is typically used for heavy-lift or bulk cargo.

FOB – Free on Board (named port of shipment)

The seller must load the goods on board the vessel nominated by the buyer. Cost and risk are divided when the goods are actually on board of the vessel. The seller must clear the goods for export.

CFR – Cost and Freight (named port of destination)

Seller must pay the costs and freight to bring the goods to the port of destination. However, risk is transferred to the buyer once the goods are loaded on the vessel. Insurance for the goods is NOT included. This term is formerly known as CNF (C&F). Maritime transport only.

CIF – Cost, Insurance and Freight (named port of destination)

Exactly the same as CFR except that the seller must in addition procure and pay for the insurance. Maritime transport only.