Incoterms

Incoterms (International Commercial Terms) is a series of predefined commercial terms that help bring clarity to business deals where international shipping is involved.

Incoterms are of great interest to retailers and manufacturers who export and import goods. It defines who (Buyer or seller) is responsible for the shipping and insurance of products through the different stages of transportation in the shipping process.

ExWorks (EXW)

  • The seller makes the products available to the buyer at the seller’s premises, warehouse, or factory. He is only responsible for packing the goods.

  • The buyer pays the transport costs and is responsible for all risks such as loading the goods onto a vehicle for transport, meeting customs regulations, transferring them to a ship, etc. Insurance is mandatory. However, the buyer can take out the insurance as he bears all the risks.

Free Carrier (FCA)

  • The seller is responsible for delivering the goods to an agreed location. He bears all the costs and risks up to the point of delivery of those products. This includes the cost of the export clearance. The seller also takes care of the inland transport and export customs clearance unless the designated location is the seller’s premises. If the designated place is the seller’s premises, the products are delivered there and loaded onto trucks arranged by the buyer at the buyer’s expense.

  • The buyer pays the costs from loading onboard to unloading, including insurance if taken out by the buyer because he bears the risk when the products are loaded onto the first means of transport.

FAS (Free Alongside Ship)

  • The seller delivers the products to the port of origin loading dock. He bears the costs up to delivery. Also, he is responsible for export customs procedures.

  • The responsibilities of the buyer include loading on board, freight, stowage, and other costs up to delivery at the destination, including import clearance and insurance. The buyer is responsible for all risks once the products are in the loading dock prior to being loaded onto the ship.

FOB (Free On Board)

  • The seller bears the costs and risks until the products are loaded on the ship. It’s when the risks are transferred as well as responsibility for export clearance and costs at the origin. The seller is also responsible for arranging the transport. However, the buyer bears the transport costs.

  • The buyer pays the cost of freight, unloading, import clearance, delivery at the destination, and insurance. The risk is transferred when the products are on board.

CFR (Cost and Freight)

  • The seller pays all the costs until the products arrive at the destination port. These include costs at the origin, export clearance, freight, unloading costs, etc.

  • The buyer takes care of the import procedures and transport to the destination. He bears the risks from the moment the products are on board. The buyer usually takes out insurance as he bears all the risks.

CIF (Cost, Insurance and Freight)

  • The seller bears all the costs up to arrival at the destination port. These include costs at the origin, export clearance, freight, unloading costs. The seller also arranges insurance. The risks are transferred to the buyer once the products are loaded on board.

  • The buyer pays the import and transport to destination costs.

In the 2020 version of this incoterm, it has been mentioned that the seller or exporter must arrange insurance cover in line with what is stipulated in Institute Cargo Clauses (C). This means the products must be covered until their arrival at the destination port. This term is only used in shipping.

CPT (Carriage Paid To)

  • The seller is responsible for paying all the costs until the products are delivered to an agreed location. These include costs at the origin, export clearance, costs at the destination, and the main transport.

  • The buyer takes care of the import procedures and insurance. The risks are transferred to the buyer once the products are loaded onto the vehicle arranged by the seller.

CIP (Carriage and Insurance Paid To)

  • The seller pays all the costs up to delivery at an agreed location at the destination. These include costs at the origin, freight, export clearance, and insurance.

  • The buyer takes care of the import clearance and delivery at the destination. The risk is transferred to the buyer when the products are loaded on the trucks.

DPU (Delivered at place Unloaded)

  • The seller is responsible for all risks and costs arising at the origin, loading, packing, freight, export clearance, unloading the destination, and delivery at the agreed location.

  • The buyer takes care of the 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 is responsible for all the costs and risks of the operation apart from import clearance and unloading at the destination. These include all costs at the 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 is responsible for all costs and risks from packing and checking in their warehouses to delivery at the final destination, including export and import clearance, freight, and insurance.

  • The buyer receives the products and usually unloads them. However, this can be done by the seller as well.

This Incoterm is the exact opposite of EXW.

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