Incoterms are selling terms used to define the responsibilities of cost of transportation between a customer and client. A good understanding of Incoterms is critical to a successful international transaction. Incoterms are published by the International Chamber of Commerce (ICC). Some commonly used terms include:
(Contains updated Incoterms 2020, effective January 1, 2020)
(…named place)
“Ex Works” means that the seller delivers when he places the goods at the disposal of the buyer at the seller’s Premises or another named place (i. e. works, factory, warehouse,etc. ) not cleared for export and not loaded on any collecting vehicle.
This term thus represents the minimum obligation for the seller, and the buyer has to bear all costs and risks involved in taking the goods from the sellers premises.
However, if the parties wish the seller to be responsible for the loading of the goods on departure and to bear the risks and all the costs of such loading, this should be made clear by adding explicit wording to this effect in the contract of sale. This term should not be used when the buyer cannot carry out the export formalities directly or indirectly. In such circumstances, the FCA term should be used, provided the seller agrees that he will load at his cost and risk.
(…named place)
“Free Carrier” means that the seller delivers the goods, cleared for export, to the carrier nominated by the buyer at the named place. It should be noted that the chosen place of delivery has an impact on the obligations of loading and unloading the goods at that place. If delivery occurs at the seller’s premises, the seller is responsible for loading; whereas, if delivery occurs at any other place, the seller is not responsible for unloading.
This term may be used irrespective of the mode of transport, including multimodal transport.
“Carrier” means any person, who, in a contract of carriage, undertakes to perform or to procure the performance of transport by rail, road, air, sea, or inland waterway or by a combination of such modes.
If buyer nominates a person other than a carrier to receive the goods, the seller is deemed to have fulfilled his obligation to deliver the goods when they are delivered to that person.
(…named port of shipment)
“Free Alongside Ship” means that the seller delivers when the goods are placed alongside the vessel at the named port of shipment. This means the buyer has to bear all costs and risks of loss of or damage to the goods from that moment.
The FAS term requires the seller to clear the goods for export.
This term can be used only for sea or inland waterway transport.
(…named port of shipment)
“Free on Board” means that the seller delivers when the goods are on board the vessel at the named port of shipment. This means that the buyer has to bear all costs and risks of loss of or damage to the goods from that point.
The FOB term requires the seller to clear the goods for export.
This term can be used only for sea or inland waterway transport.
(…named port of destination)
“Cost and Freight” means that the seller delivers the goods to a carrier that he has chosen and pays the freight for carriage of the goods to named destination.
The seller must pay the costs and freight necessary to bring the goods to the named port of destination BUT the risk of loss of or damage to the goods, as well as any additional costs due to events occurring after the time of delivery, are transferred from the seller to the buyer.
The CFR term requires the seller to clear the goods for export.
This term can be used only for sea and inland waterway transport.
“Cost, Insurance and Freight” is same as CFR, but CIF spells out who is responsible for obtaining insurance for shipment.
The seller must pay the costs and freight necessary to bring the goods to the named port of destination BUT the risk of loss of or damage to the goods, as well as any additional costs due to events occurring after the time of delivery, are transferred from the seller to the buyer. However, in CIF the seller also has to procure marine insurance against the buyer’s risk of loss of or damage to the goods during the carriage.
Consequently, the seller contracts for insurance and pays the insurance premium. The buyer should note that under the CIF term the seller is required to obtain insurance only on minimum cover. Should the buyer wish to have the protection of greater coverage, he would either need to agree as much expressly with the seller or to make his own extra insurance arrangements.
The CIF term requires the seller to clear the goods for export.
This term can be used only for sea and inland waterway transport. If your shipment is never getting on a ship of some kind, the CIP term should be used.
“Carriage paid to. . . ” means that the seller delivers the goods to the carrier nominated by him but the seller must in addition pay the cost of carriage necessary to bring the goods to the named destination. This means that the buyer bears all risks and any other costs occurring after the goods have been delivered to the named destination.
“Carrier” means any person who, in a contract of carriage, undertakes to perform or to procure the performance of transport, by rail, road, air, sea, inland waterway or by a combination of such modes.
If subsequent carriers are used for the carriage to the agreed destination, the risk passes when the goods have been delivered to the first carrier.
The CPT term requires the seller to clear the goods for export.
This term may be used irrespective of the mode of transport including multimodal transport.
(…named place of destination)
“Carriage and Insurance Paid To” is same as CPT, except CIP spells out who is responsible for obtaining insurance for the shipment.
CIP means that the seller delivers the goods to the carrier nominated by him, but the seller must in addition pay the cost of carriage necessary to bring the goods to the named destination. The buyer bears all risks and any additional costs occurring after the goods have been so delivered. In CIP, the seller also has to procure insurance against the buyer’s risk of loss of or damage to the goods during the carriage.
Consequently, the seller contracts for insurance and pays the insurance premium.
The buyer should note that under the CIP term the seller is required to obtain “all risks” coverage, as set out in Clause A of the Institute Cargo Clauses.
“Carrier” means any person who, in a contract of carriage, undertakes to perform or to procure the performance of transport, by rail, road, air, sea, inland waterway or by a combination of such modes.
If subsequent carriers are used for the carriage to the agreed destination, the risk passes when the goods have been delivered to the first carrier.
The CIP term requires the seller to clear the goods for export.
This term may be used irrespective of the mode of transport, including multimodal transport.
(…named place of destination)
“Delivered Duty Paid” means that the seller delivers the goods to the buyer, cleared for import, and not unloaded from any arriving means of transport at the named place of destination. The seller has to bear all the costs and risks involved in bringing the goods thereto including, where applicable, any “duty” (which term includes the responsibility for and the risk of the carrying out of customs formalities and the payment of formalities, customs duties, taxes, and other charges) for import in the country of destination.
While the EXW term represents the minimum obligation for the seller, DDP represents the maximum obligation.
This term should not be used if the seller is unable directly or indirectly to obtain the import license.
However, if the parties wish to exclude from the seller’s obligations some of the costs payable upon import of the goods (such as value-added tax: VAT), this should be made clear by adding explicit wording to this effect in the contract of sale.
If the parties wish the buyer to bear all risks and costs of the import, the DDU term should be used.
This term may be used irrespective of the mode of transport but when delivery is to take place in the port of destination on board the vessel or on the quay (wharf), the DES or DEQ terms should be used.
(…named place of destination)
“Delivered at Place Unloaded” means that the seller delivers when the goods have been unloaded by the seller at the named place of destination.
The seller has to bear all the costs and risks involved in bringing the goods thereto, but the buyer is responsible for the Import Clearance.
This is the only Incoterm rule that requires the seller to unload goods at the buyer’s facility.
“Delivered at Place” means that the seller delivers the goods to the buyer to the named place of destination, typically the buyer’s facility.
The seller has to bear all the costs and risks involved in bringing the goods thereto, but the buyer is responsible for the Import Clearance.
Risk: which party is responsible for the condition of the goods.
Delivery : the point at which risk transfers.
Exporter of Record: party responsible for filing appropriate documents with appropriate customs agency in country of export.
Importer of Record: party responsible for filing appropriate documents with appropriate customs agency in country of import.
Pre-Carriage: portion of journey for an international shipment that is in the exporting country.
Main-Carriage: main portion of journey, typically either the ocean portion of journey or the time spent in the air.
On-Carriage: final portion of journey from the port or airport in receiving country to final destination.
(NCBFAA Educational Institure, 2020)
