Incoterms
What are Incoterms?
'Incoterms' is the short and concise way or saying International Commercial Terms. Published in 1936. Incoterms consists of a set of 11 rules that defines who is responsible for what during international transactions.
Why are Incoterms so important?
As Incoterms are internationally and globally recognised, and a requirement on every commercial invoice, they greatly reduce the risk of potentially costly misunderstandings.
What do Incoterms cover?
Incoterms basically spell out all the tasks, risks and costs involved during the transaction of goods from seller to buyer.
The 3 most common Incoterms
EXW
DAP
DDP
EXW – Ex-Works
DAP – Delivered At Place
DDP – Delivered Duty Paid
• Buyer assumes almost all costs and risk throughout the shipping process
• Seller's only job is making sure the buyer can access the goods
• Once the buyer has access, it's all down to them (including loading the goods)
Risk transfers from seller to buyer:
At the seller's warehouse, offices or wherever the goods are being collected from
• Seller covers the costs and risks of transporting goods to an agreed address
• Goods are classed as delivered when they're at the address and ready to be unloaded
• Export and import responsibilities are the same as DAT
Risk transfers from seller to buyer:
When goods are ready for unloading at the agreed address
• Seller takes almost all responsibility throughout the shipping process
• They cover all costs and risk of transporting goods to the agreed address
• Seller also makes sure goods are ready for unloading, fulfils export and import responsibilities and pays any duties
Risk transfers from seller to buyer:
When goods are ready for unloading at the agreed address
The other Incoterms
CIP
DAT
FCA
CIP – Carriage And Insurance Paid To
DAP – Delivered At Terminal
FCA – Free Carrier
• Same seller responsibilities as CPT with one difference: the seller also pays for insuring the goods
• Seller is only obliged to purchase the minimum possible cover
• If the buyer wants more comprehensive insurance, they have to organise it themselves
Risk transfers from seller to buyer:
When the buyer's carrier receives the goods
• Seller is responsible for the costs and risk of delivering the goods to an agreed terminal
• The terminal could be an airport, warehouse, road or container yard
• Seller organises customs clearance and unloads the goods at the terminal
• Buyer sorts import clearance and any related duties
Risk transfers from seller to buyer:
At the terminal
• It's the seller's job to get the goods to the buyer's carrier at an agreed location
• Seller is also required to clear goods for export
Risk transfers from seller to buyer:
When the buyer's carrier receives the goods
CPT
FAS
FOB
CPT – Carriage Paid To
FAS – Free Alongside Ship
FOB – Free On Board
• Same seller responsibilities as FCA with one difference: the seller covers delivery costs
• As with FCA, it's the seller's responsibility to clear goods for export
Risk transfers from seller to buyer:
When the buyer's carrier receives the goods. EXW – Ex-Works
• Seller assumes all costs and risk until goods have been delivered next to the ship
• Buyer then takes over risk and takes care of export and import clearance
Risk transfers from seller to buyer:
When goods have been delivered next to the ship
• Seller assumes all costs and risk until goods have been delivered on board the ship
• They also sort out export clearance
• Buyer assumes all responsibilities as soon as the goods are on board
Risk transfers from seller to buyer:
When goods have been delivered onto the ship
CFR
CIF
CFR – Cost and Freight
CIF – Cost, Insurance and Freight
• Seller has the same responsibilities as FOB but must also pay the costs of bringing the goods to the port
• As with FIB, the buyer assumes all responsibilities as soon as the goods are on board
Risk transfers from seller to buyer:
When goods are on the ship
• Seller has the same obligations as CFR but must also cover insurance costs
• As with CIF, they're only required to purchase the minimum cover
• If the buyer requires more comprehensive insurance, they have to pay for it themselves
Risk transfers from seller to buyer:
When the goods are on the ship
And that's all you need to know on the Incoterms.
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