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Incoterms, also referred to as Terms of Sale, stand for International Commercial Terms.
Incoterms define the terms of shipment and delivery, as well as the transfer of risk, between the buyer and seller.
In proper use, the Incoterm must be stated with the specific place plus “Incoterms 2010.” The named place is where the seller’s cost ends and is also the seller’s delivery point with the exception of the “C” terms.
Incoterms were created by the International Chamber of Commerce (ICC) and are a registered trademark of the ICC.
Incoterms are regularly updated to keep pace with the ever-changing world of international trade.
The latest edition is the Incoterms 2010 which are effective January 1, 2011.
Contract of Carriage
The Incoterm utilized in a transaction will dictate which party is responsible for each transportation segment and its corresponding contract of carriage.
Pre-Carriage: the transportation segment from the seller’s location to the point where the cargo would leave from the seller’s side. Example, to arrange for pre-carriage, you would contract with an inland carrier to make delivery to a port or airport.
Main Carriage: the transportation segment from the seller’s side to the buyer’s side. Example, to arrange for main-carriage, you would contract for ocean or air carriage.
On-Carriage: the transportation segment from the point of arrival on the buyer’s side to the designated ultimate receiver. Example, to arrange for on-carriage, you would contract with an inland carrier to make delivery from the port/airport of arrival to the ultimate receiver.
Delivery
Delivery is the point where the risk transfers from the seller to the buyer. Delivery is defined for each Incoterm.
4 General Groups of Terms
“E” term: seller’s obligation and control of shipment is at its minimum
“F” terms: require the buyer to arrange for main carriage
“C” terms: require the seller to arrange for main carriage
“D” terms: seller’s obligation and control is at its maximum
Incoterms – 11 Terms
EXW - Ex Works
FCA – Free Carrier
CPT – Carriage Paid To
CIP – Carriage and Insurance Paid To
DAT – Delivered at Terminal
DAP – Delivered at Place
DDP – Delivered Duty Paid
FAS – Free Alongside Ship
FOB – Free On Board
CFR – Cost and Freight
CIF – Cost, Insurance and Freight
EXW Ex Works
The seller’s obligation is fulfilled when the buyer has been notified, and the goods (suitably packed for export) are available to the buyer, at the named place within the time specified.
The buyer is responsible for all costs and risks, including the loading of the goods from the named/specified point.
The buyer is responsible to arrange the entire contract of carriage of the goods (pre-carriage, main carriage, on-carriage).
The buyer is responsible for the export clearance of the goods. This term should not be used when the buyer cannot carry out the export formalities directly or indirectly. U.S. exporters should note that they are still responsible for export compliance when selling Ex Works.
The buyer is responsible for the import clearance of the goods.
FCA Free Carrier
The seller’s risk, cost and responsibility end when he delivers the goods, cleared for export, to the carrier nominated by the buyer at the named place. The named place could be the seller’s premises or another place named for delivery on the seller’s side.
The buyer must contract at his own expense the carriage of the goods from the named place.
The buyer is responsible for the import clearance of the goods.
CPT Carriage Paid To
The seller’s risk and responsibility for the condition of the cargo end when the goods are delivered to the first carrier. The seller must bear all transportation costs to the named destination on the buyer’s side.
The seller is responsible for the export clearance of the goods.
The buyer is responsible for the import clearance of the goods.
CIP Carriage and Insurance Paid To
The seller’s risk and responsibility for the condition of the cargo end when the goods are delivered to the first carrier. The seller must bear all transportation costs to the named destination on the buyer’s side.
The seller is responsible for the export clearance of the goods.
The seller is responsible to provide insurance. Please note the seller is obligated to provide minimum insurance only, so we recommend the buyer obtain additional insurance coverage.
The buyer is responsible for the import clearance of the goods.
DAT Delivered At Terminal
The seller’s obligation ends when he has delivered the goods to the disposal of the buyer, unloaded from the arriving carrier at the named destination terminal, cleared for export, but not cleared for import.
The buyer is responsible for the import clearance of the goods.
If the seller is also to be responsible for delivering the goods past the terminal to another place, then DAP or DDP terms should be used.
DAP Delivered At Place
The seller’s obligation ends when he has delivered the goods to the disposal of the buyer at the named destination place, cleared for export, but not cleared for import. The seller and buyer should agree which party will be responsible for unloading.
The buyer is responsible for the import clearance of the goods.
DDP Delivered Duty Paid
The seller’s obligation is fulfilled when the goods have been made available to the buyer at the named place of destination, cleared for import.
The buyer is responsible to take delivery of the goods at the named place of destination.
The seller is required to arrange for the entire contract of carriage (pre-carriage, main carriage, on-carriage) to the named place of destination.
The seller is responsible for the export clearance of the goods.
The seller is required to arrange for the import clearance of the goods, including the payment of any applicable duties, taxes and fees.
FAS Free Alongside Ship
The seller’s obligation is to deliver the goods alongside the vessel at the named port of shipment.
The seller is responsible for the export clearance of the goods.
The buyer is responsible for all costs and risks to load and transport the goods to their final destination once the cargo is delivered alongside the vessel.
The buyer is responsible for the import clearance of the goods.
This term is most commonly used for vessel charter shipments. FCA would be more appropriate for containerized cargo.
FOB Free On Board
The seller’s obligation is fulfilled once the goods have been placed on board the vessel at the named port.
The buyer is responsible for all costs and risks associated with the goods after they have been loaded on board the ship at the named port.
The buyer is responsible to arrange for the carriage of the goods from the named port of shipment (the main-carriage and on-carriage).
The seller is responsible for the export clearance of the goods.
The buyer is responsible for the import clearance of the goods.
If the cargo is delivered to the carrier by the seller before the goods are loaded on board the vessel, then FCA would be more appropriate.
CFR Cost and Freight
The seller’s risk and responsibility for the condition of the cargo end when the goods are placed on board the vessel. The seller must bear all transportation costs to the named port on the buyer’s side.
The seller is responsible to arrange for the pre-carriage and main-carriage of the goods.
The seller is responsible for the export clearance of the goods.
The buyer is responsible for the import clearance of the goods.
CIF Cost, Insurance and Freight
The seller’s risk and responsibility for the condition of the cargo end when the goods are placed on board the vessel. The seller must bear all transportation costs to the named port on the buyer’s side.
The seller is responsible to arrange for the pre-carriage and main-carriage of the goods.
The seller is responsible for the export clearance of the goods.
The seller is responsible to provide insurance. Please note the seller is obligated to provide minimum insurance only, so we recommend the buyer obtain additional insurance coverage.
The buyer is responsible for the import clearance of the goods.
Incoterms and Mode of Transport
Any Mode: EXW, FCA, CPT, CIP, DAT, DAP, DDP
Vessel only: FAS, FOB, CFR, CIF
