INCOTERMS
Incoterms or international commercial terms are a series of international sales terms widely used throughout the world. They are used to divide transaction costs and responsibilities between buyer and seller.
EXW Ex Works (named place)
FCA Free Carrier (named place)
FAS Free Alongside Ship (named loading port)
FOB Free On Board (named loading port)
CFR Cost and Freight (named destination port)
CIF Cost, Insurance and Freight (named destination port)
CPT Carriage Paid To (named destination place)
CIP Carriage and Insurance Paid to (named destination place)
DAT Delivered At Terminal (named terminal at port or place of destination)
DAP Delivered At Place (named place of destination)
DDP Delivered Duty Paid (named destination place)
EXW – EX WORKS
It means that the seller X has the goods ready for collection at his premises (Works, factory, warehouse, plant) on the date agreed upon. The buyer pays all transportation costs and bears all risks for bringing the goods to their final destination. This term requires that the buyer must be able to carry out export formalities in the country of supply, these days almost impossible. Therefore in the vast majority of cases where terms are quoted EXW they actually intend the seller to carry out export formalities which means that the correct term is FCA (Seller’s premises).
FCA – FREE CARRIER
The seller delivers the goods into the custody of the first carrier, and this is where risk passes from seller to buyer. The buyer pays for the transportation from the place named in the Incoterm. The place name can be anywhere from the supplier’s shipping dock to the port of export. If there are any problems or costs of clearing customs in the country of export, the seller is responsible for correcting and paying for them. It can be used for all modes of transportation including multimodal transport, such as in shipping containers where the ship’s rail plays no relevant part in determining a shipping point. FCA is also the term to use in place of FOB for airfreight transactions.
FAS – FREE ALONGSIDE SHIP
It means that the seller pays for transportation of the goods to the port of shipment. The buyer pays loading costs, freight, insurance, unloading costs and transportation from the port of destination to his factory. The passing of risk occurs when the goods have been delivered to the quay at the port of shipment.
FOB – FREE ON BOARD
The term FOB (often seen as f.o.b.) is commonly used when shipping goods, to indicate who pays loading and transportation costs, and/or the point at which the responsibility of the goods transfers from shipper to buyer. FOB shipping is the term used when the ownership/liability of goods passes from the seller to the buyer at the time the goods cross the shipping point to be delivered. FOB destination designates that the seller is responsible for the goods until the buyer takes possession. This is important in determining who is responsible for lost or damaged goods when in transit from the seller to the buyer. The buyer is responsible when shipped FOB shipping and the seller is responsible if shipped FOB destination. CAP, or customer arranged pickup, is used to denote that the buyer will arrange a carrier of their choice to pick the goods up and the liability for any damage or loss belongs to the buyer.
CFR – COST AND FREIGHT
It means that the seller pays for transportation to the Port of Loading (POL), loading and freight. The buyer pays for the insurance and transportation of the goods from the Port of Discharge (POD) to his factory. The risk of loss shifts from the seller to the buyer, and who pays the costs of freight. The passing of risk occurs when the goods pass the ship’s rail at the port of shipment which means that this term cannot be used for airfreight or land transport and also is inappropriate for most containerised sea shipments – the term CPT is the appropriate one for these.
CIF – COST, INSURANCE AND FREIGHT
Is a common term in a sales contract that may be encountered in international trading when ocean transport is used. When a price is quoted CIF, it means that the selling price includes the cost of the goods, the freight or transport costs and also the cost of marine insurance. CIF is an international commerce term (Incoterm). CIF is identical in most particulars with Cost and Freight (CFR), and the same comments apply, including its applicability only to conventional maritime transport. In addition to the CFR responsibilities, the seller under CIF must obtain in transferable form a marine insurance policy to cover the risks of transit with insurers of repute. The policy must cover the CIF price plus 10 per cent and where possible be in the currency of the contract. Note that only very basic cover is required equivalent to the Institute “C” clauses, and buyers should normally insist on an “all-risk” type of policy such as that under the Institute “A” clauses. The seller’s responsibility for the goods ends when the goods have been delivered on board the shipping vessel. In the guidelines for CIF published in Incoterms 2000 the term “carrier” does not appear and it clearly states “the seller must deliver the goods on board the vessel at the port of shipment” which makes CIF the incorrect term to use where the seller wishes their responsibility to end when they deliver the goods into the hands of a carrier prior to the goods passing the ship’s rail at the port of loading. In the great majority of transactions the more correct term is CIP. This term is only appropriate for conventional maritime transport, not ro/ro or international container movements.
CPT – CARRIAGE PAID TO
It can be used for all modes of transport including multimodal transport. The seller pays for the freight to the named point of destination. The buyer pays for the insurance. The passing of risk occurs when the goods have been delivered into the custody of the first carrier.
CIP – CARRIAGE AND INSURANCE PAID TO
Is an Incoterm, usable with any mode of transport. The passing of risk occurs when the goods have been delivered into the custody of the first carrier. This means that the buyer bears all risk and any additional costs occurring after the goods have been so delivered.It is the same as CPT except that the seller also pays for the insurance. Seller is required to obtain insurance only on minimum cover, additional coverage is responsibility of buyer or must be agreed between seller and buyer. Under CIP seller is also required to clear the goods for export.
DAT – DELIVERED AT TERMINAL
It means that the seller delivers when the goods, once unloaded from the arriving means of transport, are placed at the disposal of the buyer at a named tarminal at the named port or place of destination. Terminal includes any place, whether covered or not, such as a quay, warehouse, container yard or road, rail or air cargo terminal. The seller bears all risks involved in bringing the goods to and unloading them at the terminal at the named port or place of destination. DAT requires the seller to clear the goods for export, where applicable. However, the seller has no obligation to clear the goods for import, pay any import duty or carry out any import customs formalities.
DAP – DELIVERED AT PLACE
It means that the seller delivers when the goods are placed at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination. The seller bears all risks involved in bringing the goods to the named place. DAP requires the seller to clear the goods for export, where applicable. However, the seller has no obligation to clear the goods for import, pay any import duty or carry out any import customs formalities.
DDP – DELIVERED DUTY PAID
It means that the seller pays for all transportation costs and bears all risk until the goods have been delivered and pays the duty. Also used interchangeably with the term “Free Domicile”.