What are they ?
Incoterms are a set of rules which define the responsibilities of sellers and buyers for the delivery of goods under sales contracts. They are published by the International Chamber of Commerce (ICC) and are widely used in commercial transactions.
Why are they so important ?
They are important as they are known and accepted worldwide. The use of Incoterms eliminates inconsistencies in language by giving all parties the same definition of specific terms within a trade agreement. As a result, the risk of problems during shipment is reduced since all parties clearly understand their responsibilities in performing trade under the given contract.
What do they cover ?
Incoterms spell out all the tasks, risks and costs involved during the transaction of goods from the seller to the buyer.
EXW – Ex-Works
- 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
FCA – Free Carrier
- 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.
FAS – Free Alongside Ship
- 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.
FOB – Free On Board
- 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 – Cost And Freight
- Seller has the same responsibilities as FOB but must also pay the cost 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.
CIF – Cost, Insurance And Freight
- 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.
CPT – Carriage Paid To
- 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
CIP – Carriage And Insurance Paid To
- 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
DAT – Delivered At Terminal
- 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.
DAP – Delivered At Place
- Seller covers the costs and risk 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
DDP – Delivered Duty Paid
- 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.