Incoterms- What Are They?

International Commercial Terms, Incoterms are a standard set of “rules” and terms that define the responsibilities of sellers and buyers for delivery of goods under sales contracts for domestic and international trade. The ICC International Chamber of Commerce (ICC) publishes Incoterms® rules.

The terms that apply to any mode of transport are the following:

EXW– Ex Works states that the seller needs only to remit his goods to the buyer at a designated point. The buyer takes care of all costs and responsibilities for the goods beyond the agreed place of pick up. This term, thus, represents the minimum obligation for the seller.

FCA– Free Carrier means that the seller is required to deliver, cleared for export, goods to a designated by the buyer carrier at a specified place. If no place is indicated by the buyer, the seller can choose where the carrier takes the goods.

CPT-Carrier Paid To means that the seller pays for the transportation of the goods to a specified point as is agreed in a contract.

CIP– Carriage and Insurance Paid To. The seller delivers the goods to a carrier or another person nominated by the seller, at a place mutually agreed upon by the buyer and seller. The seller pays the freight and insurance charges to transport the goods to the specified destination. “Carriage and Insurance Paid to” (CIP) means that although the seller pays for freight and insurance, the risk of damage or loss to the goods transported is transferred from the seller to the buyer as soon as the goods are delivered to the carrier.

DAT– Delivery at Terminal. This term means that the seller covers all the costs of transport (export fees, carriage, insurance, and destination port charges) and assumes all risk until after the goods are unloaded at the terminal. “Terminal” includes any place, whether covered or not, such as a quay, warehouse, container yard or road, rail or air cargo terminal. The buyer covers the cost of transporting the goods from the terminal or port to final destination and pays the import duty/taxes/customs costs. Note: With this arrangement, the seller assumes a large portion of the risks and costs of transport. This term applies to any mode of transport.

DAP-Delivered at Place means that the seller pays all the costs of transportation (export fees, carriage, insurance, and destination port charges) up to and including the delivery of the goods to the final destination. The buyer is responsible for paying only the import duty/taxes/customs costs. The buyer is also responsible to unload the goods from the vehicle at the final destination.

The Terms that apply to Sea & Inland Waterway Transport are the following:

FAS-Free Alongside Ship means that the seller fulfills his obligation to deliver when the goods are placed alongside the vessel at the named port of shipment. Meaning that the buyer has to bear all costs and risks of loss of goods from that moment.

FOB-Free on Board means that the seller fulfills his obligation to deliver when the goods have passed over to the named port of shipment. The buyer bears 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.

CFR– Cost of Freight means the seller pays the costs and freight to take goods to a specific port of destination. The risk of loss or damage to the goods, once delivered to this designated point or vessel, is the buyers. The CFR term requires the seller to clear the goods for export.

CIF-Cost Insurance and Freight (named port of destination): Seller must pay the costs and freight including insurance to bring the goods to the port of destination. However, the risk is transferred to the buyer once the goods are placed on the ship.

This is a very brief description of some of the most commonly used terms. It is important to note that new contracts should follow Incoterms®2010 version. Make sure that you are clear in your export agreements as to which year Incoterms® rules you are utilizing. For detailed references and information, it is best to consult the ICC- International Chamber of Commerce.