INCOTerms

INternational COmmerce Terminology

Incoterms

Incoterm Mode of Transportation Goods for sale Sluffing in seller's warehouse Origin inland freight Custom formalities for export Handling expenses at port/ airport Main international transport Merchandise insurance Handling expenses at port/ airport Custom formalities for import Inland freight transportation at destination Delivery of the merchandise to the buyer
EXW Multi-modal
FCA Multi-modal
FAS Maritime
FOB Maritime
CPT Multi-modal
CIP Multi-modal
CFR Maritime
CIF Maritime
DAP Multi-modal
DAT Multi-modal
DDP Multi-modal

EXW – Ex Works

Ex Works is a rule making the seller (or shipper / supplier) of goods responsible for packaging and leaving the goods at their factory or place of manufacture.

The buyer (or consignee) is then responsible for everything else:

  • Loading goods onto transport
  • Transporting goods to a port or terminal
  • Shipping the goods
  • Unloading the goods at the buyer’s port or terminal
  • Transporting the goods to the end destination or warehouse

CPT – Carriage Paid To

CPT is common for large importers who have their own port agents that can manage the delivery of goods when they arrive in their country.

However, the risk of the seller passes on to the buyer once the goods leave their country or port, despite the seller paying for the transport of the goods.

The buyer (or consignee) is then responsible for everything else:

  • Insuring the goods as they are being shipped (but not paying for this shipment)
  • Unloading the goods at the buyer’s port or terminal
  • Transporting the goods to the end destination or warehouse

DAP – Delivered At Place

DAP requires the seller to load, ship and unload the goods at an agreed destination place (normally after the port or terminal where the goods arrive at the country of destination). DAP can be used for any mode of transportation, and the seller needs to pay for:

  • import customs clearance
  • duties
  • taxes
  • loading / unload costs

FCA – Free Carrier

Free Carrier is a common agreement where a seller (or shipper / supplier) of goods is responsible for packaging and loading goods onto a truck at their transport hub or port, different to Ex Works, where the seller is just responsible for getting the making the goods available at their own factory or place of manufacture.

The seller is also responsible for export clearance of the goods at the port or terminal.

The buyer (or consignee) is then responsible for everything else:

  • Shipping the goods
  • Unloading the goods at the buyer’s port or terminal
  • Transporting the goods to the end destination or warehouse

CIP – Carriage and Insurance Paid To

CIP (or Carriage and Insurance Paid To) is an Incoterm where the seller is responsible for the delivery of goods to an agreed destination in the buyers country, and must pay for the cost of this carriage. The sellers risk however, ends once they have placed the goods on the ship, at the origin destination. The buyer can pay for additional insurance during carriage of the goods.

The risk is passed when the goods are received by the first carrier. Carriage and Insurance Paid to is eligible for any form of transportation.

DAT – Delivered At Terminal

DAT, or, Delivery at Terminal, is where the seller clears goods for export and is fully responsible for the goods until they have arrived at a named terminal at the end destination. The goods must be unloaded at the terminal. DAT can be used with any transportation mode.

It is recommended that the seller’s contract with their forwarding company mirrors the contract of sale.

FAS – Free Alongside Ship

FAS stands for Free Alongside Ship, an international commerce term (incoterm) used to describe the delivery of goods where the seller takes on some responsibility for the shipment of goods.

Under FAS, the exporter is responsible for clearing the goods at customs and delivering them to the vessel at the point of origin.

FAS is ideal for the shipping:

  • Hard commodities (e.g. oil)
  • Soft commodities (e.g. grain, soybean)
  • Liquids
  • Chemicals (both pharmaceutical and non-pharmaceutical)
  • Bulk cargo
  • Break bulk cargo

CFR – Cost and Freight

CFR stands for Cost and Freight – it’s a legal term used in international shipping meaning the seller assumes more responsibility for the delivery of goods and needs to pay for transport to an agreed port. The seller will also need to pay for the delivery of goods and export, up until the point the goods are loaded on board the ship.

DDP – Delivered Duty Paid

DDP stands for Delivery Duty Paid, an international commerce term (incoterm) used to describe the delivery of goods where the seller takes most responsibility.

Under DDP, the supplier is responsible for paying for all of the costs associated with the delivery of goods right up until they get to the named place of destination. The buyer is then responsible for unloading the goods at the end destination.

DDP requires the supplier to deliver goods from their factory / plant to an agreed point, known as the destination place. This could be the terminal, container yard, factory or warehouse of the buyer. The supplier is responsible for:

  • Clearing goods through export and import customs
  • VAT
  • Paying for duties and other taxes

FOB – Free on Board

To understand FOB pricing, one must understand what FOB means. FOB is the short form term for Free On Board (or Freight on Board) and roughly translates to mean that the cost of product being delivered to the nearest port is included in the purchase price, but the purchaser is liable to pay the shipping costs from that port. This is along with all other fees for the onward journey to the port of the buyer’s destination.

CIF – Cost, Insurance & Freight

CIF stands for Cost, Insurance and Freight – it’s a legal incoterm term which is used in international shipping for the delivery of goods to a port. In this case, the seller must pay for the delivery of goods, and their export, including insurance, and has responsibility of the goods right up until they’re loaded on the ship.

Watch outs for importers and tips for CIF:

  • Your supplier has control of the insurance coverage – this means that the seller is likely to choose the cheapest / most basic insurance option for your product
  • Watch out for the beneficiary of the insurance policy – in the case of damages, if the seller is the beneficiary if your goods get damaged in transit, payment will go to them to then be reimbursed to you as the importer
  • CIF stops after the goods arrive at the port – if goods are damaged at the port or when unloaded, as well as any additional port or storage fees are incurred, this will be your responsibility
  • CIF could be more expensive – given that the seller invoices CIF, the costs might be inflated above the actual cost of insuring your goods