Incoterms

UNDERSTANDING INCOTERMS® (International Commercial Terms)

Incoterms are set of international standards terms that:

1. Allow the contracting parties to designate a point which the cost and risk of transport are precisely divided between the seller and the buyer
2. Help allocate responsibility for custom clearance/duties between the parties

Incoterms are not in themselves law, meaning that they will only apply to a given transaction when the parties expressly incorporate them. These terms may be reflected in the sellers tender or proforma invoice.

The 11 incoterms (as at the writing of this in 2019) can be dived into two groups:

1. The terms that can be used for any mode(s) of transport
2. The incoterms that apply to sea and inland waterway transport

NOTE: Incoterms are published by the International Chamber of Commerce and are available on their website and official publication “Incoterms 2010”. For a complete and official overview please refer to the ICC’s publication.

RULES REGARDING ANY MODE(S) OF TRANSPORT

1. EXW EX WORKS (Watch video)

With this rule the seller fulfills his/her obligation when he/she delivers the goods at the disposal of the buyer at the seller’s premise, that is, works, factory warehouse etc. unless otherwise agreed the seller has no obligation to load the goods on the vehicle provided by the buyer or for clearing the goods for export.

2. FCA FREE CARRIER (Watch video)

The term “free carrier” means that the seller is to deliver the goods to the carrier, or some person nominated by the buyer, at the seller’s premise or another place.

3. CPT CARRIAGE PAID TO (Watch video)

Carriage paid to (CPT) is an international trade term which means that the seller delivers the goods at their own expense to a carrier or another person nominated by the seller.

4. CIP CARRIAGE AND INSURANCE PAID TO (Watch video)

Carriage and insurance paid to (CIP) means that in addition to the seller delivering the goods to a carrier he/she (the seller) has contracted to get the goods to the agreed destination, the seller also contracts for insurance cover against the buyer’s risk of loss or damage to goods during the carriage.

5. DAT DELIVERY AT TERMINAL (Watch video)

Delivery at Terminal (DAT) is where the seller is responsible for clearing the goods for export and delivering them unloaded at a named terminal at the end destination. The goods must be unloaded at the terminal

6. DAP DELIVERED AT PLACE (Watch video)

“Delivery at place” means that the seller delivers the goods, ready for unloading, at the place of destination in the buyer’s country or a named place.The major difference between this and delivery at terminal (DAT) is that in DAT the seller is responsible for unloading the goods

7. DDP DELIVERED DUTY PAID (NAMED PLACE OF DESTINATION) (Watch video)

The seller is responsible for delivering the goods at the named place in country of the buyer, and pays all costs in bringing the goods to the destination including import duties and taxes.

RULES FOR SEA AND INLAND WATERWAY TRANSPORT

The following are Incoterms that only work for sea and inland waterway transport:

8. FAS FREE ALONGSIDE SHIP (Watch video)

“Free alongside ship” means that the seller delivers when the goods are placed alongside the vessel nominated by the buyer at the named port of shipment.

9. FOB FREE ON BOARD

“Free on board” means that the seller delivers the goods by placing on board the ship named by the buyer in the port of shipment.

10. CFR COST AND FREIGHT

Cost and Freight means that the seller delivers the goods on board the vessel which in this case they, they seller, have contracted to bring the goods to the named port of destination.

11. CIF COST INSURANCE AND FREIGHT

Cost insurance and Freight means that the seller arranges and pays for transport to a named port. Seller delivers goods, cleared for export, loaded on board the vessel.