Incoterms explained

 

When shipping goods it is inevitable that you will be faced with the term ‘incoterms’. Which is short for International Commercial Terms.

About

Incoterms

Incoterms were first published way back in 1936, they’re a set of 11 rules defining which party is responsible for what during international transactions.

The terms spell out all the tasks, risks and costs involved during the transaction of goods from seller to buyer. The most common incoterms are EXW, DAP & DDP.

Incoterms are important because they’re known and accepted by the whole world. Also they are a requirement on every single commercial invoice, this is because they greatly reduce the risk of potentially costly misunderstandings.

Below you will find all incoterms explained.

The seven Incoterms for any mode(s) of transport are:

EXW – Ex Works

The buyer assumes almost all costs and risk during the shipping process. The seller’s only job is to make sure the buyer can access the goods. Once the buyer has access, the rest is his responsibility (including loading).

The point at which the risk shifts to the buyer is at the location where the goods are picked up.

FCA – Free Carrier

It is up to the seller to deliver the goods to the agreed location. The seller must also clear the goods. The point at which the risk shifts to the buyer is once they receive the goods.

CPT – Carriage Paid to

Seller has same responsibilities as at FCA, with one difference: seller covers transportation costs. It is the seller’s responsibility to clear the goods.

The point at which the risk shifts to the buyer is once they take delivery of the goods.

CIP – Carriage and Insurance Paid To

Seller has same responsibilities as with CPT, with one difference: seller will reimburse transportation costs and insurance. It is the seller’s responsibility to clear the goods. Also, the seller is required to insure the transport to the maximum extent possible.

The point at which the risk shifts to the buyer is once they take delivery of the goods.

DAP – Delivered at Place

Seller assumes the cost and risk of shipping to the agreed upon address. Goods are considered delivered as soon as they are ready to be unloaded. Export and import responsibilities are the same as with DAT

The point at which the risk shifts to the buyer is once the goods are ready for unloading.

DPU – Delivered at Place Unloaded

Seller is responsible for the cost and risk of delivering the goods to an agreed upon location for unloading. This location can be anywhere, covered or not. Seller organizes customs clearance and unloading. The buyer is responsible for import clearance and duties.

The point where the risk shifts to the buyer is at the unloading location.

DDP – Delivered Duty Paid

Seller assumes almost all responsibility during the shipping process. They reimburse all costs. Seller arranges for readiness at unloading, fulfills export and import responsibilities, and pays any duties

The point where the risk shifts to the buyer is when the goods are ready for unloading at the agreed address.

The four Incoterms for Sea and Inland Waterway Transport are:

FAS – Free Alongside Ship

The seller assumes all costs and risk until the goods are delivered alongside the ship. From there, the buyer assumes the risk and arranges export and import clearance.

The point where the risk shifts to the buyer is when the goods are delivered alongside the ship.

Rulewave incoterms explained

FOB – Free on Board

Seller assumes all costs and risk until the goods are delivered on board the vessel. They also handle export customs clearance. Buyer is responsible once goods are on board.

The point where the risk shifts to the buyer is when the goods have been delivered onto the ship.

CFR – Cost and Freight

Buyer has the same responsibilities as with FOB but must also pay the cost of bringing the goods to the port. As with FIB, the buyer assumes responsibility once the goods are on board.

The point where the risk shifts to the buyer is when the goods have been delivered onto the ship.

CIF – Cost Insurance and Freight

Seller has the same obligations as with CFR but must also reimburse insurance costs. Seller is required to purchase a minimum insurance policy covering 110% of the invoice amount.

The point where the risk shifts to the buyer is when the goods have been delivered onto the ship.

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