Incoterms
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Overview
Incoterms, widely-used terms of sale, are a set of 11 internationally recognized rules which define the responsibilities of sellers and buyers. Incoterms specify who is responsible for paying for and managing the shipment, insurance, documentation, customs clearance, and other logistical activities.
Ex-Works (EXW) is a term used to describe the delivery of goods to an available designation at their place of business, normally in their factory, offices or warehouse. Ex Works is a term used in shipping arrangements where the seller is only required to deliver goods at a predetermined location, and the buyer bears responsibility for shipping costs.
Free Carrier (FCA) is an Incoterms that can be used to help dictate responsibility in international commercial transport so all parties have a common understanding of who must do what. FCA commonly used trade term that signifies that a seller of goods is responsible for the delivery of those goods to a destination specified by the buyer. When used in trade, the word "free" means the seller has an obligation to deliver goods to a named place for transfer to a carrier and can be used for any transport mode.
According to the FAS Incoterm, the seller delivers the goods when it either places them alongside the ship/vessel nominated by the buyer at the named port of shipment or it procures the goods so delivered. The risk/damage to the goods is transferred from the seller to the buyer when the goods are alongside the ship. The seller undertakes to clear the goods for export, not import. The seller is under no obligation to conclude a contract of carriage. In turn, it is the buyer who bears all expenses regarding the carriage of the goods from the named port of shipment. Consequently, the FAS Incoterm is not suited for cases when the goods are only to be handed over to the carrier, e.g., at a container terminal, before they are placed alongside the ship. For this scenario, the above-mentioned FAS Incoterm is more appropriate.
Furthermore, the seller has an obligation to clear the goods for export (not import). It is not required to conclude any insurance.
DPU Incoterm (Delivered at Place Unloaded). The DPU Incoterm represents a new feature of the 2020 Incoterms which has replaced the DAT Incoterm (Delivered at Terminal) established under the 2010 Incoterms which, in turn, had replaced DEQ Incoterm (Delivered ex Quay) established under the 2000 Incoterms.[16]
According to the DPU Incoterm, the delivery of the goods by the seller to the buyer occurs when the goods are unloaded from the transportation vehicle and put at the disposal of the buyer at the place of destination or at the agreed point within the place of destination, if any. It is the only Incoterm “that requires the seller to unload goods at destination.” Again, the place of delivery and the place of destination are the same under the DPU Incoterm. Therefore, the seller bears the risk until it has unloaded the goods at the place of destination.
In addition, the seller undertakes to conclude a contract for carriage or arrange carriage at its own expense. It also has an obligation to clear the goods for export. However, no such obligation is imposed for import. The buyer is required to assist the seller in obtaining relevant documentation for export clearance formalities, at the seller’s expenses.
Contrary to the CIP Incoterm, the seller (or the buyer) has no obligation to contract insurance under the DPU Incoterm.
Delivered Duty Paid (DDP) is an incoterm the seller bears all the costs and risks involved in bringing the goods to the place of destination and has an obligation to clear the goods not only for export but also for import, to pay any duty for both export and import and to carry out all customs.
Free on Board (FOB) is a term used to indicate when the ownership of goods transfers from buyer to seller, and who is liable for goods damaged or destroyed during shipping. Which mean seller is responsible for loading the purchased cargo on board the vessel nominated by the buyer at the named port of shipment, and all costs associated. When the goods are safe aboard the vessel, the risk transfers and then takes care of the import formalities and transportation to the final destination will be under buyer.
Cost and Freight (CFR/CNF) is one of the most commonly-used trade terms after Free on Board (FOB). The Incoterm in this blog is when goods are bought or sold under Cost and Freight (CFR/CNF) it means that the seller is required to clear the goods for export, deliver them onboard the ship at the port of departure, and pay for transport of the goods to the named port of destination. The risk passes from seller to buyer when the seller delivers the goods onboard the ship.
Cost, Insurance and Freight (CIF) is a term used to the seller delivers the goods, cleared for export, onboard the vessel at the port of shipment, pays for the transport of the goods to the port of destination, and also obtains and pays for minimum insurance coverage on the goods through their journey. The seller is responsible for covering the costs, insurance, and freight of the buyer's shipment while in transit to protect against the potential damage of loss to a buyer's order.
CPT Incoterm (Carriage Paid to). Under the CPT Incoterm, the delivery of the goods occurs when they are delivered by the seller to the carrier at the agreed place or are procured by the seller so delivered. In this respect, the seller has an obligation to contract, at its expense, for the carriage of the goods from the point of delivery to the place of destination of the goods. The existence of the contract of carriage has no impact on the transfer of risk from the seller to the buyer which occurs at the point of delivery, i.e., by handing over the goods to the carrier. However, if the seller incurs costs relating to unloading of goods at the place of destination under the contract of carriage, it must bear them, unless otherwise agreed. The CPT Incoterm also requires that the seller clear the goods for export, where applicable, and assume all risk related thereto. However, the seller has no such obligation for import. Neither the seller, nor the buyer, is required to conclude an insurance contract.
CIP Incoterm (Carriage and Insurance Paid to). Under the CIP Incoterm, the seller has the same obligations as under the CPT Incoterm, i.e., to hand over the goods to the carrier contracted by the seller and to clear the goods for export, with the addition of an obligation to contract for insurance in order to cover against the buyer’s risk/damage to the goods from the place of delivery to, at least, the place of destination. Regarding insurance, it shall be made in conformity with Clauses (A) of the Institute Cargo Clauses, or similar clauses, and shall cover, at a minimum, the contractual price plus 10%. Prior to the 2020 revision of the Incoterms, only a minimum insurance coverage pursuant to Clauses (C) of the Institute Cargo Clauses was required. However, even today, the parties can agree on a lower coverage. Once contracted, the seller has an obligation to provide the insurance policy or certificate to the buyer.
DAP is the short form for “Delivered at Place” that was introduced in 2010. It is a term of agreement between a buyer and a seller much like DDU. Delivered Duty Unpaid (DDU) is an international trade term meaning the seller is responsible for ensuring goods arrive safely to a destination, the buyer is responsible to pay for any of the destination country's customs charges, duties, or taxes and must all be paid in order for customs to release the shipment after it arrives.DDU was removed from Incoterms 2010 and replaced with DAP; however, many traders continue to use DDU in their business documents.
DPU Incoterm (Delivered at Place Unloaded). The DPU Incoterm represents a new feature of the 2020 Incoterms which has replaced the DAT Incoterm (Delivered at Terminal) established under the 2010 Incoterms which, in turn, had replaced DEQ Incoterm (Delivered ex Quay) established under the 2000 Incoterms.[16]
According to the DPU Incoterm, the delivery of the goods by the seller to the buyer occurs when the goods are unloaded from the transportation vehicle and put at the disposal of the buyer at the place of destination or at the agreed point within the place of destination, if any. It is the only Incoterm “that requires the seller to unload goods at destination.” Again, the place of delivery and the place of destination are the same under the DPU Incoterm. Therefore, the seller bears the risk until it has unloaded the goods at the place of destination.
In addition, the seller undertakes to conclude a contract for carriage or arrange carriage at its own expense. It also has an obligation to clear the goods for export. However, no such obligation is imposed for import. The buyer is required to assist the seller in obtaining relevant documentation for export clearance formalities, at the seller’s expenses.
Contrary to the CIP Incoterm, the seller (or the buyer) has no obligation to contract insurance under the DPU Incoterm.
Delivered Duty Paid (DDP) is an incoterm the seller bears all the costs and risks involved in bringing the goods to the place of destination and has an obligation to clear the goods not only for export but also for import, to pay any duty for both export and import and to carry out all customs.