Incoterms - a.k.a. Trade Terms are key elements of international contracts of sale. They tell the parties what to do with respect to carriage of the goods from buyer to seller, and export & import clearance. They also explain the division of costs and risks between the parties.
Please see below an overview of Incoterms and their vision.
EXW - ExWorks
This term represents the seller's minimum obligation, since he only has to place the goods at the disposal of the buyer. The buyer must carry out all tasks of export & import clearance. Carriage & insurance is to be arranged by the buyer.
FCA - Free Carrier
This term means that the seller delivers the goods, cleared for export, to the carrier nominated by the buyer at the named place. Seller pays for carriage to the named place.
FAS - Free Alongside Ship
This term means that the seller delivers when the goods are placed alongside the vessel at the named port of shipment. The seller is required to clear the goods for export. The buyer has to bear all costs & risks of loss or damage to the goods from that moment. This term can be used for ocean transport only.
FOB - Free On Board
This term means that the seller delivers when the goods pass the ship's rail at the named port of shipment. This means the buyer has to bear all costs & risks to the goods from that point. The seller must clear the goods for export. This term can only be used for ocean transport. If the parties do not intend to deliver the goods across the ship's rail, the FCA term should be used.
CFR - Cost and Freight
This term means the seller delivers when the goods pass the ship's rail in the port of shipment. Seller must pay the costs & freight necessary to bring the goods to the named port of destination, BUT the risk of loss or damage, as well as any additional costs due to events occurring after the time of delivery are transferred from seller to buyer. Seller must clear goods for export. This term can only be used for ocean transport.
CIF - Cost, Insurance, Freight
The seller delivers when the goods pass the ship's rail in the port of shipment. Seller must pay the cost & freight necessary to bring goods to named port of destination. Risk of loss & damage same as CFR. Seller also has to procure marine insurance against buyer's risk of loss/damage during the carriage. Seller must clear the goods for export. This term can only be used for ocean transport.
CIP - Carriage and Insurance Paid
This term is the same as CPT with the exception that the seller also has to procure insurance against the buyer's risk of loss or damage to the goods during the carriage. This term may be used for any mode of transportation.
CPT - Carriage Paid To
This term means that the seller delivers the goods to the carrier nominated by him but the seller must in addition pay the cost of carriage necessary to bring the goods to the named destination. The buyer bears all costs occurring after the goods have been so delivered. The seller must clear the goods for export. This term may be used irrespective of the mode of transport (including multimodal).
DDP - Delivered Duty Paid
This term represents maximum obligation to the seller. This term should not be used if the seller is unable to directly or indirectly to obtain the import license. The terms means the same as the DDU term with the exception that the seller also will bear all costs & risks of carrying out customs formalities including the payment of duties, taxes & customs fees.
DAT – Delivered at Terminal (named terminal at port or place of destination)
Seller pays for carriage to the terminal, except for costs related to import clearance, and assumes all risks up to the point that the goods are unloaded at the terminal.
DAP - Delivered At Place
Seller pays for carriage to the named place, except for costs related to import clearance, and assumes all risks prior to the point that the goods are ready for unloading by the buyer.
The incoterms define the role between seller and buyer at an international transaction. Who has to do what en at what time? In the contract between the seller and the buyer, the following is determined:
- The duties of the buyer and the seller
- Who takes care of the insurances, licences, permissions and all other formalities
- Who arranges the transport untill which point and who is responsible for this
- The point where the costs and risks pass on from the seller to the buyer.
There are thirteen different incoterms in Incoterms 2000 and 2010. These incoterms take care of the international rights and duties from the buyer and the seller. Six of of the thirteen incoterms are about ocean freight. The remaining seven incoterms are regarding all transport modalities. The Incoterms are being prepared and published by the International Chamber of Commerce (ICC).