INCOTERMS
Incoterms are the standard international trade agreements regarding the transport of goods.
You can agree to the following matters by means of an incoterm:
• Who is responsible for transport insurances, licenses, authorizations and other formalities?
• Who provides the transport and up to where?
• When will the risks and costs of the delivery transfer from the seller to the buyer?
Incoterms 2020
There are 11 incoterms: 4 are intended specifically for transport by water. The other 7 apply to all kinds of multimodal transport.
Click the above image for an illustration of how Incoterms work
Incoterms by water transport:
FAS – Free Along Ship
Free Alongside Ship means that the seller delivers when the goods are placed alongside the vessel (e.g., on a quay or a barge) nominated by the buyer at the named port of shipment. The risk of loss of or damage to the goods passes when the goods are alongside the ship, and the buyer bears all costs from that moment onwards.
FOB – Free On Board
Free On Board means that the seller delivers the goods on board the vessel nominated by the buyer at the named port of shipment or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel, and the buyer bears all costs from that moment onwards.
CFR – Cost and Freight
Cost and Freight means that the seller delivers the goods on board the vessel or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel. the seller must contract for and pay the costs and freight necessary to bring the goods to the named port of destination.
CIF – Cost, Insurance and Freight
Cost, Insurance and Freight means that the seller delivers the goods on board the vessel or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel. The seller must contract for and pay the costs and freight necessary to bring the goods to the named port of destination.
The seller also contracts for insurance cover against the buyer’s risk of loss of or damage to the goods during the carriage. The buyer should note that under CIF the seller is required to obtain insurance only on minimum cover. Should the buyer wish to have more insurance protection, it will need either to agree as much expressly with the seller or to make its own extra insurance arrangements.
Incoterms by multimodal transport:
EXW – Ex Works
Ex Works means that the seller delivers when it places the goods at the disposal of the buyer at the seller’s premises or at another named place (i.e.,works, factory, warehouse, etc.). The seller does not need to load the goods on any collecting vehicle, nor does it need to clear the goods for export, where such clearance is applicable.
FCA – Free Carrier
Free Carrier means that the seller delivers the goods to the carrier or another person nominated by the buyer at the seller’s premises or another named place. The parties are well advised to specify as clearly as possible the point within the named place of delivery, as the risk passes to the buyer at that point.
CPT – Carriage Paid To
Carriage Paid To means that the seller delivers the goods to the carrier or another person nominated by the seller at an agreed place (if any such place is agreed between parties) and that the seller must contract for and pay the costs of carriage necessary to bring the goods to the named place of destination.
CIP – Carriage and Insurance Paid To
Carriage and Insurance Paid to means that the seller delivers the goods to the carrier or another person nominated by the seller at an agreed place (if any such place is agreed between parties) and that the seller must contract for and pay the costs of carriage necessary to bring the goods to the named place of destination.
The seller also contracts for insurance cover against the buyer’s risk of loss of or damage to the goods during the carriage. The buyer should note that under CIP the seller is required to obtain insurance only on minimum cover. Should the buyer wish to have more insurance protection, it will need either to agree as much expressly with the seller or to make its own extra insurance arrangements.
DAP – Delivered At Place
Delivered at Place means that the seller delivers when the goods are placed at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination. The seller bears all risks involved in bringing the goods to the named place.
DPU – Delivered at Place Unloaded
This rule is new for 2020.
The seller is responsible for carriage, delivering the goods to the specified place and for unloading. Risk transfers to the buyer once the goods are unloaded from the arriving means of transport.
The place of delivery – and therefore unloading – should be specified as precisely as possible. Ideally, the place should be specified to a point within a location, e.g. Loading Dock 2 at the customer’s premises, and not just the street address.
DDP – Delivered Duty Paid
Delivered Duty Paid means that the seller delivers the goods when the goods are placed at the disposal of the buyer, cleared for import on the arriving means of transport ready for unloading at the named place of destination. 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 formalities.
Source: ICC website. The full text of the 2010 edition of the Incoterms rules is available at http://store.iccwbo.org
“Incoterms” is a trademark of the International Chamber of Commerce (ICC).