Incoterms

What are they?

Terms of sale (Incoterms) are a quick and short way to say international terms of sale. These are 11 rules that were first published somewhere in 1936, and are designed to define who is responsible for what, during the execution of international transactions.

Why are they so important?

Because they are known and accepted by everyone, from Hong Kong to London. They are required in every commercial invoice and significantly reduce the risk of costly misunderstandings.

What do they cover?

Terms of sale (Incoterms) list all the tasks, risks and costs involved in transactions for the transfer of goods between seller and buyer.

The three most common terms of sale (Incoterms)

EXW – Outside the factory (Ex-Works)

  • The buyer takes on almost all costs and risks involved in the shipping process
  • The buyer's only task is to ensure that the buyer obtains access to the goods.
  • Once the buyer has access, it assumes all responsibility (including loading the goods)

The risk passes from seller to buyer:

In the seller's warehouse or office or anywhere else from which the goods are collected.

DAP - Delivered At Place

  • The seller covers the costs and risk of transporting the goods to an agreed address
  • The goods are classified "delivered" when they arrive at the address and are ready for unloading
  • The responsibility for export and import is the same as DAT

The risk passes from seller to buyer:

Once the goods are ready for unloading at the agreed address.

DDP - Delivery including Customs Payment (Delivered Duty Paid)

  • The seller assumes almost all responsibility for the shipping process
  • It covers all costs and risks of moving the goods to an agreed address.
  • The seller ensures the goods are ready for unloading, accepts export and import responsibility, and pays all levies involved

The risk passes from seller to buyer:

Once the goods are ready for unloading at the agreed address.

 

Other Terms of Sale (Incoterms)

CPT - Paid Transport (Carriage Paid To)

  • The seller's responsibility is the same as the CPT terms of sale with one difference: the seller also pays the insurance for the goods
  • The seller is obligated to purchase only minimum possible coverage
  • If the buyer is interested in more comprehensive insurance, it must arrange this himself

The risk passes from seller to buyer:

Once the buyer's transport company receives the goods.

DAT - (Delivered at the Terminal)

  • The seller is responsible for the costs and risks of sending the goods to an agreed terminal
  • The terminal can be an airport, warehouse, road or container yard
  • The seller takes care of customs clearance and unloads the goods at the terminal
  • The buyer arranges an import permit and all the levies involved

The risk passes from seller to buyer:

At the terminal.

FCA - Delivery to a Free Carrier

  • The role of the seller is to transfer the goods to the buyer's transport company at an agreed location
  • The seller is also required to approve the goods for export

The risk passes from seller to buyer:

Once the buyer's transport company receives the goods.

CPT - Paid Transport (Carriage Paid To)

  • The seller's responsibility is the same as the FCA terms of sale, with one difference: the seller covers the shipping costs.
  • The seller's responsibility is to approve the goods for export, similar to FCA.

The risk passes from seller to buyer:

Once the buyer's transport company receives the goods. EXW – Outside the Factory.

FAS - Free Alongside Ship

  • The seller bears all costs and risks until the goods are delivered near the ship.
  • At this point, the buyer assumes the risks, and manages export and import approval

The risk passes from seller to buyer:

Once the goods are delivered near the ship.

FOB - Including ship loading (Free On Board)

  • The seller bears all costs and risks until the goods are loaded on the ship
  • It is also responsible for providing export clearance
  • The buyer accepts all responsibility as soon as the goods are on board

The risk passes from seller to buyer:

Once the goods are loaded on the ship.

CFR - Cost And Freight

  • The seller's responsibility is the same as FOB, but it is also required to pay the cost of transporting the goods to the port
  • Similar to FOB, the buyer takes on all responsibility once the goods are on board

The risk passes from seller to buyer:

Once the goods are on the ship.

CIF - Cost, Insurance and Freight

  • The seller has the same obligations as with CFR but is also required to cover insurance cost.
  • Similar to CIP, it is required to purchase only minimum coverage
  • If the buyer needs more comprehensive insurance, he must pay it himself

The risk passes from seller to buyer:

Once the goods are on the ship.