Incoterms – Meaning & Descriptions
There are eleven incoterms in total, each consisting of a three digit code. Seven of these are applicable terms for transportation via any mode of transport, whilst the other four are specific to trade conducted by sea and inland waterways.
EXW (Ex Works)
Ex Works terms place the emphasis of responsibility upon the buyer. All costs and risks associated with the transportation of the goods are down to them.
The only responsibility for a seller during the whole transportation process under Ex Works is to ensure that the goods they are selling are made available for collection at their premises. If the seller is required to load the goods, this is at the buyers’ risk.
FCA (Free Carrier)
With FCA the seller arranges for the delivery of the goods to a named place, such as a port or rail terminal, and holds the responsibility for export packing, marking, labelling and the export customs clearance. The seller must also provide the buyer with the export documentation. From the point of unloading at the location, the responsibility of the goods and transportation to their destination becomes the liability of the buyer.
CPT (Carriage Paid To)
Transportation under CPT terms is arranged by the seller. Whilst the seller is responsible for the transportation costs, as a buyer it’s vital to check to see if the ‘terminal handling charges’ are included as part of this cost, else you could find yourself when some unexpected fees! The responsibility of the goods transfers to the buyer when the seller passes them to the first carrier.
CIP (Carriage and Insurance Paid)
Under CIP the seller delivers the goods to a place mutually agreed upon by the buyer and seller. The seller is responsible for paying the freight and insurance charges to transport the goods, however, the risk of damage or loss to the goods being transported is transferred from the seller to the buyer as soon as the goods have been delivered to the carrier. Remember that the insurance cover offered using this agreement will be of a minimum so, if you are the buyer, check to see if additional cover would be advisable.
DPU (Delivered at Place Unloaded)
Formerly DAT (Delivered at Terminal) in the 2011 Incoterms rules, amending the term to DPU highlights that the incoterm can be used for all forms of transportation and extends to delivery away from the port or airport.
Transportation of goods to a specified destination is the responsibility of the seller under DPU. The buyer assumes responsibility of the goods from the point that they are unloaded and is responsible for all costs associated with the import of the goods such as import clearance fees and any applicable local taxes or import duties.
DAP (Delivered at Place)
Similar to DPU, DAP transactions require the seller to arrange and pay for the transportation of the goods to a specified destination, whilst the buyer is responsible for all costs associated with the import of the goods, such as import clearance fees and any applicable local taxes or import duties. Under DAP the seller holds responsibility of the goods until the point the buyer is ready to unload the goods, at which point the buyer assumes responsibility.
DDP (Delivered Duty Paid)
Under DDP the seller is responsible for delivering the goods to the buyer’s country at an agreed-upon location and is fully responsible for the goods until they are received and transferred to the buyer. All shipping costs, export and import duties, insurance and any other expenses incurred during shipping of the goods are include within the sellers responsibilities.
Specific Incoterms Applicable to Sea and Inland waterways
FAS (Free Alongside Ship)
The seller is required to get the goods ready for export and to arrange for the goods to be placed alongside ship at the specified port that they are to be shipped from. The buyer is responsible for the cost and risk involved in loading the goods, and all costs thereafter.
FOB (Free On Board)
When operating under FOB terms the buyer assumes responsibility for all costs and risks of the goods once they have been loaded on board the ship. Up until that point, the responsibility for the goods and all associated costs lies with the seller.
CFR (Cost and Freight)
Under CFR the seller is required to pay the costs associated with the transportation of the goods.
There is however, no requirement for the seller to pay for insurance. The responsibility for paying marine insurance is negotiable, but if this has not been written into the contract, then the buyer should be aware that this is something that they should look at sourcing.
Responsibility for the goods is passed to the buyer once they are loaded on to the ship, and any costs payable on arrival to the destination port, including tax and customs clearance are subsequently also the liability of the buyer.
CIF (Cost, Insurance and Freight)
Responsibilities under CIF are the same as with CFR, only, in addition to the seller being required to pay the costs associated with the transportation of the goods, they also pay for insurance.