Incoterms comes from “International Commercial Terms“, which translates as international trade terms. It is a set of trade rules that define the exchange of goods both internationally and domestically. They specify the obligations of each party, for both seller and buyer, in the commercial transaction with regards to:
- Mandatory documents.
EXW (Ex Works)
EXW means: “In the factory or agreed place”, it must be followed by the specific place of delivery. It is the most binding for the buyer, who must take care of loading the goods and transport, customs clearance and other formalities. It is usually the buyer who bears all the costs: Taxes, Licenses, Tariffs. He also bears all the risk of breakage/damage/loss of the goods as from the seller’s notice. The seller must deliver the goods packed and labelled, at the date and place specified, as well as the invoice or equivalent electronic document. He shall assist the buyer and bear the risk up to the point of making it available to the seller. It is the only Incoterm of Group E (Direct Delivery on Departure)
FCA (Free Carrier)
The seller undertakes to deliver the goods to a place to be agreed upon in the country of origin, such as the premises of a freight forwarder or railway station. The seller also bears the costs of transport to that point, as well as the loading of the vehicle and customs in the country of origin. At the time the goods are delivered to the carrier the risk is on the buyer.
FAS (Free Alongside Ship)
Agreed Port of Loading. The buyer delivers the cargo at the agreed-upon seaport dock. It is an Incoterm suitable for bulk cargo since it leaves it on the quay next to the ship. It could not be possible in the case of pallets or containers. From that moment on all costs and risks are borne by the buyer. Since the update of Incoterm 2000, the seller takes over the customs costs at origin.
FOB (Free on Board)
FOB is one of the most used Incoterm. FOB is used when the goods are transported by sea or inland waterways. The port of loading must be indicated after FOB. The goods are delivered on board the ship at the port of origin. Once stowed, the risk of loss or damage is transferred to the buyer. FOB is used when the cargo is not placed in containers, but stored in other elements such as pallets, drums, boxes, etc. Whoever sends the goods must pay for the transfer to the port and cargo. From there, all the costs become of the buyer: The Freight, the unloading in the port of destination, the import procedures, customs.
CFR (Cost and Freight)
The Incoterm CFR, (Cost and Freight, agreed port of destination) shares similarities with FOB, but the costs are borne by the seller up to the port of destination. The risks of damage and loss are assumed by the buyer once the goods have been loaded. The term CFR is used followed by the port of destination.
CPT (Carriage Paid To)
The Incoterm CPT, (Carriage Paid to: next, the point of delivery). It is used in marine, river, land or air transport. It can be used for both whole containers and groupage. It is similar to the CFR but applicable for multimodal transport. Costs are borne by the seller until the cargo reaches the destination point. The risks are assumed by the buyer from the moment the goods are delivered to the forwarder in the country of origin. The buyer must assume the customs costs.
CIF (Cost, Insurance and Freight)
The Incoterm CIF (Cost, Insurance and Freight) is used only when the transport is by sea or waterway, for multimodal the equivalent CIP is used CIF Includes transport, and insurance coinciding with the import value. What the seller contracts is an insurance to the port of destination, but the risk is of the buyer from the port of origin.
CIP (Carriage and Insurance Paid)
The Incoterm CIP (Carriage and Insurance Paid) The point of delivery of the goods must be indicated below. The risk is assumed by the buyer as soon as the goods are delivered to the forwarding agent in the country of origin. The seller is only obliged to take out all-risk insurance.
For multimodal transport.
Type of route taken for the transfer is an incoterm that covers any transport.
DAP (Delivered At Place)
In the Incoterm DAP (Delivered At Place), the goods are delivered beyond customs, with the exporter bearing the costs and risks until the goods reach the agreed meeting point. The importer on his part must cover the taxes on Importing at Customs, Customs Clearance, Local Transport. Regardless of the type of route taken for the transfer, is an incoterm that covers any transport.
DDP (Delivered Duty Paid)
The Incoterm DDP is the one that the seller assumes the most. The seller must pay all costs until the product is delivered to the agreed place. The buyer must take charge from that moment on, providing a place and date for delivery with enough notice.. All customs costs and expenses are covered by the seller; however, the buyer must aid with the formalities.
DPU (Delivered At Place Unloaded)
In the Incoterm DPU (Delivered At Place Unloaded), the goods are delivered beyond customs, with the exporter bearing the costs and risks until the goods reach the agreed meeting point, unloaded from the means of transport.
The importer, in turn, must take over the taxes on imports in customs, Customs clearance.
Regardless of the type of route taken for the transfer, it is an incoterm that covers any transport.
Leave a reply