Incoterms
Incoterms, which are also known by their long name of International Commercial Terms, are a set of 11 rules that define who is responsible for what during international transactions. These terms cover every task that is involved in international transactions as well as the risks and costs involved with the transaction of good from seller to buyer.
Incoterms are extremely important as they are known and accepted throughout the world as a requirement on all commercial invoices. These terms are important in reducing the risk of misunderstandings which could turn out to be costly.
The 11 Incoterms
EXW
Ex-Works
- This is when the buyer of the product assumes almost all of the costs and risk associated with the shipping process
- The seller only has to make sure that the buyer has access to the goods
- Once the buyer has access to the goods, all responsibility falls on to them
DAP
Delivery At Place
- This is when the seller covers all the costs and risks associated with transporting goods to an agreed address
- When the goods are delivered, they are classed as delivered and unloaded
- The seller will organise all customs clearance while the buyer deals with any import clearance and related duties
DDP
Delivered Duty Paid
- This is when the seller takes almost all responsibility throughout the whole shipping process, covering all costs and risks of transporting goods to the delivery address
- The seller fulfils all export and import responsibilities as well as paying any duties that are due
CIP Incoterms
Carriage and Insurance Paid To
- The seller is responsible for all risks until the goods are delivered to the first carrier at the place of shipping
- Once the goods are delivered to the first carrier, the responsibility shifts to the buyer
- The seller is required to purchase the maximum level of insurance for the goods for the buyer’s risk
DPU Incoterms
Delivered At Place Unloaded
In previous Incoterm publications, this was known as DAT (Delivery At Terminal)
The seller is responsible for all the costs and risks of delivering the goods to an agreed place of unloading
The seller organises all customs clearance and the unloading of the goods at the place of delivery
The buyer is responsible of sorting import clearance and any duties that are related
FCA Incoterms
Free Carrier
- The seller is responsible to get the goods to the buyer’s carrier •
- The seller also needs to clear goods for export
CPT Incoterms
Carriage Paid To
- The responsibilities of the seller are the same here as with FCA Incoterms, however with CPT, the seller also covers all delivery costs
- It is also the seller’s responsibility to clear all the goods for export
FAS Incoterms
Free Alongside Ship
- The seller is responsible for all costs and all risks until the goods have been delivered next to the ship
- The buyer takes over responsibility for costs and risk once goods have been delivered next to ship
- The buyer is in charge of all export and import clearances
FOB Incoterms
Free On Board
- The seller is responsible for all costs and risks until all the goods have been delivered on board the ship
- The seller is responsible for sorting out the export clearance
- Once the goods are delivered on board, the buyer then assumes all responsibilities of the goods
CFR Incoterms
Cost and Freight
- The seller has the same responsibilities as with the FOB Incoterms, however the seller is also responsible for paying the cost of bringing the goods to the port
- The buyer assumes all responsibility once the goods are on board the ship
CIF Incoterms
Cost, Insurance, and Freight
- The seller has all the same responsibilities as with CFR Incoterms, however they are also responsible for covering all insurance costs
- The seller is required to purchase the minimum amount of insurance cover which is 110% of the invoice value. This has to be in the currency of the invoice and contract
- If the buyer wants different insurance, the seller is responsible for arranging this but at the cost of the buyer