INCOTERMS - Responsibilities of Seller and/or Buyer explained.
   
 

Incoterms 2020 are a set of internationally recognized trading terms, defined by the International Chamber of Commerce (ICC), which are used for the purchase and shipping of goods in the international market place.

Each INCOTERM refers to a type of agreement for the purchase and shipping of goods internationally. There are 11 different terms, each of which helps users deal with different situations involving the movement of goods. For example, the term FCA is often used with shipments involving Ro/Ro or container transport.

INCOTERMS also deal with documentation required for global trade, specifying which parties are responsible for which documents. Determining the paperwork required to move a shipment is an important job, since requirements vary so much between countries. Two items, however, are standard: commercial invoice and the packaging list.

INCOTERMS were created primarily for people inside the world of global trade. Outsiders frequently find them difficult to understand. Seemingly common words such as "responsibility" and "delivery" have different meanings in global trade than they do in other situations. In global trade, "delivery" refers to seller fulfilling the obligation of the terms of sale or to completing a contractual obligation. "Delivery" can occur while the merchandise is on a vessel on the high seas and the parties involved are thousands of miles from the goods. In the end, the terms wind up boiling down to a few basic specifics; COST: who is responsible for the expenses involved  in a shipment at a given point in the shipment's journey, CONTROL: who owns the goods at a given point in the journey and LIABILITY: who is responsible for paying damage to goods at a given point in a shipment's transit. It is essential for shippers to know the exact status of their shipments in terms of ownership and responsibility. It is also vital for sellers & buyers to arrange insurance on their goods while the goods are in their "legal" possession. Lack of insurance can result in wasted time, lawsuits, and broken business relationships.

INCOTERMS are most frequently listed by category. Terms beginning with F refer to shipments where the seller does not pay for the primary cost of shipping. E-terms occur when a seller's responsibilities are fulfilled when the goods are ready to depart from their facilities. D terms cover shipments where the shipper/seller's responsibility ends when the goods arrive at some specific point. Because shipments are moving in a country, D terms usually involve the services of a customs broker and a freight forwarder. In addition, D terms also deal with the pier or docking charges found at virtually all ports and determining who is responsible for each charge.

 
 

S=Seller, B= Buyer

  EXW FCA FAS FOB CPT CFR CIF CIP DPU DAP DDP
                       
Loading at Origin B S S S S S S S S S S
                       
Export Customs Declaration B S S S S S S S S S S
                       
Carriage To Port of Export B S S S S S S S S S S
                       
Unloading of Truck in Port Of Export B B S S S S B S S S S
                       
Loading On Vessel/Airplane in Port Of Export B B B S S S S S S S S
                       
Carriage (sea/air) to Port of Import B B B B S S S S S S S
                       
Insurance B B B B B B S S S S S
                       
Unloading in Port of Import B B B B B/S B B B/S S S S
                       
Loading on Truck in Port of Import B B B B B/S B B B/S S S S
                       
Carriage to Place of Destination B B B B S B B S S S S
                       
Import Customs Clearance B B B B B B B B B B S
                       
Import Duties & Taxes B B B B B B B B B B S
                       
Unloading at Destination B B B B B B B B S B B
 
   
INCOTERMS - Definitions
   
 
EXW - Ex-Works (named place of delivery)

 One of the simplest and most basic shipment arrangements places the minimum responsibility on the seller with greater responsibility on the buyer. In an EX-Works transaction, goods are basically made available for pickup at the shipper/seller's factory or warehouse and "delivery" is accomplished when the merchandise is released to the consignee's freight forwarder. The buyer is responsible for making arrangements with their forwarder for insurance, exports clearance and handling all other paperwork.		   FCA - Free Carrier (named place of delivery)

 In this type of transaction, the seller is responsible for arranging transportation, but he is acting at the risk and the expense of the buyer. Where in FOB the freight forwarder or carrier is the choice of the buyer, in FCA the seller chooses and works with the freight forwarder or the carrier. "Delivery" is accomplished at the predetermined port or destination point and the buyer is responsible for insurance.
     
FAS - Free Alongside Ship (named port of shipment)

 In these transactions, the buyer bears all the transportation costs and the risk of loss of goods. FAS requires the shipper/seller to clear goods for export, which is a reversal from past practices. Companies selling on these terms will ordinarily use their freight forwarder to clear the goods for export. "Delivery" is accomplished when the goods are turned over to the Buyers Forwarder for insurance and transportation.		   FOB - Free On Board (named port of shipment)

 One of the most commonly used and misused terms, FOB means that the shipper/seller uses his freight forwarder to move the merchandise to the port or designated point of origin. Though frequently used to describe inland movement of cargo, FOB specifically refers to ocean or inland waterway transportation of goods. "Delivery" is accomplished  when the shipper/seller releases the goods to the buyer's forwarder. The buyer's responsibility for insurance and transportation begins at the same moment.
     
CFR - Cost and Freight (named port of destination)

 The seller pays for the carriage of the goods up to the named port of destination. Risk transfers to buyer when the goods have been loaded on board the ship in the country of Export. The Shipper is responsible for origin costs including export clearance and freight costs for carriage to named port. The shipper is not responsible for delivery to the final destination from the port (generally the buyer's facilities), or for buying insurance. If the buyer requires the seller to obtain insurance, the Incoterm CIF should be considered. CFR should only be used for non-containerized seafreight and inland waterway transport; for all other modes of transport it should be replaced with CPT.		   CIF - Cost, Insurance, Freight (named port of destination)

 This arrangement is similar to CFR, but instead of buyer insuring the goods for the maritime phase of the voyage, the shipper/seller will insure the merchandise. In this arrangement, the seller usually chooses the forwarder. "Delivery" is above, is accomplished at the port of destination.
     
CPT - Carriage Paid To (named place of destination)

 In CPT transactions the shipper/seller has the same obligations found with CIF, with the addition that the seller has to buy cargo insurance, naming the buyer as the insured while the goods are in transit.		   CIP - Carriage and Insurance Paid To (named placed of destination)

 This term is primarily used for multimodal transport. Because it relies on the carrier's insurance, the shipper/seller is only required to purchase minimum coverage. When this particular agreement is in force, freight forwarders often act in effect, as carriers. The buyer's insurance is effective when the goods are turned over to the forwarder.
     
DPU - Delivered At Place Unloaded (named place of destination)

 This Incoterm requires that the seller delivers the goods, unloaded, at the named place of destination. The seller covers all the costs of transport (export fees, carriage, unloading from main carrier at destination port and destination port charges) and assumes all risk until arrival at the destination port or terminal.

The terminal can be a Port, Airport, or inland freight interchange, but must be a facility with the capability to receive the shipment. If the seller is not able to organize unloading, they should consider shipping under DAP terms instead.

All charges after unloading (for example, Import duty, taxes, customs and on-carriage) are to be borne by buyer. However, it is important to note that any delay or demurrage charges at the terminal will generally be for the seller's account.		   DAP - Delivered At Place (named place of destination)
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. Under DAP terms, the risk passes from seller to buyer from the point of destination mentioned in the contract of delivery.

Once goods are ready for shipment, the necessary packing is carried out by the seller at his own cost, so that the goods reach their final destination safely. All necessary legal formalities in the exporting country are completed by the seller at his own cost and risk to clear the goods for export.

After arrival of the goods in the country of destination, the customs clearance in the importing country needs to be completed by the buyer, e.g. import permit, documents required by customs and etc., including all customs duties and taxes.

Under DAP terms, all carriage expenses with any terminal expenses are paid by seller up to the agreed destination point. The necessary unloading cost at final destination has to be borne by buyer under DAP terms.
     
DDP - Delivered Duty Paid (named place of destination)
DDP terms tend to be used in intermodal or courier-type shipments. Whereby the shipper/seller is responsible for dealing with all the tasks involved in moving goods from the manufacturing plant to the buyer/consignee's door. It is the shipper/seller's responsibility to insure the goods and absorb all costs and risks including the payment of the duty and fees.		    

 
 

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