Incoterms are a set of rules that determine the shipping responsibilities between buyers and sellers. These terms also inform how each party takes upon themselves with risk, where it starts/ends throughout everything being transported from one place to another – whether by land or sea vessel.
Knowledge of Incoterms improves your ability to mitigate risk, avoid unexpected problems and provide better customer service.
WHAT DO INCOTERMS COVER?
- Delivery points
- Transfer of risk
- Obligations like insurance and customs duties
- Separation of costs
- Mode of transportation
INCOTERMS FORM
Here’s a breakdown of some of the most common Inco Terms you need to know.
FAS (Free Alongside Ship)
The seller is responsible for delivering the goods to a buyer when they are placed alongside (e.g., on a quay or barge) at their named port of shipment unless it’s been agreed that another party will deliver them instead; this usually happens if there are no available transportation schedules during certain parts of the year because ships won’t be able to move around freely then.
The risk of loss or damage transfers to the buyer when goods are alongside the ship.
FOB (Free On Board)
The goods are delivered to the buyer on board a vessel chosen by them at their named port of shipment, or if they have already been delivered, they will be procured from that point. The risk of loss or damage to the goods transfers when goods are on board the vessel. The buyer assumes all risk from that point.
CFR (Cost and Freight)
The seller delivers the goods to a buyer on board a vessel or procures them already delivered. The risk of loss or damage to the goods transfers to the buyer when the goods are on board the vessel.
CIF (Cost Insurance and Freight)
The seller delivers the goods to you onboard a vessel, or they are already on board and waiting for collection. When this happens, there is no more risk of loss as it has been transferred over from them at that point in time. The seller must also contract for insurance coverage against the buyer’s risk of loss or damage to the goods from the port of shipment to at least the destination port.
EXW (Ex Works)
The seller delivers the goods to a named place (ex, factory or warehouse), which may not be on site. For delivery to occur, the seller does not need to load the goods on any collecting vehicle, nor does it need to clear the goods for export.
FCA (Free Carrier)
When the named delivery place is on-site, goods are delivered as soon as they’re loaded onto an appropriate vehicle.
The seller is responsible for the delivery of goods. The named place where they will be delivered must meet specific criteria, such as being at their premises or not too far away from it (a manageable distance). If this condition can’t be satisfied, the carrier takes over transportation until it finally reaches its final destination.
CPT (Carriage Paid To)
When you buy something online, the seller hands over their goods and takes on all risks, the buyer is responsible for delivering these items to your doorsteps—or picking them up in person at checkout. The seller may give the carrier physical possession of goods in a manner appropriate to how they are shipped.
CIP (Carriage and Insurance Paid To)
The seller delivers the goods to a carrier who will ensure they are delivered safely and professionally. The risk is transferred from the seller when they hand over physical possession, which means that if anything goes wrong with the delivery, then there’s no need for them to take responsibility.
DAP (Delivered at Place)
The seller delivers the goods—and transfers the risk— to the buyer by placing goods at the buyer’s disposal.
DPU (Delivered at Place Unloaded)
The seller is responsible for delivering the goods and transferring risk to the buyer when unloading from any arriving means of transport at a named destination.
DDP (Delivery Duty Paid)
The seller delivers the goods to a buyer, who clears them for import on any arriving means of transportation and then unloads them at their named destination.