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Every time you trade goods, you may use Incoterms to set an agreement as a seller or buyer. This will help both parties negotiate the terms in which an agrement or contract is done. So, if you have been trading or want to trade internationally you may have heard about Incoterms. These are globally-accepted commercial terms to define the roles of buyers and sellers in the agreement of transportation, risk and other responsabilities fixed under sales contracts for domestic and international trade.
The latest and current revision of the terms, came into effect on 2011, these are the Inconterms 2010 and consists of 11 Incoterms categorized by modes of transport.
Incoterms for any mode of transport
EXW - Ex Works
This is the most convenient incoterm for the seller – who simply makes the goods available for collection at a named place, usually at the seller’s premises.The costs for the entire transport, (including loading and unloading) and customs entries are for the buyer’s account. The risk and liability is also on the buyer from the point of loading.
FCA - Free Carrier
The seller must pay for the goods to be moved by their own agents and handed to the custody of the named carrier – nominated by the buyer. The term is most appropriate for multimodal transport, where it can be used in place of FOB. FCA is also appropriate for shipments on board container vessels where there is no ships rail.
CPT - Carriage Paid To
The seller is responsible for and pays for transport to a named place in the destination country. The seller’s liability however diminishes as soon as the goods are loaded to the first carrier in the origin country. The term is most appropriate for multimodal transport and should be used in place of CFR. CPT is also appropriate for shipments on board container shipments where there is no ships rail.
CIP - Carriage & Insurance Paid
As CPT but the seller also buys insurance up to the point of delivery. In the event of damage or loss, the buyer is able to claim on the insurance purchased by the seller. The term is most appropriate for multimodal transport and should be used in place of CIF. CIP is also appropriate for shipments on board container shipments where there is no ship rail.
DAT - Delivered At Terminal
The seller arranges and pays for the goods to be released to the buyer at a named destination terminal, normally in the destination country or at a frontier. Risk and liability is transferred to the buyer at the delivery point. The buyer pays for import clearances and also for the goods to be unloaded or transferred.
DAP - Delivered At Place
The seller pays and its liable for transport up to a named place in the destination country, be that a quay, terminal, frontier, or warehouse. The buyer is responsible for the unloading of the transport and also the customs clearances. Risk and liability is transferred at the same time as delivery of the goods.
DDP - Delivered Duty Paid
The seller shoulders the entire cost and risk of the journey from their premises right to the buyer’s door, including all duties and customs clearances but excluding the unloading cost at the receiver’s premises. There is no obligation to insure the goods but the seller will normally do so. This term poses the highest risk to the seller because they are liable for all costs in case of any problems during shipment.
Incoterms for Sea and Inland Waterway Transport only:
FAS - Free Alongside Ship
The seller must pay for the goods to be moved alongside the ship. This term is usually used for shipments where a vessel is berthed in such a way that a lighter or feeder is required to deliver the goods. This is normally associated with bulk goods or heavy lift cargo.
FOB - Free On Board
The seller is responsible and pays for the transport of the goods from their premises to the port, including the loading of the buyer’s nominated vessel. Responsibility and risk for the goods passes to the buyer at the ship’s rail.
CFR - Cost and Freight
The seller is responsible and pays for transport to the port of destination but their liability diminishes as soon as the goods pass the ship’s rail in the origin part. The liability is transferred to the buyer by providing evidence of carriage – a clean ocean bill of loading. Responsibility for the onward carriage and costs after arrival in destination port passes to the buyer at the ship’s rail.
CIF - Cost, Insurance and Freight
As CFR, but where the seller pays for insurance of the goods up to the arrival in destination port. As CFR the seller is responsible, but not liable for the deep sea transit. In the event of damage or loss, however the buyer is able to claim on the insurance purchased by the seller.