Incoterms are the shipping terms used by traders, buyers, and sellers. Incoterms are the commercial terms published by the ICC (International Chamber of Commerce) that is used in international trade transactions. In Incoterms rules are related to the costs, risks, and tasks linked with the delivery and transportation of the goods in international trade.
What is the role of Incoterms?
The role of the Incoterms cover the risks involved in the in the international trade. Following are the roles of Incoterms in import export.
- Responsibility of risk
- Tasks involved in shipping
- Terms involved in the delivery of goods by buyers and sellers
- Which person holds the contract
- Customs and taxes involved in the trade of the goods
- Insurance duties
Who uses Incoterms?
Incoterms are used by anyone involved in the delivering of goods overseas. These are used by the following in the import and export of the product.
What are the roles involved in the shipping of the goods?
Following are the roles involved in the shipping of the goods in import and export.
- Packing of the goods.
- Export customs and declaration of goods.
- Carriage of the goods to the port of export.
- Unloading of the goods from the truck in the port of export.
- Loading on the vessel or airplane in the port of export.
- Carriage of the goods through sea or air to the port of import.
- Insurance of the goods.
- Unloading the products in the port of the import.
- Customs clearance of the import.
- Import duties and taxes.
- Loading the goods on the truck in the port of import.
- Carriage of the products to the place of destination.
What are the shipping terms involved in the Incoterms?
Following are the 11 shipping terms involved in the Incoterms.
- EXW (Ex works)
- FCA (Free Carrier)
- FAS (Free Alongside Ship)
- FOB (Free on Board)
- CPT (Carriage Paid To)
- CFR (Cost and freight)
- CIF (Cost, Insurance and Freight)
- CIP (Carriage and Insurance Paid To)
- DAT (Delivered At Terminal)
- DAP (Delivered At Place)
- DDP (Delivered Duty Paid)
Let’s discuss these shipping terms for your better understanding of the allocations of costs to buyer or seller.
EXW (Ex Works)
EXW is the delivery term used to describe the delivery of products to the place of their business usually in their offices, warehouse, or factory. In this term, the seller only has to worry about the packing of the goods the rest of the payments and responsibilities is of buyers (e.g., shipment and customs duties). Ex Works is more favorable for the seller because they don’t need to worry about anything once the goods have left their warehouse or factory.
FCA (Free Carrier)
This delivery term adds one or two more responsibilities for the seller than the EXW. In FCA terms exporter only have to worry about the packing, export customs declaration, and the carriage to the port of export, the rest of the responsibilities and payments are made by the importer.
FAS (Free Alongside Ship)
In FAS the risk of transporting goods move from the exporter to the importer once the goods are delivered to the port and unloaded. It is not recommended for the goods that can be placed in the container.
FOB (Free on Board)
Free on board occurs when the seller delivers the goods to the port until loading it on the vessel in the port of export. The exporter will not be responsible for any damage to the goods when on board the vessel. After the goods are loaded on the vessel rest of the transportation charges are paid by the importer including insurance, customs clearance, and duties and taxes.
CPT (Carriage Paid To)
Carriage Paid To specifies that the seller will pay all the cost of the transportation from his warehouse to the buyer’s requested destination. The buyer may or may not pay for the unloading of the goods in the port of import and loading it on the truck in the port of import. The seller also has to pay for the carriage of the goods to the place of destination.
CFR (Cost and Freight)
In CFR the seller pays till the carriage of the goods to the port of the import. The seller may or may not pay for the unloading of goods in the port of import. Rest of the payments and responsibilities are of the buyer.
CIF (Cost, Insurance, and Freight)
CIF (Cost, Insurance, and Freight) also works as CFR (Cost and Freight) means in both of the terms seller and buyer have the almost same responsibility. But in CIF the seller also has to pay for the insurance of the goods during the carriage until they arrive at the port of import.
CIP (Carriage and Insurance Paid To)
‘Carriage and Insurance Paid To’ specifies that the seller has to pay for all the transportation to the destination of import and insurance. The unloading and loading of goods on the truck at the port of import may or may not be paid by the buyer.
DAT (Delivered At Terminal)
DAT means that the seller needs to pay all the cost of transportation until the point of delivery to the port of import and seller is also responsible for the unloading of the goods at the port. The seller may or may not pay for the insurance of the goods. The buyer is responsible for the rest of the matters like customs clearance, import duties and taxes, loading of the goods on the truck in port, and carriage to the place of destination.
DAP (Delivered At Place)
In DAP term the seller responsibilities increase from packing of the goods to delivering at the point of destination specified by the buyer. The buyer only has to pay for customs clearance and duties and taxes of the goods. Insurance of the goods is paid by either the buyer or the seller.
DDP (Delivered Duty Paid)
In DDP, the seller is responsible for all the payments of the transportation of goods to place specified by the buyer and the seller is also responsible to pay customs clearance and the duties and taxes of the goods. The insurance is either paid by the seller or buyer.
I hope this article will help you in understanding all the commercial terms in Incoterms. The most commonly used Incoterms are EXW (Ex Works), CIF (Cost, Insurance, and Freight), and FOB (Free on Board).