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Incoterms

What are Incoterms?

Incoterms - a.k.a. Trade Terms are key elements of international contracts of sale. They tell the parties what to do with respect to carriage of the goods from buyer to seller, and export & import clearance. They also explain the division of costs and risks between the parties.

Every 10 years the International Chamber of Commerce (ICC) revises the Incoterms in order to correspond and adopt best practices. The difference between the Incoterms 2000 and the 2010 version was the reduction in the numbers of Incoterms from 13 to 11. Four Incoterms (DAF, DES, DEQ, DDU) have been replaced by two new Incoterms DAT, DAP. 

The ICC has launched the Incoterms 2020, which is effective from the 1st of January 2020. The Incoterms 2020 does not contain major changes, it is providing more clarity on how to use the Incoterms. The most important difference is in the Incoterms 2020 a new Incoterm DPU (Delivered at Place Unloaded) replaces the Incoterms DAT (Delivered at Terminal). The place of destination can be any place and does not have to be a terminal.

Quick reference Guide

Download Mainfreight's Incoterms 2020 Quick Reference Guide here.

Please see below an overview of Incoterms and their version.

For all modes of Transport 

EXW – Ex Works (….named place of delivery)

The Seller’s only responsibility is to make the goods available at the Seller’s premises. The Buyer bears full costs and risks of loading and moving the goods from there to destination, including arranging for the export clearance. It is not recommended for international moves.

FCA – Free Carrier (…named place of delivery)

Delivery is made either when goods are (1) loaded on the means of transport provided by the buyer at the seller’s stated location; or (2) when placed at the disposal of the buyer’s carrier, cleared for export by the seller. From either point of delivery, the Buyer bears the costs and risks of moving the goods to destination. The named place/address is required when FCA is used.

CPT – Carriage Paid To (…named place of destination)

The Seller delivers and transfers risk of loss or damage by handing over goods to the carrier chosen by the seller, cleared for export, who pays for moving the goods to the named place of destination. From the time the goods are transfered to the first carrier, the Buyer bears the risks of loss or damage.

CIP – Carriage And Insurance Paid To (…named place of destination)

The Seller delivers and transfers risk of loss or damage by handing over goods to the carrier chosen by the seller, cleared for export, who pays for moving the goods to the named place of destination. From the time the goods are transferred to the first carrier, the Buyer bears the risks of loss or damage. The Seller, however, purchases cargo insurance thru to the named place of destination.

DPU – Delivered At Named Place, Unloaded (named address/place of destination)

The Seller delivers when the goods, once unloaded from the arriving means of transport, are placed at the Buyer’s disposal at a place of destination. The Seller bears all risks involved in bringing the goods to and unloading them at the terminal at the named port or place of destination. DPU is the only Incoterms where the Seller must pay for unloading at destination. As seller is responsible for unloading the goods at destination it is highly recommended to be as specific as possible as to the named address/place of destination as all costs thru to unloading are for the selller’s account.

DAP – Delivered At Place (…named address/place of destination)

The Seller delivers when the goods are placed at the Buyer’s disposal on the arriving means of transport ready for unloading at the named place of destination or at the agreed point within that place, if any such point is agreed. The Seller bears all risks involved in bringing the goods to the named place. Delivery & Arrival at destination are the same.

DDP – Delivered Duty Paid (…named address/place of destination)

The Seller delivers the goods to the buyer when the goods are placed at the disposal of the buyer, cleared for import, on the arriving means of transport, ready for unloading, at the named place of destination. The Seller bears all costs and risks of moving the goods to destination, including the payment of Customs duties and taxes. There are limitations to DDP, as Customs formalities in the importing country may not readily allow the seller to be the legal importer of record; DAP or DPU are suggested Incoterms in such cases.

Ocean freight usage only

FAS - Free Alongside Ship (...named wharf/seaport)

The Seller delivers the goods to the buyer when the goods are cleared for export then placed alongside the ship nominated by the buyer at the named port of shipment. From that point, the Buyer bears all costs and risks of loss or damage.

FOB – Free On Board (…named wharf/seaport of shipment)

The Seller delivers the goods to the buyer on board the vessel nominated by the buyer, cleared for export, at the named wharf/seaport of shipment. From that point, the Buyer bears all costs and risks of loss or damage.

CFR – Cost And Freight (…named port of destination)

The Seller delivers the goods to the buyer on board the vessel, cleared for export to the named port of destination. The Buyer bears all risks of loss or damage once on board. Where more than one mode of transport is to be used, such as when goods are handed over to a carrier at a container terminal, it is highly recommended to use CPT instead.

CIF – Cost Insurance And Freight (…named port of destination)

The Seller delivers the goods to the buyer on board the vessel, cleared for export to the named port of destination. The Buyer bears all risks of loss or damage once on board. The Seller, however, purchases the cargo insurance to the named wharf/seaport of destination. Where more than one mode of transport is to be used, such as when goods are handed over to a carrier at a container terminal, it is highly recommended to use CPT instead. 

Incoterms (international delivery terms), what’s in it?

The incoterms define the role between seller and buyer at an international transaction. Who has to do what en at what time? In the contract between the seller and the buyer, the following is determined:

  • The duties of the buyer and the seller
  • Who takes care of the insurances, licences, permissions and all other formalities
  • Who arranges the transport until which point and who is responsible for this
  • The point where the costs and risks pass on from the seller to the buyer.

There are eleven different incoterms in Incoterms 2020. These incoterms take care of the international rights and duties from the buyer and the seller. Four of the eleven incoterms are about ocean freight. The remaining seven incoterms are regarding all transport modalities. The Incoterms are being prepared and published by the International Chamber of Commerce (ICC). 

 

 

 

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