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The 13 International Incoterms |
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Written by Webmaster
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Thursday, 23 October 2008 |
By Ben Needles
 Here are the most important Incoterms for conducting international business.
EXW - Ex Works (named point of origin)
The goods are made available to the buyer at the sellers door (i.e. the sellers warehouse). At this point title and risk pass to the buyer. The buyer is responsible for transportation, insurance and other costs from the sellers door to the goods final point of destination. This term applies to all modes of transportation. The primary responsibility of the seller here is to make sure the goods are appropriately packaged for transport.
Why use EXW? For the seller this term limits their risk to almost nothing. The buyer may want to use it if they are able to arrange the logistics involved in the shipping of the goods at a cheaper price than what the seller could provide.
FCA - Free Carrier (named place)
The seller is obligated to get the goods cleared for export and deliver and load the goods onto the buyers collecting vehicle. At this point title and risk pass to the buyer including transportation and insurance cost.
An FCA term could be at any named place. The port or the sellers warehouse for example. If the named place was the sellers warehouse the seller would be responsible for loading the goods onto the collecting vehicle for transport.
FAS - Free Alongside Ship (named port of shipment)
Under this term the seller is responsible for getting the goods cleared for export and then delivered alongside the ship the goods will be transported on. The seller is not responsible for seeing the goods loaded onto the ship. Once the goods are alongside the ship all risks and costs are transferred to the buyer. This term is only used for ocean or waterway transports.
FOB - Free on Board
The seller must get the goods cleared for export and is responsible for getting the goods loaded onto the ship. Once the goods are on board the ship, all risks and costs are transferred to the buyer. This term is only used for ocean or waterway transports.
CFR - Cost and Freight (named port of destination)
The seller is responsible for getting the goods cleared for export and getting the goods unloaded (i.e. past the ships rail) at the named port of destination, at this point the risk of loss or damage is assumed by the buyer. The seller pays the costs associated with getting the goods transported to the named port of destination. Used only with ocean or waterway transport.
CIF - Cost, Insurance, Freight (named port of destination)
Similar to CFR, the seller must get the goods cleared for export and get the goods loaded onto the ship at the port of origin. The seller also must pay for the cost of marine insurance. However, once the goods are loaded on the ship at the port of origin the buyer assumes all other liabilities associated with loss or damage to the goods. This term can be used only with ocean or waterway transport.
CPT - Carriage Paid To (named place of destination)
The seller is responsible for arranging and paying for the transport of the goods from the point of origin to the point of destination, but is not responsible for any risk of loss or damage to the goods once the goods have been shipped. Can be used with all modes of transport.
CIP - Carriage and Insurance Paid To (named place of destination)
This term is the same as CPT above with the exception that the seller will also pay for the insurance of the goods. The seller is not responsible for any other loss or damage associated with the goods once they have been shipped. Can be used with all modes of transport.
DAF - Delivered at Frontier (named place)
Under this term the seller is responsible for all costs associated with delivery of the products to the named point of destination. This term is used with all modes of transport, but the final mode to the named place must be by land.
DES - Delivered Ex Ship (named port of destination)
The seller is responsible for all costs associated with getting the goods to their port of destination. Used only with ocean and waterway modes of transport.
DEQ - Delivered Ex Quay (named port of destination)
This term means that the seller is responsible for all costs associated with getting the goods to the quay at the port of destination. It is used only with ocean or waterway transportation.
DDU - Delivered Duty Unpaid (named place of destination)
The seller is responsible for all costs associated with delivery of the goods to the point of destination (i.e. the buyers warehouse). The buyer assumes responsibility for import clearance, administrative costs, duties, and any other costs that may arise upon import.
DDP - Delivered Duty Paid
This term is the same as DDU with one major exception. The seller assumes responsibility for all costs associated with delivering the goods to the named place of destination: this includes import clearance, duties and other administrative costs associated with importing.
Which Incoterm should I use?
This is not a simple question to answer. This is one of the major negotiating points between the buyer and seller. To a certain extent it depends on the amount of risk you want to carry. The seller usually wants to use the term that puts the least amount of obligation on their shoulders, EXW for instance. Of course if the seller wants to have a good long term relationship with the buyer they will most likely be open to discussing a mutually beneficial term. If you are the buyer ask yourself these two questions: How much risk do I want to bear and how capable am I of handling the logistics myself? If you are a newcomer to international trade the answer should be that you do not want to carry too much risk and you probably do not have the experience to handle a great deal of the logistics, in which case a term like CIF or DDP would be ideal.
Incoterms DO:
- Facilitate the sale of goods
- Outline the risks, costs and obligations of the buyer and seller in regard to the delivery of the products.
- Give a short, easy reference for all parties involved to determine the terms of transport and delivery.
Incoterms DO NOT:
- Apply to service agreements (i.e. contracts for service).
- Define obligations and rights beyond the delivery of the goods.
- State the specific details of transport and delivery.
- Help in transferring the title to the goods.
- Protect a party from their own risk of loss.
- Help with breaches of contract
About the Author (text)Joshua Niemeyer writes about global business, marketing and ecommerce. Read more of his work at http://www.incentivesearch.com
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Last Updated ( Thursday, 23 October 2008 )
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