Incoterms 2010

Incoterms Are internationally accepted commercial terms defining the respective roles of the buyer and seller in the arrangement of transportation and other responsibilities and clarify when the ownership of the merchandise takes place. They are used in conjunction with a sales agreement or other method of transacting the sale.

EXW – Ex Works — Title and risk pass to buyer including payment of all transportation and insurance cost from the seller’s door. Used for any mode of transportation.

FCA – Free Carrier — Title and risk pass to buyer including transportation and insurance cost when the seller delivers goods cleared for export to the carrier. Seller is obligated to load the goods on the Buyer’s collecting vehicle; it is the Buyer’s obligation to receive the Seller’s arriving vehicle unloaded.

FAS – free alongside Ship –Title and risk pass to buyer including payment of all transportation and insurance cost once delivered alongside ship by the seller. Used for sea or inland waterway transportation. The export clearance obligation rests with the seller.

FOB – Free On Board and risk pass to buyer including payment of all transportation and insurance cost once delivered on board the ship by the seller. Used for sea or inland waterway transportation.

CFR – Cost and Freight — Title, risk and insurance cost pass to buyer when delivered on board the ship by seller who pays the transportation cost to the destination port. Used for sea or inland waterway transportation.

CIF – Cost, Insurance and Freight — Title and risk pass to buyer when delivered on board the ship by seller who pays transportation and insurance cost to destination port. Used for sea or inland waterway transportation.

CPT – Carriage paid to — Title, risk and insurance cost pass to buyer when delivered to carrier by seller who pays transportation cost to destination. Used for any mode of transportation.

CIP – Carriage and Insurance Paid to –Title and risk pass to buyer when delivered to carrier by seller who pays transportation and insurance cost to destination. Used for any mode of transportation.

DAP – Delivered at Place — Title, risk and responsibility for import clearance pass to buyer when delivered to named place by seller. Used for any mode of transportation.

DAT – delivered At Terminal — Title, risk, responsibility for vessel discharge and import clearance pass to buyer when seller delivers goods to named terminal. Used for any mode of transportation.

DDP – Delivered Duty Paid — Title and risk pass to buyer when seller delivers goods to named destination point cleared for import. Used for any mode of transportation.

Practice points

RECOGNIZE WHERE THE RISK OF LOSS TRANSFERS:

A common misconception when the Seller pays the freight is that the Seller has the risk of loss until the goods are delivered to the place or port specified on the bill of lading or airway bill. Actually, when using INCOTERMS CPT, CIP, CFR or CIF, risk transfers to the Buyer when the Seller hands the goods over to the carrier at origin, not when the goods reach the place or port of destination.

Understand that under CIP and CIF, the Seller is only obliged to obtain insuranceon minimum cover.

UNDERSTAND WHO HAS RESPONSIBILITY FOR LOADING AND UNLOADING CHARGES.

DAT obliges the Seller to place the goods at the Buyer’s disposal after unloading at the named terminal at port or place of destination.

DAP and DDP oblige the Seller to place the goods at the Buyer’s disposal on the delivering carrier ready for unloading at the named place of destination.

CPT, CIP, CFR or CIF on the other hand, require the parties to identify as precisely as possible the point at the agreed port of destination because the costs up to that point are for the account of the Seller.

Under FCA terms, the seller satisfies his obligation to deliver when he has handed over the goods, cleared for export, into the charge of the carrier named by the buyer at the named place or point. The buyer is responsible for inland freight, unloading at port of embarkation and loading on ocean carrier/airline.

DETERMINE THE IMPORTANCE OF SUPPLY CHAIN VISIBILITY

When CPT, CIP, CFR or CIF are used the Seller fulfills its obligation to deliver when it hands the goods over to the carrier, not when the goods reach the place of destination.

DAT, DAP and DDP the Seller fulfills its obligation to deliver at the named destination. The Seller has no obligation to provide transit status updates.

Note: EXW, CPT, CIP, DAP, FCA, DAT and DDP are commonly used for any mode of transportation. FAS, FOB, CFR, and CIF are used for sea and inland waterway.