The Incoterms, meaning International Commercial Terms, are a set of international rules produced by the International Chamber of Commerce (ICC). They are mainly used in International commercial transactions or procurement processes, where buyers and sellers agree to their use.
It is advisable for both the buyer and seller to enter into this agreement for them to know where their responsibilities begin and end during the transaction. As such Incoterms are useful when used to aid disputes between the buyer and seller.
Incoterms are broken in the following groups:
- Group E – Departure
- Group F – Main Carriage Unpaid
- Group C - Main Carriage Paid
- Group D – Arrival
The Common trade terms (Incoterms) are listed below:
EXW (Ex Works)- the seller fulfils his obligations by having the goods available for the buyer to pick up at his premises or another named place (i.e. factory, warehouse, etc.). Buyer bears all risks and costs starting when he picks up the products at the seller’s location until the products are delivered to his location. Seller has no obligation to load the goods or clear them for export.
FCA (Free Carrier)- the seller delivers the goods export cleared to the carrier stipulated by the buyer or another party authorized to pick up goods at the seller’s premises or another named place. Buyer assumes all risks and costs associated with delivery of goods to final destination including transportation after delivery to carrier and any customs fees to import the product into a foreign country.
FAS (Free Alongside Ship)- seller clears the goods for export and delivers them when they are placed alongside the vessel at the named port of shipment. Buyer assumes all risks and costs for goods from this point forward.
FOB (Free On Board)- seller clears the goods for export and delivers them when they are onboard the vessel at the named port of shipment. Buyer assumes all risks and cost for goods from this moment forward.
CFR (Cost and Freight)- seller clears the goods for export and delivers them when they are onboard the vessel at the port of shipment. Seller bears the cost of freight to the named port of destination. Buyer assumes all risks for goods from the time goods have been delivered on board the vessel at the port of shipment.
CIF (Cost, Insurance and Freight)- seller clears the goods for export and delivers them when they are onboard the vessel at the port of shipment. Seller bears the cost of freight and insurance to the named port of destination. Seller’s insurance requirement is only for minimum cover. Buyer is responsible for all costs associated with unloading the goods at the named port of destination and clearing goods for import. Risk passes from seller to buyer once the goods are onboard the vessel at the port of shipment.
CPT (Carriage Paid To)- seller clears the goods for export and delivers them to the carrier or another person stipulated by the seller at a named place of shipment. Seller is responsible for the transportation costs associated with delivering goods to the named place of destination but is not responsible for procuring insurance.
CIP (Carriage and Insurance Paid to)- seller clears the goods for export and delivers them to the carrier or another person stipulated by the seller at a named place of shipment. Seller is responsible for the transportation costs associated with delivering goods and procuring minimum insurance coverage to the named place of destination.
DAT (Delivered at Terminal)- seller clears the goods for export and bears all risks and costs associated with delivering the goods and unloading them at the terminal at the named port or place of destination. Buyer is responsible for all costs and risks from this point forward including clearing the goods for import at the named country of destination.
DAP (Delivered At Place)- seller clears the goods for export and bears all risks and costs associated with delivering the goods to the named place of destination not unloaded. Buyer is responsible for all costs and risks associated with unloading the goods and clearing customs to import the goods into the named country of destination.
DDP (Delivered Duty Paid)- seller bears all risks and costs associated with delivering the goods to the named place of destination ready for unloading and cleared for import.
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