Core Concepts of Incoterms. Delivery of goods Transfer of property risks
Documents
Customs
Contract of Carriage
Insurance
Classification of Incoterms. The Incoterms are divided into four principal categories: E, F, C and D. Category E (Departure) Which contains only one trade term, i.e.. EXW (Ex Works). Category F (Main Carriage Unpaid) Which contains three trade terms: FCA (Free Carrier) FAS (Free Alongside Ship) FOB (Free on Board) Category C (Main Carriage Paid) Which contains four trade terms: CPT (Carriage paid to) CIP (Carriage and Insurance paid to) CFR (Cost and Freight) CIF (Cost, Insurance and Freight) Category D (Arrival) Which contains three trade terms: DAP (Delivered at Place) DPU (Delivered at Place Unloaded) DDP (Delivered Duty Paid)
EXW – EX WORK. The Seller: The seller makes the goods available at his premises. The buyer is responsible for all charges. The Seller: Has no obligation to the buyer in respect to the contract of carriage or to load goods on buyer’s vehicle. The seller delivers when the goods are available for transport typically at sellers’ premises. Risk of loss or damage of goods transfers from seller to buyer when goods are placed readily available for transport at the disposal of buyer at the agreed place of delivery. All further costs and risks will be for the buyer`s account including export costs and security clearance. The seller has to provide an invoice and packing list for the goods as required for transport / export. There is no control over the final destination of the goods. A vehicle arriving to take delivery of the seller's goods under EXW may not be suitable for carriage. There is no control over the final price of the goods at the destination territory The buyer: Administrator Responsible for all risks.
FCA – Free Carrier. The Seller: The seller hands over the goods, cleared for export, into the custody of the first carrier (named by the buyer) at the named place. This term is suitable for all modes of transport, including carriage by air, rail, road, and containerized / multi-modal transport The seller is obligated to load the goods on the buyer`s collecting vehicle. Has no obligation to the buyer in respect to the contract of carriage. Risks of loss or damage to the goods as well as all costs been transferred to the buyer when goods been delivered to the carrier of other person nominated by the carrier at the named place of delivery. The seller Bears all costs until the goods been delivered at the named place of delivery including any costs for export or security clearance in case applicable. Once the goods are delivered at the named place of delivery, then all obligations that may arise in respect to the contract of carriage and any subsequent costs are for the account of the buyer. The seller must provide assistance to the buyer at the buyer`s request, costs and risks in obtaining a transport document.
CPT – Carriage Paid To. The Seller: The general/containerized/multimodal equivalent of CFR. The seller pays for carriage to the named point of destination, but risk passes when the goods are handed over to the first carrier. When arrived to destination, buyer has to pay the costs for unloading and customs import charges. The Seller must contract for the carriage of goods until the named place of destination. The seller bears the risk until goods delivered to the carrier or other person nominated by the seller at an agreed place. In case of more than one carrier, risk will be transferred after delivery to the first carrier. The seller bears the costs for the contract of carriage until the named place of destination including loading together with any cists for export or security clearance. The seller will provide the buyer with the usual transport document “Full Set” to enable the buyer to claim the goods from the carrier at the named place of destination.
CIP – Carriage and Insurance Paid To. The Seller: The containerized transport/multimodal equivalent of CIF. Seller pays for carriage and insurance to the named destination point, but risk passes when the goods are handed over to the first carrier. When arrived to destination, buyer has to pay the costs for unloading and customs import charges. The Seller must contract for the carriage of goods until the named place of destination. The seller bears the risk until goods delivered to the carrier or other person nominated by the seller at an agreed place. In case of more than one carrier, risk will be transferred after delivery to the first carrier The seller bears the costs for the contract of carriage until the named place of destination including loading together with any cists for export or security clearance. The seller will provide the buyer with the usual transport document “Full Set” to enable the buyer to claim the goods from the carrier at the named place of destination. The seller will procure and pay for insurance on behalf of the buyer. Must be procured by the seller on behalf of the buyer. The buyer and / or any other person nominated by the buyer will be the insured in the insurance policy. The insured value will be in the same currency used in contract of sale. The cover will be for a minimum of 110% of the CIP value.
DDP – Delivery Duty Paid. This term means that the seller pays for all transportation costs and bears all risk until the goods have been delivered to the named place of destination and pays all costs including the duty. The Seller: The seller must ensure delivery of the goods until the named place of destination. The seller bears the risk until the goods delivered, cleared for import and ready for unloading. The seller bears all the costs for carriage until the named place of destination. The seller bears all the costs for customs formalities and duties for export and import until the named place of destination. The seller must provide the buyer with a transport document to enable the buyer to claim the goods at the named place of destination.
DAP – Delivered at Place. Seller pays for carriage to the named place, except for costs related to import clearance, and assumes all risks prior to the point that the goods are ready for unloading by the buyer. The Seller: The seller must ensure delivery of the goods until the named place of destination. The seller bears the risk until the goods are delivered ready for unloading at the named place of destination The seller bears the cost for carriage until the named place of destination The seller will provide the buyer with a transport document to enable the buyer to claim the goods from the carrier at the named place of destination.
DPU – Delivered at Place Unloaded. The DPU Incoterm represents a new feature of the 2020 Incoterms which has replaced the DAT Incoterm (Delivered at Terminal) According to the DPU Incoterm, the delivery of the goods by the seller to the buyer occurs when the goods are unloaded from the transportation vehicle and put at the disposal of the buyer at the place of destination or at the agreed point within the place of destination, if any. It is the only Incoterm “that requires the seller to unload goods at destination.” Again, the place of delivery and the place of destination are the same under the DPU Incoterm. Therefore, the seller bears the risk until it has unloaded the goods at the place of destination. The Seller: The seller must contract for the carriage of the goods to the named place agreed at destination. The seller bears the risk until the goods are delivered unloaded and placed at the disposal of the buyer at the named place at the agreed place of destination. The seller bears the cost for carriage and unloading until the named place at the agreed place of destination. The seller will provide the buyer with a transport document to enable the buyer to claim the goods from the carrier at the named place at the agreed place of destination.
FAS – Free Alongside. The seller must place the goods alongside the ship at the named port. The seller must clear the goods for export; this Term of shipment was introduced in the 2000 version of the Incoterms. Suitable for maritime transport only. The Seller: The seller is responsible for the carriage of the goods until placed alongside the vessel nominated by the buyer at the agreed port of shipment. The seller bears the risk of the goods until placed alongside the vessel nominated by the buyer at the agreed port of shipment. The seller bears the costs until goods are placed alongside the vessel nominated by the buyer at the agreed port of shipment including export and security clearance costs.
FOB – Free on Board The classic maritime trade term. The seller must load the goods on board the ship nominated by the buyer. The Seller: The seller is responsible for the carriage of the goods until they are delivered on board the nominated vessel at the port of shipment. The seller bears the risk of loss or damage to the goods as well as all costs until goods are delivered on board the nominated vessel at the port of shipment. The seller will provide the buyer with the usual proof that the goods have been loaded on board the nominated vessel at the port of shipment. In case a transport document is required by the buyer, then the seller must provide the buyer with assistance in obtaining transport document at the buyer’s risk and expenses.
CFR – Cost and Freight. Seller must pay the costs and freight to bring the goods to the port of destination. The Seller: The seller must contract for the carriage of the goods until the named port of destination. The seller bears the risk of loss or damage to the goods as well as all costs until goods are delivered on board the nominated vessel at the port of shipment. The seller has to procure and pay for carriage of the goods until the named port of destination. The seller must provide the buyer with a transport document to enable the buyer to claim the goods at the named port of destination. Unloading costs at port of destination are for the buyer’s account.
CIF – Cost, Insurance and Freight. Exactly the same as CFR except that the seller must in addition procure and pay for insurance for the buyer. Maritime transport only. The Seller: The seller must contract for the carriage of the goods until the named port of destination. The seller bears the risk of loss or damage to the goods as well as all costs until goods are delivered on board the nominated vessel at the port of shipment. The seller has to procure and pay for carriage of the goods until the named port of destination. The seller must provide the buyer with a transport document to enable the buyer to claim the goods at the named port of destination. The seller shall procure and pay for insurance on behalf of the buyer. Unloading costs at port of destination are for the buyer`s account. Must be procured by the seller on behalf of the buyer. The buyer and / or any other person nominated by the buyer will be the insured in the insurance policy. The insured value will be in the same currency used in contract of sale. The cover will be for a minimum of 110% of the CIF value.
Guidelines for Using INCOTERMS 2020
Always specify which terms are applicable.
When completing documents ensure that you are using the correct format of 2 a term (CFR / C+F)
Urge your trading partners to confirm their acceptance of the specified term in 3 writing.
Draw up a check list of your duties and rights under the selected term and check that every intended or completed transaction conforms to this list, and that nothing is omitted and request your trading partner to do same and exchange information.
Compare your duties and rights under the selected Incoterm(s) with your company's standard terms of sales (or purchase) – do not change the incoterm unless it is urgently needed.
Never instruct the carriers or any third party to do or omit anything on the 6 basis of the Incoterms which do not apply to them at all.
Inform your bank and insurance company which Incoterm(s) have been selected for your business, so that they can determine exactly what your duties and rights are with regard to a transaction in which they may have a role to play.