Incoterms

OriginAny Mode or Modes of
Transport
Export CustomsTerminal Handling
Origin
Sea and Inland
Waterway Only
Terminal Handling
Destination
Import CustomsAny Mode or Modes of
Transport
Destination
Types of TransportAny Mode or Modes of TransportSea and Inland Waterway OnlyAny Mode or Modes of Transport
INCO Terms 2020EXWFCAFASFOBCFRCIFCPTCIPDAPDPUDDP
Ex Works
(Place)
Free Carrier
(Place)
Free Alongside Ship
(Port)
Free On Board
(Port)
Cost & Freight
(Port)
Cost, Insurance & Freight
(Port)
Carriage Paid To
(Place)
Carriage & Insurance Paid To
(Place)
Delivered At Place
(Place)
Delivered At Place Unloaded
(Place)
Delivered Duty Paid
(Place)
Transfer of RiskAt Buyer's DisposalOn Buyer's TransportAlongside ShipOn Board VesselOn Board VesselOn Board VesselAt CarrierAt CarrierAt Named PlaceAt Named Place UnloadedAt Named Place
Responsibilities & Chanrges
Export PackagingSELLERSELLERSELLERSELLERSELLERSELLERSELLERSELLERSELLERSELLERSELLER
Loading ChargesBUYERSELLERSELLERSELLERSELLERSELLERSELLERSELLERSELLERSELLERSELLER
Delivery to Port / PlaceBUYERSELLERSELLERSELLERSELLERSELLERSELLERSELLERSELLERSELLERSELLER
Export Duty, Taxes & Customs ClearanceBUYERSELLERSELLERSELLERSELLERSELLERSELLERSELLERSELLERSELLERSELLER
Origin Terminal Handling ChargesBUYERBUYERSELLERSELLERSELLERSELLERSELLERSELLERSELLERSELLERSELLER
Loading on CarriageBUYERBUYERBUYERSELLERSELLERSELLERSELLERSELLERSELLERSELLERSELLER
Freight ChargesBUYERBUYERBUYERBUYERSELLERSELLERSELLERSELLERSELLERSELLERSELLER
InsuranceNegotiableNegotiableNegotiableNegotiableNegotiableSELLERNegotiableSELLERNegotiableNegotiableNegotiable
Destination Terminal Handling ChargesBUYERBUYERBUYERBUYERBUYERBUYERSELLERSELLERSELLERSELLERSELLER
Delivery to DestinationBUYERBUYERBUYERBUYERBUYERBUYERBUYERBUYERSELLERSELLERSELLER
Unloading at DestinationBUYERBUYERBUYERBUYERBUYERBUYERBUYERBUYERBUYERSELLERBUYER
Import Duty, Taxes & Customs ClearanceBUYERBUYERBUYERBUYERBUYERBUYERBUYERBUYERBUYERBUYERSELLER

Table of Contents

1). What are Incoterms?

2). Advantages of Using Incoterms?

3). What’s Not Included in Incoterms I Need to Be Aware of as a Buyer?

4). Incoterms Explanation

5). Where Can I Learn More About the Incoterm 2020 Rules?

6). Understanding Incoterms Responsibilities

1. What are Incoterms?

International Commercial Trade Terms, or Incoterms, are used by buyers and sellers to communicate responsibilities in international trade. These terms, updated every 10 years by the International Chamber of Commerce (ICC), are followed globally.

Incoterms Basics

When purchasing internationally, sellers often use a three-letter Incoterm abbreviation from the 11 available. These terms specify tasks, costs, risks, and logistics for goods transfer, whether by sea, air, or land freight.

Each Incoterm Outlines

Point of Delivery - were goods transfer from seller to buyer.

Responsible party for transportation costs - Covering Freight Costs (Freight Prepaid or Freight Collect).

Export and Import Requirements - Specifying who covers costs and manages cargo export/import.

Responsible party for Freight Insurance - Indicating who pays for Freight Insurance.

Simplified Incoterm Explanations

Here's a simple breakdown of each Incoterm:

EXW (Ex Works) : Goods handed over at seller's premises.

FCA (Free Carrier) : Seller delivers goods to a named place.

CPT (Carriage Paid To) : Seller pays for freight to the named destination.

CIP (Carriage and Insurance Paid To) : covers freight and insurance to the named destination.

DAT (Delivered at Terminal) : Seller delivers goods to a named terminal.

DAP (Delivered at Place) : Seller delivers goods to a named destination.

DDP (Delivered Duty Paid) : Seller covers all costs and risks until goods reach the buyer.

FAS (Free Alongside Ship) : Seller delivers goods alongside the ship at a named port.

FOB (Free on Board) : Seller delivers goods on board the vessel at a named port.

CFR (Cost and Freight) : Seller pays for freight to the named port of destination.

CIF (Cost, Insurance, and Freight) : Seller covers freight, insurance to the named port of destination.

By understanding these Incoterms, International traders can ensure clarity in their agreements and smooth transactions.

EXW – Ex Works or Ex-Warehouse:

  • Seller packs the products and makes them available.
  • Buyer handles exporting, shipping, and importing to their destination.

FCA - Free Carrier :

  • Seller transports cargo to a defined destination within their country.
  • Once at the destination, the buyer pays freight charges and takes over importing and delivery.
  • Depending on the named place, either the seller or the buyer exports the cargo.

FAS - Free Alongside Ship :

  • Seller manages the full export process until goods are alongside the ship.
  • Once alongside the ship, risk transfers to the buyer.
  • Buyer loads the cargo onto their chosen vessel and ships it to the destination.

FOB - Free On Board :

  • Seller handles the full export process, loads products on the ship.
  • Once loaded, products transfer to the buyer.
  • Buyer pays for freight costs to transport goods and handles all import costs.

CFR - Cost and Freight :

  • Seller transports cargo to the buyer's port.
  • Responsibility transfers to the buyer upon arrival at the port.
  • Buyer unloads the cargo, imports goods, and delivers them to the final destination.

CIF - Cost, Insurance & Freight :

  • Seller covers costs to ship and insure cargo to the buyer's requested port.
  • Responsibility transfers to the buyer upon goods' arrival at the port.
  • Buyer covers costs to unload, import, and deliver the shipment.
  • Seller must purchase freight insurance.

CPT - Carriage Paid To :

  • Seller ships and unloads cargo at the defined place of delivery.
  • Once unloaded, cargo transfers to the buyer.
  • Buyer handles importing and transporting freight to the final destination.

CIP - Carriage & Insurance Paid :

  • Seller covers costs to ship and insure cargo to the defined place of delivery.
  • Cargo transfers to the buyer after unloading and delivery to the terminal.
  • Buyer imports and completes the shipping process to move goods to the final destination.
  • Seller must purchase freight insurance.

DAP - Delivered at Place :

  • Seller delivers cargo to the final destination.
  • Once delivered, cargo transfers to the buyer.
  • Buyer unloads the shipment from the truck.
  • Buyer handles import duty, taxes, and customs clearance.

DPU - Delivered at Place Unloaded :

  • Seller delivers and unloads cargo at the final destination.
  • After successful unloading at the buyer's warehouse, responsibility transfers to the buyer.
  • Buyer is responsible for import duty, taxes, and customs clearance.

DDP - Delivered Duty Paid :

  • Seller delivers cargo to the final destination, paying import duty, taxes, and customs clearance.
  • Upon cargo arrival, responsibility transfers to the buyer.
  • Buyer covers costs to unload the shipment.
  • DDP is the only Incoterm where the seller pays all duty charges.
2. Advantages of Using Incoterms :
  • Incoterms establish a binding agreement between buyer and seller, outlining responsibilities for goods delivery.
  • While not mandatory, quoting Incoterms in international sales prevents confusion over roles and responsibilities.
  • Language barriers and cultural differences in international trade are simplified, aiding communication in the goods transfer process.
  • Newcomers to importing and Incoterms can benefit from working with a China freight forwarder to avoid misunderstandings.
3. What’s Not Included in Incoterms I Need to Be Aware of as a Buyer?
  • Incoterms cover a significant part of logistics and cargo transfer but don't explain everything.
  • Buyers should understand what each term does not include to prevent misunderstandings and mistakes.
  • Incoterms don't define payment terms, outside rights, or responsibility in the event of defective, incorrect, or failed productions.
  • They don't protect buyers from fraud or guarantee products; they solely determine responsibility during transportation.
4. Incoterms Explanation :
  • Incoterms don't act as a contract for product sales but help communicate aspects of the purchase agreement to both parties.
  • Some buyers may find it confusing whether Incoterms protect against damage, loss, or theft of cargo. While each Incoterm addresses these concerns, only two require the seller to purchase insurance on the freight. If not agreed upon before shipment, the buyer must buy separate cargo insurance.
5. Where Can I Learn More About the Incoterm 2020 Rules :

The International Chamber of Commerce updates Incoterms every ten years.

Companies like Guided Imports stay current with ICC’s terms, and you can learn more on the ICC website or download their guide.

PDF Incoterms Chart :

Guided Imports aims for seamless international logistics, providing resources to inform shippers.

They offer "The Complete Shipper’s Guide to Incoterms and Their Meaning" to improve understanding of these terms in international trade.

The free guide includes an easy-to-follow Incoterms chart, explaining each term, how it works in buying/selling, and what to watch for.

Download the guide for a clear explanation and chart of each International Commercial Trade Term.

6. Understanding Incoterms Responsibilities :

Not all Incoterms apply to all shipment types; some are only for waterway transport, not land or air.

Using a waterway-only Incoterm for alternative methods may result in unexpected charges.

Incoterms Valid for All Shipment Methods :

EXW - Ex Works or Ex-Warehouse

FCA - Free Carrier

CPT - Carriage Paid To

CIP - Carriage and Insurance Paid To

DAP - Delivered At Place

DPU - Delivered At Place Unloaded

DDP - Delivered Duty Paid

Incoterms for Sea and Inland Waterway Transport :

FAS - Free Alongside Ship

FOB - Free on Board

CFR - Cost and Freight

CIF - Cost, Insurance, Freight

Difference Between 'Freight Collect' and 'Freight Prepaid':

'Freight Collect': Buyer collects and pays all freight charges.

Incoterms associated with 'Freight Collect':

EXW – Ex Works or Ex-Warehouse

FCA – Free Carrier

FAS – Free Alongside Ship

FOB – Free on Board

'Freight Prepaid': Seller pays freight charges.

The remaining seven Incoterms consist of 'Freight Prepaid'.

Insurance Requirements for CIF and CIP Incoterms:

CIF (Cost, Insurance & Freight) requires an insurance policy with a minimum cover of the Institute Cargo Clause (C).

CIP (Carriage & Insurance Paid To) requires an insurance policy with a minimum cover of the Institute Cargo Clause (A).

Agreement on Incoterms Between Buyer and Seller:

Sellers often have preferred Incoterms unless a buyer specifies otherwise.

Communication between buyer and seller helps agree on the most suitable Incoterm.

To be contractually valid, Incoterms should be listed in the purchase agreement, sales invoice, or sales contract.

Clear written agreement is crucial, and verbal communication is not sufficient for defining responsibilities in international shipments.

Selecting Incoterms:

No special documentation is needed for selecting an Incoterm; it should be listed with the product price in the agreement.

Incoterms can change during an order process, such as a switch from sea shipping due to delays. In such cases, communication between buyer and seller is essential for any changes in Incoterms, just like any other changesin the purchase agreement.