WHAT DO INCOTERMS MEAN AND WHAT ARE THEY USED FOR?

The International Commercial Terms, in short, called Incoterms, are a set of rules circulated by the International Chamber of Commerce (ICC). The primary purpose of  Incoterms rules is to determine the responsibilities, expenses, and risks linked with the international transit and delivery of goods between the seller and the buyer. They remove ambiguity and are recognized worldwide by the governments, legal authorizations, and traders in global business.

DIFFERENCE BETWEEN INCOTERMS 2010 AND NEW INCOTERMS 2020

The new Incoterms 2020 are the ninth version introduced by the ICC. They define 11 incoterms rules, same number as Incoterms 2010, and bring some slight changes regarding insurance, cost structures, security and transport types.
The former Incoterms 2010 rule “DAT” (Delivered at Terminal) becomes now “DPU” (Delivered at Place Unloaded). There is also a variation in “CIF” (Cost, Insurance, and Freight) and “CIP” (Carriage and Insurance Paid to) rules, now giving the parties a choice to increase insurance coverage.

HOW TO CHOOSE THE RIGHT INCOTERM FOR YOUR SHIPMENT

The 11 Incoterms 2020 rules can be divided into 2 groups according to the mode of transportation:

  • Any Mode of Transport / Multimodal: EXW, FCA, CPT, CIP, DPU, DAP, and DDP
  • Sea and Inland Waterways Transport only: FAS, FOB, CFR, and CIF

In addition to selecting the right incoterm according to your mode of transportation and type of good (containerized or bulk); other important factors can become challenging at the moment of choosing the appropriate shipping term: Cost, accountabilities, customs clearance, duties, additional insurance, transfer of risks, etc.

Choosing the Incoterm that befits your cargo requirements can be complex, especially if you are a first time importer.

Discover our overview of the current list of
incoterms 2020 rules and contact us today to get immediate assistance for your next shipment.

  •  
  • EXW
  • FCA
  • CPT
  • CIP
  • FAS
  • FOB
  • CFR
  • CIF
  • DPU
  • DAP
  • DDP
 
  • Seller
    Location
  • Export
    Customs
  • Loading
  • Pre Carriage
  • Named Place
    of Delivery
  • Loading
  • Main
    Transport
  • Discharge
  • On Carriage
  • Named Place
    of Destination
  • Unloading at
    Named Place
  • Import
    Customs
  • Buyer Location
    Unloaded
Seller risk
Seller cost
Seller insurance
Seller risk
Seller cost
Seller insurance
Seller risk
Seller cost
Seller insurance
Seller risk
Seller cost
Seller insurance
Seller risk
Seller cost
Seller insurance
Seller risk
Seller cost
Seller insurance
Seller risk
Seller cost
Seller insurance
Seller risk
Seller cost
Seller insurance
Seller risk
Seller cost
Seller insurance
Seller risk
Seller cost
Seller insurance
Seller risk
Seller cost
Seller insurance

EX WORKS

Mode of Transportation: Any mode / Multimodal

The seller is accountable for packing the goods and making them available at its premises (warehouse, factory, etc.) or any other location agreed with the buyer.
The buyer is in charge of loading the cargo onto trucks or containers (although an agreement can conclude that the seller does load the goods but at buyer’s risks and cost), clearing customs for export, and making all the arrangements to the final destination.
The Ex Works incoterm is frequently put into practice when asking for an initial quotation, without any delivery costs. While seller’s risks are minimal, the importer or buyer bears all the costs and risks involved, and pays the insurance.

FREE CARRIER

Mode of Transportation: Any mode / Multimodal Commonly used for Containerized Ocean Freight (FCL & LCL) and Air Shipments.

FCA is an appropriate incoterm when the seller only wants to handle logistics in the  country of export.
The seller packs, loads and delivers the goods cleared for export to the buyer at the seller’s premises or another named place.
The buyer arranges transportation and bears all costs, from the agreed named place of delivery to the final destination.
• If delivery occurs at seller’s premises, risk and cost pass to the buyer when the goods are loaded and stacked by the seller onto the carrier chosen by the buyer.
• If delivery occurs at another named place, the seller is accountable for the pre-carriage. The buyer is responsible for unloading goods from the seller‘s means of transport. Risk and cost pass to the buyer as soon as the goods arrive at the named place.

CARRIAGE PAID TO

Mode of Transportation: Any mode / Multimodal Commonly used  for Air Shipments.

The seller is bound to clear goods for export and pay for the carriage (one or more means of transportation) to the named place of destination in the buyer’s country. The seller does not have to contract or pay for insurance.
Once goods are handed over to the first carrier, they are considered to be delivered to the buyer. At this point, the risk is transferred to the buyer.
The buyer bears all additional costs after the cargo reaches the named place of destination agreed with the seller and is in charge of unloading, imports clearance, duties, and taxes. Transport insurance is also the sole responsibility of the buyer.

CARRIAGE AND INSURANCE PAID TO

Mode of Transportation: Any mode / Multimodal Commonly used for Air Shipments.

CIP (or Carriage and Insurance Paid To) is an Incoterm similar to CPT, with one major difference: the seller is obligated to contract extensive insurance coverage until the cargo arrives at the named place of destination in the buyer’s country.
The seller is bound to clear goods for export, pay for the carriage (one or more means of transportation), and arrange all-risk insurance to cover the buyer’s risk during transport to the named place of destination.
Once goods are handed over to the first carrier, they are considered to be delivered to the buyer. At this point, the risk is transferred to the buyer.
The buyer bears all additional costs after the cargo reaches the named place of destination agreed with the seller, and is in charge of unloading, imports clearance, duties, and taxes.
In the new Incoterms 2020 rules, parties can increase the insurance coverage as per their need. However, while the seller pays for the insurance, the risk is with the buyer.

FREE ALONGSIDE SHIP

Mode of Transportation: Sea & Inland Waterway only – Commonly used for break-bulk & bulk shipments

The seller packs, loads and delivers the goods cleared for export, by placing them alongside the vessel at the named port of loading chosen by the buyer.
The buyer is in charge of loading the cargo onto the vessel. All risk, cost, and insurance are transferred and carried out by the buyer at this point, including imports clearance, duties, and taxes.
FAS is a new 2020 incoterm designed for bulk and break-bulk cargo. This incoterm is not advised for container shipments, as containers have to be handed over to the carrier at a terminal, and not alongside the vessel.

FREE ON BOARD

Mode of Transportation: Sea & Inland Waterway only – Commonly used for bulk cargo and freight from Asia

Free On Board is one of the most frequently used 2020 Incoterms rule. FOB means the seller carries and loads the freight onto the ship chosen by the buyer.
The seller has to pack, load and deliver the goods, cleared for export, to the named port of origin and load the cargo onto the vessel. The seller is also responsible for paying the origin port charges.
The risk of loss or damage transfers from the seller to the buyer as soon as the cargo is loaded onto the ship. The buyer bears all costs from that moment onwards, including imports clearance, duties, and taxes.

COST AND FREIGHT

Mode of Transportation: Sea & Inland Waterway onlyCommonly used for non-containerized cargo.

With the CFR incoterm, the seller bears all export costs & freight charges (including main transport) until the shipment reaches the port of destination.
The seller has to pack, load, clear for export and arrange the delivery and loading of the goods onto the vessel (booked by the seller) at the named port of origin.
The risk of loss or damage transfers from the seller to the buyer as soon as the cargo is loaded onto the ship.
The buyer only bears costs when the freight arrives at the named port of destination. The buyer is responsible for arranging and paying the unloading and all additional transport to the end destination, including imports clearance, duties, and taxes.
For containerized cargo, prefer CPT incoterm.

COST, INSURANCE AND FREIGHT

Mode of Transportation: Sea & Inland Waterway only – Commonly used for non-containerized cargo.

CIF is an Incoterm rule similar to CFR, with one major difference: the seller is obligated to contract a minimum marine insurance coverage to the named port of destination in the buyer’s country.
The seller has to pack, load, clear for export and arrange the delivery and loading of the goods onto the vessel (booked by the seller) at the named port of origin.
The risk of loss or damage transfers from the seller to the buyer as soon as the cargo is loaded onto the ship.
The buyer only bears costs when the freight arrives at the named port of destination. The buyer is responsible for arranging and paying the unloading and all additional transport to the end destination, including imports clearance, duties, and taxes.
In the new Incoterms 2020, parties can increase the insurance coverage as per their need. However, while the seller pays for the insurance, the risk is with the buyer.
For containerized cargo, prefer CIP incoterm.

DELIVERED NAMED PLACE UNLOADED

Mode of Transportation: Any mode / Multimodal

DPU is the only incoterm when the seller is in charge of unloading the goods at the named place of destination.
The seller is responsible for packing, loading and clearing the goods for export. He contracts and pays for carriage (apply to one or more means of transportation) and unloading at the agreed place of destination in the buyer’s country.
The seller transfers all risk, cost, and insurance to the buyer when the goods are delivered and unloaded at the place of destination.
The buyer bears all additional costs after the cargo is unloaded, and is responsible for imports clearance, duties, and taxes.
⇒ The named place of destination can be a quay, warehouse, factory, container yard or road, port, rail, or air cargo terminal; as agreed between the seller and the buyer.

DELIVERED AT PLACE

Mode of Transportation: Any mode / Multimodal

Under the DAP incoterm, the seller is in charge of transporting and delivering goods to the buyer at the agreed named place of destination, still loaded and ready for unloading.
The seller is responsible for packing, loading and clearing the goods for export. He contracts and pays for carriage (apply to one or more means of transportation) to the agreed place of destination in the buyer’s country.
The seller transfers all risk, cost, and insurance to the buyer when the goods are delivered, still loaded, and ready for unloading at the place of destination.
The buyer bears all additional costs after the cargo reaches the named place of destination and is in charge of unloading, imports clearance, duties, and taxes.
⇒ The named place of destination can be a quay, warehouse, factory, container yard or road, port, rail or air cargo terminal; as agreed between the seller and the buyer.

DELIVERED DUTY PAID

Mode of Transportation: Any mode / Multimodal

DDP is the only incoterm when the seller is in charge of import clearance, taxes and duties. Delivered Duty Paid is the exact opposite of Ex-Works and the seller has the most responsibility.
The seller handles the packing, loading and clearing for exports. He contracts and pays for carriage (apply to one or more means of transportation) to the agreed place of destination, usually the business premises or storehouse proposed by the buyer.
The seller is also responsible for imports clearance, duties, and taxes. However, he is not obliged to insure the goods for carriage.
The seller assumes all costs and risk of loss or damage, until the cargo reaches the place of destination and is ready for unloading.
At this point, the risk and costs transfers from the seller to the buyer. The buyer is responsible for unloading the goods.

DISTRIBUTION OF COSTS AND CHARGES BETWEEN THE SELLER AND THE BUYER

Incoterm/Cost
Packaging
Loading from warehouse
Export customs clearance
Pre-carriage
Origin port fees
Handling at departure (OTHC)
Main transportation
Transportation insurance
Handling arrival (DTHC)
Destination port fees
Post carriage
Import customs clearance
Unloading into warehouse
EXW
Seller
Seller
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
FCA
Seller
Seller
Seller
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
CPT
Seller
Seller
Seller
Seller
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
CIP
Seller
Seller
Seller
Seller
Buyer
Buyer
Buyer
Seller
Buyer
Buyer
Buyer
Buyer
Buyer
FAS
Seller
Seller
Seller
Seller
Seller
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
FOB
Seller
Seller
Seller
Seller
Seller
Seller
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
CFR
Seller
Seller
Seller
Seller
Seller
Seller
Seller
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
CIF
Seller
Seller
Seller
Seller
Seller
Seller
Seller
Seller
Buyer
Buyer
Buyer
Buyer
Buyer
DPU
Seller
Seller
Seller
Seller
Seller
Seller
Seller
Buyer
Seller
Buyer
Buyer
Buyer
Buyer
DAP
Seller
Seller
Seller
Seller
Seller
Seller
Seller
Buyer
Seller
Seller
Seller
Buyer
Buyer
DDP
Seller
Seller
Seller
Seller
Seller
Seller
Seller
Buyer
Seller
Seller
Seller
Seller
Buyer
GET A QUOTE  GET A QUOTE crosshair TRACK SHIPMENT