What are Incoterms?

Before explaining each individual Incoterm, we first need to get to grips with what Incoterms actually are. Simply put, ‘Incoterms’ are International Commercial Terms, 11 rules for the purpose of making who is responsible for what during an international transaction crystal clear. Accepted globally and becoming a requirement in international trade, they take out the risk of a “lost in translation” misunderstanding and in 3 simple letters (bar the odd caveat) it pinpoints exactly where the burden of responsibility lies and transfers from buyer to seller regarding the costs, jobs and risks involved. It leaves little to no room for confusion and every party involved knows exactly where they stand.

We have ordered the terms below starting from where the most burden and costs falls on the buyer, and the further down the list we go the further the burden and costs falls to the seller. Make sure to click on each term to learn more about it!

EXW VISUALISATION

EXW – Ex Works

Ex Works puts the large majority of costs and any risks involved of transportation of goods within the shipping process upon the buyer. The only onus to fall upon the seller is to provide access to the purchased goods, it’s then up to the buyer to arrange the loading of the goods and everything else from there on out.

Transfer of risk 

This takes place at wherever the goods are being collected and loaded, be it a warehouse, office or any another agreed location.

INCOTERM EXW RESPONSIBILITY

FCA VISUALISATION

FCA – Free Carrier

FCA starts transferring more responsibility to the seller, indicating what costs, jobs and risk they will cover. In this case, the seller is required to get the goods to the buyer’s carrier at an agreed location. It is also the seller’s duty to clear the goods for export.

*if delivery occurs at the seller’s premise (anywhere under the seller’s direct control) the seller is responsible for loading the goods onto the buyer’s carrier. Anywhere else, this responsibility falls on the buyer, starting from unloading the seller’s vehicle.

Transfer of risk 

When seller’s vehicle arrives at the agreed place and is ready to be unloaded.

INCOTERM FCA RESPONSIBILITY

CPT CIP VISUALISATION

CPT – Carriage Paid To

CPT puts the responsibility on the seller to get the goods to the buyer’s carrier at an agreed location and also clear the goods for export. Once handed over to the carrier, the seller’s responsibility of the goods ends and transfers to the buyer. The key difference is that the seller also covers the costs of freight to the named destination (that may be the port of destination or the buyer’s facilities, but this must be clearly agreed prior)

Transfer of risk 

When the goods have been handed over to the carrier.

INCOTERM CPT CIP RESPONSIBILITY

CPT CIP VISUALISATION

CIP – Carriage & Insurance Paid To

CIP acts an alternative to CPT should the buyer wish for the seller to insure the goods whilst being transported. There is no obligation on the seller to what level of insurance they need to get and can opt to go for the minimum requirements possible to ensure the goods are covered. Should the buyer wish for something more comprehensive then they should look into arranging the insurance themselves.

Transfer of risk

When the goods have been handed over to the carrier.

INCOTERM CPT CIP RESPONSIBILITY

FAS VISUALISATION

FAS – Free Alongside Ship (named port of shipment)

FAS obliges the seller to make sure the goods are placed alongside the chosen vessel at the named port of shipment, with the seller required to cover the export customs clearance, risk, liabilities and costs up to that point. Everything after this point is up to the buyer.

Transfer of risk

When the goods have been placed alongside the Vessel.

INCOTERM FAS RESPONSIBILITY

FOB VISUALISATION

FOB – Free on Board

FOB is about the most even balance of bearing responsibility between the seller and buyer. The goods are effectively considered to be delivered once they are on board the ship. The seller must cover all costs up until that point, including export clearance. The buyer covers all other costs, such as marine freight transportation, insurance, bill of lading fees, unloading and final transportation costs once the goods have reached the port of destination.

Transfer of risk

Once goods have been delivered onboard the vessel

INCOTERM FOB and CFR and CIF RESPONSIBILITY

CFR CIF VISUALISATION

CFR – Cost and Freight

CFR requires the seller to get the goods up to the port of destination, covering any costs to do so and also arranging export clearance and freight costs up to the port of destination. From there onward its then up to the buyer to cover the costs of the final delivery.

Transfer of risk

When the goods are loaded onto the ship.

INCOTERM FOB and CFR and CIF RESPONSIBILITY

CFR CIF VISUALISATION

CIF – Cost, Insurance & Freight

Almost identical to CFR in every way, other than the seller is required to get insurance. As with CIP, there is no obligation to what level of cover the seller must obtain, and can stick to applying the bare minimum that is required of them. Should the buyer want something more comprehensive, then they should look into arranging it themselves.

Transfer of risk

When the goods are loaded onto the ship.

INCOTERM FOB and CFR and CIF RESPONSIBILITY

DAT VISUALISATION

DAT – Delivered at Terminal

DAT requires the seller to take on the responsibility of getting the goods delivered and unloaded, including the costs to do so, at the named terminal (The terminal may be a Port, Airport – whatever it is it must be a suitable place to accept shipment). The seller must also arrange any export customs clearance for the goods.

Transfer of risk

At the terminal after being unloaded by the seller. Buyer is responsible for all costs after this, including import taxes, customs and duties.

NCOTERM DAT RESPONSIBILITY

DAP DDP VISUALISATION

DAP – Delivered at Place

Similar in almost every regard to DAT, with two key differences, the seller must ensure the goods reach the agreed place in the country of destination at their own cost and once at the agreed place the buyer is responsible for the unloading of the goods, including any costs to do so. The seller still arranges any export customs clearance and likewise the buyer still is responsible for the costs after unloading (including import taxes, customs and duties) – This option is often favoured over DAT as it does not put any onus on the seller to unload at the terminal.

Transfer of risk

Once the buyer has received goods at agreed place and are ready for unloading.

INCOTERM DAP and DDP RESPONSIBILITY

DAP DDP VISUALISATION

DDP – Delivery Duty Paid

DDP brings us to the other end of the responsibility scale, where the seller has the largest bulk of risks, costs and jobs to deal with and the buyer has minimal responsibility in transportation of the goods. The seller must arrange for the delivery of the goods to the named place in the country of destination, and cover all costs in doing so, including any import taxes, customs and duties. The buyer only takes responsibility of the goods once delivered at the named place of destination.

Transfer of risk

Upon delivery at named place of destination.

INCOTERM DAP and DDP RESPONSIBILITY

“I love what I see, help me transport cargo!”

“I love what I see, help me transport cargo!”

AEO