Incoterms is the abbreviation for International Commercial Terms, which are standardized terms for international purchase and sale contracts.
They define the responsibilities and obligations of the buyer and the seller regarding the delivery of goods, payment of costs, and risk of loss or damage.
The current existing Incoterms are:
- EXW (Ex Works): The seller makes the goods available to the buyer at their location (factory or warehouse). The buyer takes care of all transportation costs and risks.
- FOB (Free On Board): The seller delivers the goods on board the ship at the named port of shipment. The buyer takes on the costs and risks of transportation from that moment. This term applies only to maritime or inland waterway transport.
- CIF (Cost Insurance And Freight): The seller pays the cost, insurance, and freight of the goods to the named destination port. However, the risk of loss or damage to the goods is transferred from the seller to the buyer when the goods are delivered on board the ship at the port of shipment. This term applies only to maritime or inland waterway transport.
- CFR (Cost And Freight): The seller pays the cost and freight of the goods to the named destination port. However, the risk of loss or damage to the goods is transferred from the seller to the buyer when the goods are delivered on board the ship at the port of shipment. This term applies only to maritime or inland waterway transport.
- FCA (Free Carrier): The seller delivers the goods to the carrier designated by the buyer at the place of origin. From that point, the buyer assumes responsibility for transportation and associated risks.
- FAS (Free Alongside Ship): The seller delivers the goods alongside the ship at the named port of shipment. The buyer is responsible for loading the goods onto the ship and for subsequent transportation. This term applies only to maritime or inland waterway transport.
- CPT (Carriage Paid To): The seller pays for the transportation of the goods to the named destination. However, the risk of loss or damage to the goods is transferred from the seller to the buyer upon delivery to the carrier.
- CIP (Carriage And Insurance Paid To): The seller pays for the transportation and insurance of the goods to the named destination. However, the risk of loss or damage to the goods is transferred from the seller to the buyer upon delivery to the carrier.
- DAP (Delivered At Place): The seller delivers the goods to an agreed location in the destination country. However, the seller is not responsible for customs clearance or associated costs.
- DPU (Delivered At Place Unloaded): The seller delivers the goods unloaded at an agreed location in the destination country. However, the seller is not responsible for customs clearance or associated costs. This term is new in the 2020 version and replaces the old term DAT (Delivered At Terminal).
- DDP (Delivered Duty Paid): The seller delivers the goods at the agreed destination location and assumes all costs and risks related to transportation, insurance, and customs clearance.
The most common ones are CIF and FOB, but the choice of the appropriate Incoterm depends on a series of factors, including the mode of transportation used, the origin and destination of the goods, the risks involved, and the preferences of the buyer and the seller.
Incoterms are important for international trade because they help reduce uncertainty and risk. They also facilitate the negotiation of purchase and sale contracts by providing a common basis for both parties.
If you need help choosing the best type for your business, please contact us so we can assist you!
