Even though it’s hard for non-industrial people to understand incoterms, it’s still important to know the basics. The Learn Logistics series will help you understand concepts better by Sharing you fundamentals.
What are incoterms?
The International Chamber of Commerce (ICC) publishes a set of Incoterms, also known as international commercial terms, to make international trade easier. Recognized all over the world, Incoterms make it easier for buyers and sellers to understand their responsibilities in international trade agreements.
Incoterms Rules for Any Mode of Transport:
Delivered Duty Paid (DDP), Delivered at Place (DAP), and Ex Works (EXW) are all common examples of Incoterms rules that apply to any mode of transportation. For each mode of transportation, the seven Incoterms are as follows:
- EXW: Ex Works
- 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
EXW (Ex works)
The Incoterm EXW, or Ex works, demonstrates that the seller makes the goods available to the buyer either at the seller’s facilities or in another location, such as a warehouse or factory.
For the purpose of collection, the seller is not required to load the goods onto the chosen mode of transportation or complete customs clearance (if necessary).
FCA (Free carrier)
The Incoterm FCA, or Free carrier, demonstrates that the seller delivers the goods to the carrier or another individual designated by the buyer at the seller’s premises or another designated location.
CPT (Carriage Paid To)
The Incoterm CPT (Carriage Paid To) states that the seller delivers the goods to the carrier or to a buyer-specified individual at a location agreed upon by both parties.
CIP (Carriage and Insurance Paid To)
The Incoterm CIP (Carriage and Insurance Paid To) stipulates that the seller must deliver the goods to the carrier or to the person specified by the buyer at the agreed-upon location. Additionally, the seller must pay for insurance against loss or damage during the entire transportation process until the package reaches the location that has been selected by both parties.
DAP (Delivered At Place)
The Incoterm DAP, or Delivered At Place, establishes that the seller has to deliver the goods at the point of origin of the transport route that the buyer has contracted. Under these rules, the buyer isn’t responsible for the goods at the destination, nor for the costs that this process generates.
DPU (Delivered At Place Unloaded)
DPU, which stands for Delivered At Place Unloaded, replaces the previous DAT, which stood for Delivered At Terminal. The seller is also required to deliver the goods unloaded from the transport vehicle at the specified location under the new designation.
The goods remain the property of the seller until they are delivered and unloaded at the designated location.
DDP (Delivered Duty Paid)
The DDP Incoterm, or Delivered Duty Paid, imposes the most obligations and costs on the seller, making it the most convenient choice for importers or buyers.
When a shipment is made in accordance with DDP rules, the seller gives the goods to the buyer after the customs clearance has been completed and paid for. This means that the goods have already been unloaded from the means of transportation at the agreed-upon location.
Incoterms Rules for Sea and Inland Waterway Transport
The Incoterms for sea and inland waterway transport are below:
FAS (Free Alongside Ship)
The Incoterm FAS, or Free Alongside Ship, is only utilized for maritime transportation. In accordance with these regulations, the seller delivers the goods in the harbor from which the shipment will depart, next to the vehicle that the buyer has chosen.
FOB (Free On Board)
The Incoterm FOB, or Free On Board, refers to maritime transportation as well. Under these conditions, the seller must either deliver the goods at the specified location on the vessel designated by the buyer or arrange for them to be delivered at the specified location.
CFR (Cost and Freight)
The incoterm CFR, which stands for “Cost and Freight,” specifies that the seller is required to ship the goods. Once they board, the risk of loss or damage is transferred.
Up until the goods arrive at the agreed-upon port of destination, the seller is obligated to enter into a contract and bear all costs associated with their transportation.
CIF (Cost, Insurance, and Freight)
The Incoterm CIF (Cost, Insurance, and Freight) stipulates that the seller or an authorized party must transport the goods .Maritime transportation makes use of this Incoterm.
When the products are loaded onto the ship, the risk of loss or damage is transferred.
The seller is responsible for signing the cargo contract and covering the costs associated with the goods’ delivery to the designated port. In addition, it is the responsibility of sellers to contract and pay for insurance against loss or damage until the goods are delivered to the port of destination.
Picture source: Oceanair
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