INCOTERMS

incoterms

Definitions of 2010 terms

Group E

EXW

Ex Works (named place of loading)

The seller makes the goods available at their premises. This term places the maximum obligation on the buyer and minimum obligations on the seller. The Ex Works term is often used when making an initial quotation for the sale of goods without any costs included. EXW means that a buyer incurs the risks for bringing the goods to their final destination. Either the seller does not load the goods on collecting vehicles and does not clear them for export, or if the seller does load the goods, he does so at buyer’s risk and cost. If parties wish seller to be responsible for the loading of the goods on departure and to bear the risk and all costs of such loading, this must be made clear by adding explicit wording to this effect in the contract of sale.

The buyer arranges the pickup of the freight from the supplier’s designated ship site, owns the in-transit freight, and is responsible for clearing the goods through Customs. The buyer is also responsible for completing all the export documentation.

Group F

FAS – Free Alongside Ship (named port of shipment)

The seller delivers when the goods are placed alongside the buyer’s vessel at the named port of shipment. This means that the buyer has to bear all costs and risks of loss of or damage to the goods from that moment. The FAS term requires the seller to clear the goods for export, which is a reversal from previous Incoterms versions that required the buyer to arrange for export clearance. However, if the parties wish the buyer to clear the goods for export, this should be made clear by adding explicit wording to this effect in the contract of sale. This term can be used only for sea or inland waterway transport.

 

FOB – Free on Board (named port of shipment)

FOB means that the seller pays for delivery of goods to the vessel including loading. The seller must also arrange for export clearance. The buyer pays cost of marine freight transportation, bill of lading fees, insurance, unloading and transportation cost from the arrival port to destination. The buyer arranges for the vessel, and the shipper must load the goods onto the named vessel at the named port of shipment according to the dates stipulated in the contract of sale as informed by the buyer. Risk passes from the seller to the buyer when the goods are loaded aboard the vessel. This term has been greatly misused over the last three decades ever since Incoterms 1980 explained that FCA should be used for container shipments.

 

FCA – Free Carrier (named place of delivery)

The seller delivers the goods, cleared for export, at a named place. This can be to a carrier nominated by the buyer, or to another party nominated by the buyer.

It should be noted that the chosen place of delivery has an impact on the obligations of loading and unloading the goods at that place. If delivery occurs at the seller’s premises, the seller is responsible for loading the goods on to the buyer’s carrier. However, if delivery occurs at any other place, the seller is deemed to have delivered the goods once their transport has arrived at the named place; the buyer is responsible for both unloading the goods and loading them onto their own carrier.

 

Group C

CFR – Cost and Freight (named port of destination)               

The seller pays for the carriage of the goods up to the named port of destination. Risk transfers to buyer when the goods have been loaded on board the ship in the country of Export. The Shipper is responsible for origin costs including export clearance and freight costs for carriage to named port. The shipper is not responsible for delivery to the final destination from the port (generally the buyer’s facilities), or for buying insurance. If the buyer does require the seller to obtain insurance, the Incoterm CIF should be considered. CFR should only be used for non-containerized seafreight; for all other modes of transport it should be replaced with CPT.

 

CIF – Cost, Insurance & Freight (named port of destination)

 

This term is broadly similar to the above CFR term, with the exception that the seller is required to obtain insurance for the goods while in transit to the named port of destination. CIF requires the seller to insure the goods for 110% of their value under at least the minimum cover of the Institute Cargo Clauses of the Institute of London Underwriters (which would be Institute Cargo Clauses (C)), or any similar set of clauses. The policy should be in the same currency as the contract. CIF should only be used for non-containerized seafreight; for all other modes of transport it should be replaced with CIP.

 

CPT – Carriage Paid To (named place of destination)

CPT replaces the venerable C&F (cost and freight) and CFR terms for all shipping modes outside of non-containerised seafreight.

The seller pays for the carriage of the goods up to the named place of destination. Risk transfers to buyer upon handing goods over to the first carrier at the place of shipment in the country of Export. The seller is responsible for origin costs including export clearance and freight costs for carriage to named place of destination (either final destination such as buyer’s facilities or port of destination has to be agreed by seller and buyer, however, named place of destination is generally picked due to cost impacts). If the buyer does require the seller to obtain insurance, the Incoterm CIP should be considered.

 

CIP – Carriage and Insurance Paid to (named place of destination)

This term is broadly similar to the above CPT term, with the exception that the seller is required to obtain insurance for the goods while in transit. CIP requires the seller to insure the goods for 110% of their value under at least the minimum cover of the Institute Cargo Clauses of the Institute of London Underwriters (which would be Institute Cargo Clauses (C)), or any similar set of clauses. The policy should be in the same currency as the contract.

CIP can be used for all modes of transport, whereas the equivalent term CIF can only be used for non-containerised seafreight.

 

Group D

DAT – Delivered at Terminal (named terminal at port or place of destination)

This term means that the seller covers all the costs of transport (export fees, carriage, unloading from main carrier at destination port and destination port charges) and assumes all risk until destination port or terminal. The terminal can be a Port, Airport, or inland freight interchange. Import duty/taxes/customs costs are to be borne by Buyer.

 

DAP – Delivered at Place (named place of destination)

Can be used for any transport mode, or where there is more than one transport mode. The seller is responsible for arranging carriage and for delivering the goods, ready for unloading from the arriving conveyance, at the named place. Duties are not paid by the seller under this term. The seller bears all risks involved in bringing the goods to the named place.

 

DDP
Delivered Duty Paid: Named destination place

The seller bears all the costs until the goods reach the stated port of destination in the destination country. The buyer does not have to complete administrative procedures. Customs duties on imports charges are borne by the Seller. The mode of transportation is unimodal / multimodal

The Seller shall be responsible for the delivery

For a given term, “Yes” means that the seller is responsible for providing the service included in the price; “No” means that the buyer is responsible. If the insurance is not included under the terms (e.g. CRF) the transport insurance is the responsibility of the buyer.

Ultimately, incoterms are regulations widely known and used by the different players who are involved in foreign trade operations (importers, exporters, transporters, forwarding agents, customs agents, banks and insurance companies, etc.) and therefore they need to be known in depth, in order to use them properly and to avoid any discrepancies between the parties.

Insurance (minimum insurance cover of 110% of the invoice according to Clause “C” of the International Chamber of Commerce)

It is important to make it clear that from Incoterms 2010 the only terms that obligue to hire an insurances according with its provisions are CIF and CIP (the letter “I” corresponds to “insurance”. The table below shows the details:

Nombre Carga a camión Pago detasas de exportación Transporte al puerto de exportación Descarga del camión en el puerto de exportación Cargos por embarque en el puerto de exportación Transporte al puerto de importación Cargos por desembarque en el puerto de importación Carga en camiones desde el puerto de importación Transporte al destino Seguros Paso de aduanas Impuesto de importación
EXW No No No No No No No No No No No No No No No No No No No No No No No No
FCA Sí  Sí  Sí  No No No No No No No No No No No No No No No No No No
FAS Sí  Sí  Sí  Sí  No No No No No No No No No No No No No No No No
FOB Sí  Sí  Sí  Sí  Sí  No No No No No No No No No No No No No No
CFR Sí  Sí  Sí  Sí  Sí  Sí  No No No No No No No No No No No No
CIF Sí  Sí  Sí  Sí  Sí  Sí  No No No No No No Sí  No No No No
CPT Sí  Sí  Sí  Sí  Sí  Sí  No No No No No No No No No No No No
CIP Sí  Sí  Sí  Sí  Sí  Sí  No No No No No No Sí  No No No No
DAT Sí  Sí  Sí  Sí  Sí  Sí  Sí  Sí  No No No No No No No No
DAP Sí  Sí  Sí  Sí  Sí  Sí  Sí  Sí  Sí  No No No No No No
DDP Sí  Sí  Sí  Sí  Sí  Sí  Sí  Sí  Sí  No No Sí  Sí