The Incoterms rules, or International Commercial Terms, are a number of commercial terms specified by the International Chamber of Commerce that designate three-letter terms to common processes to indicate the responsibilities of the buyer and seller in the process of transport and delivery.
It is important to note that the Incoterms do not:
- Determine ownership of goods, and do not implement payment terms.
- Apply to service contracts and do not specify contractual rights and obligations or breach of contract remedies.
- Protect parties from own risk or loss and do not cover goods before or after delivery.
- Specify details about the transfer, transport and delivery of goods. Container loading is not considered as packaging, and therefore must be defined in the sales contract.
Here is a list of the Incoterms applicable:
FAS – Free Alongside Ship - Buyer assumes risks, including payment of transportation and insurance costs, once the goods have been delivered at port terminal. The seller is obligated to handle export clearance.
FCA – Free Carrier - Goes a step ahead from EXW, where seller delivers goods to the carrier and may be liable to clear goods for export.
FOB – Free On Board - Buyer assumes risks, including payment of transportation and insurance costs, once the goods have been delivered at transport vessel. A step further than FAS.
CPT – Carriage Paid To
Seller delivers goods to specified location, upon which buyer assumes risks. Seller must pay cost of transport to the specified location.
CFR – Cost and Freight - Seller delivers goods and pays for cost and transport to port of delivery. Once on board the vessel, risk of the goods passes to buyer. A step further than FOB.
CIP – Carriage and Insurance Paid To - Goes a step further from CPT, where seller pays for delivery to specific location as well as insurance cost.
CIF – Cost, Insurance and Freight - Seller pays for costs, transport and insurance to port of delivery. Once on board the vessel, risk of the goods passes to buyer. Adds insurance costs to CFR.
EXW – Ex Works - Seller assumes minimum liability and delivers goods (without loading) at seller’s premises, at the disposal of buyer.
DAP - Delivered At Place ( formally known as DDU ) - Seller assumes cost and risk of goods until made available to buyer at specific location. Seller clears goods for export, but not import.
DAT – Delivered At Terminal - Seller assumes cost and risk of goods until unloading at destination terminal. Seller clears goods for export, but not import.
DDP – Delivered Duty Paid- Seller assumes cost and risk of goods until made available to buyer’s disposal at specific location. Seller is responsible for import clearance, duties and tax, while buyer is responsible for unloading.