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Incoterms

Incoterms

responsibilities of buyers and sellers operating in the international trade system



If you are buying goods from China on your own, this is something you should know.

International Commercial Terms (Incoterm) is a common set of rules and guidelines. It's a set of regulations that define the responsibilities of buyers and sellers operating in the international trade system. 

Who publishes the Incoterms rules?

Since its founding in 1919, International Chamber of Commerce (ICC) has been committed to the facilitation of international trade. Different practices and legal interpretations between traders around the world necessitated a common set of rules and guidelines. ICC published the first Incoterms rules in 1936. The newest edition of the Incoterms is Incoterms 2020.

What are Incoterms rules?

The Incoterms rules are the world’s essential terms of trade for the sale of goods. Whether you are filing a purchase order, packaging and labelling a shipment for freight transport, or preparing a certificate of origin at a port, the Incoterms rules are there to guide you. The Incoterms rules provide specific guidance to individuals participating in the import and export of global trade on a daily basis. 

Why use Incoterms rules in international trade?

Although other clauses for global trade exist around the world, such as the Harmonized Tariff Schedule of the United States, Incoterms rules are global in their reach. Similarly, Incoterms rules do not include trade terms codified for national purposes, such as the “less than truckload shipping” (LTL) rule of the United States. Unlike national trade policies, Incoterms rules are universal, providing clarity and predictability to business.

Note that while the Incoterms FAS, FOB, CFR and CIF are applicable to only sea or inland waterway transport, all other terms can be used for all modes of transportation—air, ground, rail and ocean.

E terms - Departure

  • EXW - Ex Works (Place of Delivery, Usually Seller’s Premises)

Air Shipping cost(EXW) = Local logistics cost in China + China export cost + Cost for air shipping from Chinese airport to destination country airport + destination country customs clearance cost + Local logistics cost in the destination country

See Shipping cost = Local logistics cost in China + China export cost + Cost for sea freight from Chinese port to destination country port +destination country customs clearance cost + Local logistics cost in the destination country (+ international logistic cost from sea port to your country if needed)

F terms - Main Carriage Unpaid

  • FCA - Free Carrier (Place of Delivery)
  • FAS - Free Alongside Ship (Port of Shipment)
  • FOB- Free On Board (Port of Shipment)

Air Shipping cost (FOB) = Cost for air shipping from Chinese airport to destination country airport + destination country customs clearance cost+ Local logistics cost in the destination country

See Shipping cost (FOB) =Cost for sea freight from a Chinese port to destination country port +destination country customs clearance cost + Local logistics cost in the destination country (+ international logistic cost from sea port to your country if needed)

C terms - Main Carriage Paid

  • CFR - Cost and Freight (Port of Destination)
  • CIF - Cost, Insurance and Freight (Port of Destination)
  • CPT - Carriage Paid To (Place of Destination)
  • CIP - Carriage and Insurance Paid To (Place of Destination)

D terms - Arrival

  • DPU - Delivered at Place Unloaded (Place of Destination, Where Seller Unloads)
    • Formerly: DAT - Delivered At Terminal (Terminal at Port or Place of Destination)
  • DAP - Delivered At Place (Place of Destination)
  • DDP - Delivered Duty Paid (Place of Destination)

EXW - Ex Works (Place of Delivery, Usually Seller’s Premises)

EXW, short for “Ex Works,” places most responsibility with the buyer. The seller is expected to have the goods ready for collection at the agreed place of delivery (commonly the seller’s factory, mill, plant or warehouse). The buyer is accountable for all subsequent costs and risk, including all export procedures, starting with loading the goods onto a transport vehicle at the seller’s premises.

In practice, it is not uncommon for a seller to load goods onto the vehicle instead, at the risk and cost of the buyer—or even free of charge. However, such an agreement must be made within the contract of sales.

EXW Obligations

Seller’s Obligations

  • Goods, commercial invoice and documentation
  • Place goods at buyer’s disposal at the named place on the agreed upon date
  • Notice to the buyer to enable delivery
  • Export packaging and marking

Buyer’s Obligations

  • Pay the price of the goods as stated in sales contract
  • Provide seller with evidence of having taken delivery
  • Loading at seller’s location (unless otherwise agreed upon)
  • Export licenses and customs formalities
  • Pre-carriage to terminal
  • Loading charges
  • Main carriage
  • Discharge and onward carriage
  • Import formalities and duties
  • Cost of pre-shipment inspection

 

FCA - Free Carrier (Place of Delivery)

Under the shipping terms for the FCA Incoterms (short for “Free Carrier”), the seller is responsible for export clearance and delivery of goods to the carrier at the named place of delivery.

Unless otherwise agreed upon, the seller is only responsible for loading the goods if the seller’s place of business is the named place of delivery.

A carrier is any person or company who undertakes the carriage, such as a shipping line, airline, trucking company, railway or freight forwarder.

FCA Obligations

Seller’s Obligations

  • Goods, commercial invoice and documentation
  • Export packaging and marking
  • Export licenses and customs formalities
  • Pre-carriage to terminal
  • Delivery to named place of delivery
  • Cost of pre-shipment inspection
  • Proof of delivery

Buyer’s Obligations

  • Payment for goods at price agreed upon in sales contract
  • Unloading from arriving means of transportation
  • Loading charges
  • Main carriage
  • Discharge and onward carriage
  • Import formalities and duties
  • Cost of pre-shipment inspection (for import clearance)

FAS - Free Alongside Ship (Port of Shipment -  Sea and inland waterway only)

In the Incoterms rules for FAS (short for “Free Alongside Ship”), the seller clears goods for export and places them alongside the vessel at the named port of departure. The named port of departure location can be a loading dock or a barge, but not a container terminal.

The buyer is responsible for loading the freight onto the vessel, as well as handling local carriage, discharge, import formalities and duties and onward carriage to the final destination.

FAS only applies to ocean or inland waterway transport. It is popular with bulk cargo, such as oil or grain.

FAS Obligations

Seller’s Obligations

  • Goods, commercial invoice and documentation
  • Export packaging and marking
  • Export licenses and customs formalities
  • Pre-carriage to terminal
  • Delivery alongside vessel at port of shipment
  • Proof of delivery
  • Cost of pre-shipment inspection

Buyer’s Obligations

  • Pay the price of the goods as provided in the sales contract
  • Loading charges
  • Main carriage
  • Discharge and onward carriage
  • Import formalities and duties
  • Cost of pre-shipment inspection (for import clearance)

FOB - Free On Board (Port of Shipment)

Under the terms of FOB (short for “Free on Board”), the seller clears the goods for export and ensures they are delivered to and loaded onto the vessel for transport at the named port of departure.

The buyer takes over risk and costs, including import clearance and duties, as soon as the goods are loaded onto the transport vessel at the port of departure.

FOB only applies to ocean or inland waterway transport. As such, the named place is always a port. It does not apply if the main carriage is via air, ground or rail.

This term is commonly used for bulk cargo (such as oil or grain) or freight from Asia.

Obligations

Seller’s Obligations

  • Goods, commercial invoice and documentation
  • Export packaging and marking
  • Export licenses and customs formalities
  • Pre-carriage and delivery
  • Loading charges
  • Delivery onboard vessel at named port of shipment
  • Proof of delivery
  • Cost of pre-shipment inspection

Buyer’s Obligations

  • Payment for goods as specified in sales contract
  • Main carriage
  • Discharge and onward carriage
  • Import formalities and duties
  • Cost of pre-shipment inspection (for import clearance)

 

CFR - Cost and Freight (Port of Destination)

Under CFR terms (short for “Cost and Freight”), the seller is required to clear the goods for export, deliver them onboard the ship at the port of departure, and pay for transport of the goods to the named port of destination. 

The risk passes from seller to buyer when the seller delivers the goods onboard the ship. 

The buyer is responsible for paying all additional transport costs from the port of destination, including import clearance and duties. 

Only use CFR for ocean or inland waterway transport. 

CFR Obligations

Seller’s Obligations

  • Goods, commercial invoice and documentation
  • Export packaging and marking
  • Export licenses and customs formalities
  • Pre-carriage and delivery
  • Loading charges
  • Delivery at named port of destination
  • Proof of delivery
  • Cost of pre-shipment inspection

Buyer’s Obligations

  • Payment for goods as specified in sales contract
  • Risk starting with onboard delivery
  • Discharge and onward carriage
  • Import formalities and duties
  • Cost of pre-shipment inspection (for import clearance)

CIF - Cost, Insurance and Freight (Port of Destination)

Under CIF (short for “Cost, Insurance and Freight”), the seller delivers the goods, cleared for export, onboard the vessel at the port of shipment, pays for the transport of the goods to the port of destination, and also obtains and pays for minimum insurance coverage on the goods through their journey to the named port of destination.

The buyer assumes all risk once the goods are on board the vessel for the main carriage; however, they don’t take on any costs until the freight arrives at the named port of destination.

CIF applies to ocean or inland waterway transport only. It is commonly used for bulk cargo, oversized or overweight shipments.

CIF Obligations

Seller’s Obligations

  • Goods, commercial invoice and documentation
  • Export packaging and marking
  • Export licenses and customs formalities
  • Pre-carriage and delivery
  • Loading charges
  • Delivery at named port of destination
  • Proof of delivery
  • Cost of pre-shipment inspection
  • Minimum insurance coverage

Buyer’s Obligations

  • Payment for goods as specified in sales contract
  • Discharge and onward carriage
  • Import formalities and duties
  • Cost of import clearance pre-shipment inspection

CPT - Carriage Paid To (Place of Destination)

Carriage Paid To (CPT) rules require the seller to clear the goods and arrange carriage (by one or more transport modes) to the named place of destination. The seller does not need to obtain or pay for insurance.

A carrier is any person or company who undertakes the carriage of the goods, such as a shipping line, airline, trucking company, railway or freight forwarder.

In multimodal shipments, the place of shipment is the first carrier used.

Under CPT rules, the seller’s risk ends, and the buyer’s risk begins, when the first carrier receives the goods from the seller. However, the buyer is only responsible for additional costs after the goods arrive at the final destination.

CPT Obligations

Seller’s Obligations

  • Goods, commercial invoice and documentation
  • Export packaging and marking
  • Export licenses and customs formalities
  • Pre-carriage and delivery
  • Loading charges
  • Cost of delivery at named place of destination
  • Proof of delivery
  • Cost of pre-shipment inspection

Buyer’s Obligations

  • Payment for goods as specified in sales contract
  • Import formalities and duties
  • Cost of import clearance pre-shipment inspection

CIP - Carriage and Insurance Paid To (Place of Destination)

In Carriage and Insurance Paid To (CIP), the seller assumes all risk until the goods are delivered to the first carrier at the place of shipment—not the place of destination. Once the goods are delivered to the first carrier, the buyer is responsible for all risks.

However, the seller is responsible for the cost of carriage as well as all-risk insurance coverage until the freight reaches the named place of destination.

A carrier is any person or company who undertakes the carriage of goods, such as a shipping line, airline, trucking company, railway or freight forwarder.

CIP Obligations

Seller’s Obligations

  • Goods, commercial invoice and documentation
  • Export packaging and marking
  • Export licenses and customs formalities
  • Pre-carriage and delivery
  • Loading charges
  • Cost of delivery at named place of destination
  • Proof of delivery
  • Cost of pre-shipment inspection
  • All-risk insurance coverage

Buyer’s Obligations

  • Payment for goods as specified in sales contract
  • Import formalities and duties
  • Cost of import clearance pre-shipment inspection

 

DPU - Delivered at Place Unloaded (Place of Destination, Where Seller Unloads)

Formerly: DAT - Delivered At Terminal (Terminal at Port or Place of Destination)

Delivered at Place Unloaded (DPU) (formerly referred to as DAT for “Delivered at Terminal”) requires the seller to deliver the goods at the disposal of the buyer after they’ve been unloaded from the arriving means of transport.

DPU is the only Incoterms rule that requires the seller to unload goods at the place of destination.

DPU can apply to any—and more than one—mode of transport. The buyer and seller should specify and agree upon a named place of destination.

DPU requires the seller to clear goods for export, where applicable, without any obligation to clear the goods for import, pay import duty or carry out import customs formalities.

DPU Incoterm Obligations

Seller’s Obligations

  • Goods, commercial invoice and documentation
  • Export packaging and marking
  • Export licenses and customs formalities
  • Pre-carriage and delivery
  • Loading charges
  • Main carriage
  • Delivery at named place of destination
  • Unloading charges
  • Proof of delivery
  • Cost of pre-shipment inspection

Buyer’s Obligations

  • Payment for goods as specified in sales contract
  • Import formalities and duties
  • Cost of import clearance pre-shipment inspection
  • Onward carriage and delivery to buyer (depending upon named place)

DAP - Delivered At Place (Place of Destination)

Under the Delivered At Place (DAP) Incoterms rules, the seller is responsible for delivery of the goods, ready for unloading, at the named place of destination.

The seller assumes all risks involved up to unloading. Unloading is at the buyer’s risk and cost.

DAP can apply to any—and more than one—mode of transport. The buyer and seller should specify and agree upon the precise unloading spot at the named place of destination.

Unless otherwise agreed between both parties, the seller cannot request renumeration for unloading costs incurred under the contract of carriage.

DAP rules require the seller to clear goods for export, where applicable, without any obligation to clear the goods for import, pay import duty or carry out import customs formalities.

DAP Shipping Obligations

Seller’s Obligations

  • Goods, commercial invoice and documentation
  • Export packaging and marking
  • Export licenses and customs formalities
  • Pre-carriage and delivery
  • Loading charges
  • Cost of pre-shipment inspection
  • Main carriage
  • Delivery to named place of destination
  • Proof of delivery

Buyer’s Obligations

  • Payment for goods as specified in sales contract
  • Unloading from arriving means of transportation
  • Import formalities and duties
  • Cost of import clearance pre-shipment inspection
  • Onward carriage and delivery to buyer (depending on named place)

DDP - Delivered Duty Paid (Place of Destination)

Under the Delivered Duty Paid (DDP) Incoterm rules, the seller assumes all responsibilities and costs for delivering the goods to the named place of destination. The seller must pay both export and import formalities, fees, duties and taxes.

The seller is not obligated to insure the goods for pre-carriage or main carriage.

The buyer is free of any risk or cost until the goods are unloaded from the vehicle at the named place of destination, usually the buyer’s place of business.

DDP is the only Incoterms rule that places responsibility for import clearance and payment of taxes and/or import duty on the seller.

These last requirements can be problematic for the seller. In countries with complex or bureaucratic import clearance procedures a seller with local knowledge may prefer to take on these responsibilities.

DDP Incoterm Obligations

Seller’s Obligations

  • Goods, commercial invoice and documentation
  • Export packaging and marking
  • Export licenses and customs formalities
  • Pre-carriage and delivery
  • Loading charges
  • Main carriage
  • Proof of delivery
  • Import formalities and duties
  • Cost of all inspections
  • Delivery to named place of destination

Buyer’s Obligations

  • Payment for goods as specified in sales contract
  • Assist seller in obtaining any documents or information necessary for export or import clearance formalities