Understanding Incoterms: Key Terms and Their Meaning

 

Incoterms (International Commercial Terms) are standardized terms developed by the International Chamber of Commerce to clarify the responsibilities of sellers and buyers. They enable the parties to determine who is responsible for the costs and risks associated with transporting goods, thereby reducing disputes and uncertainties.

These contractual terms are commonly used in import and export transactions. While many Incoterms apply to all modes of transportation, some are specific to particular types of shipping methods. Below is an overview of the key Incoterms and their definitions:

EXW (Ex Works)

The seller makes the goods available at their premises or another specified location, such as a factory or warehouse. The buyer assumes responsibility for all transport and customs clearance costs, as well as the risks involved in moving the goods.

FCA (Free Carrier)

The seller transfers the customs-cleared goods to the carrier, carrying out loading in his territory.

FAS (Free Alongside Ship)

The seller delivers the goods to the ship, after which all costs and risks pass to the buyer. This term is used exclusively for waterway transport.

FOB (Free on Board)

The seller bears the costs of transporting the goods to the specified port, after loading the risks pass to the buyer

CFR (Cost and Freight)

The seller arranges and pays for the transportation to the selected location, and the risks are transferred to the carrier.

CIF (Cost, Insurance, and Freight)

Similar to CFR, but the seller also provides insurance for the goods until they reach the prediscussed port.

CPT (Carriage Paid To)

The seller arranges and pays for the transportation of the goods to the specified destination, while the risks transfer to the buyer when the goods are handed over to the carrier.

CIP (Carriage and Insurance Paid To)

Similar to CPT, but the seller also provides insurance for the goods until they reach the specified destination.

DAT (Delivered at Terminal)

The seller is responsible for all risks and costs associated with delivering the goods, unloaded, at the specified terminal.

DAP (Delivered at Place)

The seller is responsible for delivering the goods to the specified location, but unloading is not included.

DDP (Delivered Duty Paid)

The seller bears all costs, including import duties, to deliver the goods to the buyer at the specified destination.

 

Selecting the appropriate Incoterm ensures clarity, safety, and efficiency in your international trade operations. By clearly defining responsibilities, costs, and risks, Incoterms facilitate smoother transactions and minimize misunderstandings between trading partners.