Incoterms

For those involved in international freight transactions, the following explanations of international standard trade definitions are useful in outlining risks and responsibilities between buyers and sellers.

FAS (Free Alongside Ship)

The seller must place the goods alongside the ship at the named port. The seller must clear the goods for export. Suitable only for maritime transport but NOT for multimodal sea transport in containers (see Incoterms 2010, ICC publication 715). This term is typically used for heavy-lift or bulk cargo.

FOB (Free on Board)

The seller must load themselves the goods on board the vessel nominated by the buyer. Cost and risk are divided when the goods are actually on board of the vessel (this rule is new!). The seller must clear the goods for export. The term is applicable for maritime and inland waterway transport only but NOT for multimodal sea transport in containers (see Incoterms 2010, ICC publication 715). The buyer must instruct the seller the details of the vessel and the port where the goods are to be loaded, and there is no reference to, or provision for, the use of a carrier or forwarder. This term has been greatly misused over the last three decades ever since Incoterms 1980 explained that FCA should be used for container shipments.

CFR (Cost and Freight)

The seller must pay the costs and freight required in bringing the goods to the named port of destination. The risk of loss or damage is transferred from seller to buyer when the goods pass over the ship’s rail in the port of shipment. The seller is required to clear the goods for export. This term should only be used for sea or inland waterway transport.

CIF (Cost, Insurance and Freight)

The seller has the same obligations as under CFR however he is also required to provide insurance against the buyer’s risk of loss or damage to the goods during transit. The seller is required to clear the goods for export. This term should only be used for sea or inland waterway transport.

EXW (Ex Works)

The buyer bears all costs and risks involved in taking the goods from the seller’s premises to the desired destination. The seller’s obligation is to make the goods available at his premises (works, factory, warehouse). This term represents minimum obligation for the seller. This term can be used across all modes of transport.

FCA (Free Carrier)

The seller’s obligation is to hand over the goods, cleared for export, into the charge of the carrier named by the buyer at the named place or point. If no precise point is indicated by the buyer, the seller may choose within the place or range stipulated where the carrier shall take the goods into his charge. When the seller’s assistance is required in making the contract with the carrier the seller may act at the buyers risk and expense. This term can be used across all modes of transport.

CIP (Carriage and Insurance Paid to)

The seller has the same obligations as under CPT but has the
responsibility of obtaining insurance against the buyer’s risk of loss
or damage of goods during the carriage. The seller is required to clear
the goods for export however is only required to obtain insurance on
minimum coverage. This term requires the seller to clear the goods for
export and can be used across all modes of transport.

DDP (Delivered Duty Paid)

The seller is responsible for delivering the goods to the named place in
the country of importation, including all costs and risks in bringing
the goods to import destination. This includes duties, taxes and customs
formalities. This term may be used irrespective of the mode of
transport.

DAT (Delivered At Terminal)

Seller delivers when the goods, once
unloaded from the arriving means of transport, are placed at the
disposal of the buyer at a named terminal at the named port or place of
destination. “Terminal” includes quay, warehouse, container yard or
road, rail or air terminal. Both parties should agree the terminal and
if possible a point within the terminal at which point the risks will
transfer from the seller to the buyer of the goods. If it is intended
that the seller is to bear all the costs and responsibilities from the
terminal to another point, DAP or DDP may apply.

Responsibilities:
– Seller is responsible for the costs and risks to bring the goods to the point specified in the contract
– Seller should ensure that their forwarding contract mirrors the contract of sale
– Seller is responsible for the export clearance procedures
– Importer is responsible to clear the goods for import, arrange import customs formalities, and pay import duty
– If the parties intend the seller to bear the risks and costs of taking
the goods from the terminal to another place then the DAP term may
apply

DAP (Delivered At Place)

Seller delivers the goods when they are placed at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination. Parties are advised to specify as clearly as possible the point within the agreed place of destination, because risks transfer at this point from seller to buyer. If the seller is responsible for clearing the goods, paying duties etc., consideration should be given to using the DDP term.

Responsibilities:
– Seller bears the responsibility and risks to deliver the goods to the named place
– Seller is advised to obtain contracts of carriage that match the contract of sale
– Seller is required to clear the goods for export
– If the seller incurs unloading costs at place of destination, unless previously agreed they are not entitled to recover any such costs
– Importer is responsible for effecting customs clearance, and paying any customs duties