Incoterms Rules Chart
Incoterms 2020
EXW
Ex Works (EXW) is a term used in international trade to denote when a seller makes a product available at a specified place and the buyer is responsible for the transportation charges. Ex Works is a contract option that is good for the seller but it’s not appropriate for the buyer, especially novice importers. The seller’s only responsibilities are to properly package the goods, mark them, and deliver them to a previously agreed-upon place, such as the seller’s nearest port. Although the buyer must pay the real fees for the documentation, the seller must help the buyer in obtaining export permits or other relevant paperwork. Once the buyer gets the goods, it is the buyer’s responsibility to bear any costs and accounts for any risks associated with the goods. Loading the goods into a truck, transporting them by ship or aircraft, dealing with customs authorities, unloading them at their destination, and storing or reselling them are all possible risks. Even if the seller assists the buyer by, for example, putting the goods onto a ship, the buyer is still responsible for any damages that occur during the loading. In terms of costs and risks, EXW places a minimum obligation on the seller while increasing the buyer’s liabilities. However, EXW is not suggested for inexperienced buyers who are unfamiliar with the ins and outs of the origin country and are unable to complete the entire import process on their own. Seller’s Responsibility Under EXW: Preparing and placing goods at the buyer’s disposal Packaging and marking Preparing commercial invoice Buyer’s Responsibility Under EXW: Goods payment Duties and taxes payment Loading cargo in seller’s place Preparing export licenses and customs formalities Preparing import licenses and customs formalities Transportation of goods in the country of origin and destination country Customs handling fees in the country of origin and destination country Origin and destination charges International freight Cargo Insurance in EXW: Cargo insurance is not required under the EXW Incoterm. However, it is standard practice in the industry for the buyer and seller to both get their own insurance to meet their respective responsibilities. It’s also uncommon for a buyer or seller to take responsibility for the shipment procedure and acquire insurance for the entire trip. In your sales contract, make sure to include the insurance terms and conditions.
FCA
The FCA Incoterm, or “Free Carrier,” specifies that the seller must deliver the goods to the buyer’s selected carrier at a certain agreed-upon location mentioned in the sales contract, ready for export. A specific port or a carrier’s hub might be this place. All customs charges and dangers are also the seller’s responsibility. Once the cargo has been delivered to the buyer’s preferred location, the risk is passed from the seller to the buyer. FCA is the ideal Incoterm for containerized freight due to the obvious risk transfer point. The FCA Incoterm is adaptable and can be applied to any mode of transportation. In the contract of sale or shipment, the buyer must precisely specify the exact place of delivery. Seller’s Responsibility Under FCA: Delivery of goods Preparing invoice and related documents Packaging and marking Preparing licenses and customs documents Transportation in the country of origin Customs charges and handling fees in the country of origin Insurance Proof of delivery Buyer’s Responsibility Under FCA: Payment of goods according to the agreed-upon contract Unloading the goods at the point of delivery Loading chrages Import formalities, charges and duties Transportation in the destination country
FAS
Free alongside ship (FAS) is one of the incoterms that is exclusive to ocean freight. It is used in the worldwide export industry and requires the seller to arrange for goods to be delivered to a specified port and alongside a specific vessel for simpler shipping. The seller must bring the items alongside the ship at the port dock, and is responsible for all expenses and risks until the goods are put on the dock. From this point on, the buyer takes all risks and is liable for all shipping expenses and hazards. According to FAS, The seller is liable for customs handling fees at the country of origin. FAS (Free alongside ship) is one of a variety of incoterms used by export and import companies across the world. Seller’s Responsibility Under FAS: Goods delivery Preparing all documents required Packaging and marking Transportation in the county of origin Customs handling fees and charges in the country of origin Buyer’s Responsibility Under FAS: Goods payment Charges in the country of origin Charges in the destination country Customs handling fees and charges in the destination country Transportation in the destination country Payment of taxes and customs duties Customs formalities International freight and main carriage Cargo Insurance in FAS: Under FAS, insurance is not a mandatory necessity. It is normal practice, however, for both the buyer and the seller to get coverage to cover the parts of the cargo’s transportation that they are each responsible for. As a buyer or seller using the FAS Incoterm, you have the option of accepting responsibility for acquiring cargo insurance for the complete shipping procedure from beginning to end. Make sure to include insurance terms in your sales contract, no matter what you chose.
FOB
The term “free on board” or “freight on board” is an international commerce term (Incoterm) that means “free on board” or “freight on board.” FOB helps identify when the seller’s obligation, risks, costs, and ownership of the products pass to the buyer. It establishes two crucial aspects: 1) where the title to commodities passes physically, and 2) who is responsible for transportation charges and duties. What is the significance of all this? The FOB establishes the point at which responsibility is transferred. What happens if your goods are damaged during the shipping process? Who is in charge of processing insurance and claims? Who owns the products while they’re being investigated by customs? Any legal or communicative problems about possession and liability are resolved by the agreed-upon FOB. 4 Different Variations of FOB Terms FOB Origin, Freight Collect FOB Origin, Freight Prepaid FOB Destination, Freight Collect FOB Destination, Freight Prepaid The first part of each term decides whether the buyer takes control of the items’ title and risk at the point of origin or at the point of destination. FOB Origin: The most common way of shipping is FOB Origin, in which the buyer acquires ownership of the goods when the freight carrier picks up and signs for the package. This means that the buyer is accountable for the products during their journey. FOB Destination: The seller maintains ownership of the goods until they are delivered to the buyer’s port in the event of FOB Destination. The second part of each term specifies who will be responsible for the costs and fees associated with the shipping of the goods. Prepaid refers to when the seller has covered the costs; Collect refers to when the buyer is responsible for all freight costs. This will frequently decide who is responsible for risk and insurance. The most typical method is Freight Collect, in which the buyer is responsible for all freight expenses and takes all shipping risks. However, FOB Origin, Freight Collect is the most popular FOB term. When the seller places the items on the freight carrier, the buyer instantly takes ownership and obligation. In fact, the seller can label the products as “complete” in their books and leave the remaining to the buyer. The buyer then pays for shipping, insurance, customs duties, and other expenses. All potential damages are the buyer’s responsibility. Seller’s Responsibility Under FOB: Delivery of goods and documents Packaging Transportation of the goods in the country of origin Customs handling fees in the origin country Charges and expenses in the origin country Buyer’s Responsibility Under FOB: Goods, Duties, and Taxes payment Shipping Charges and expenses in the destination country Customs handling fees in the destination country Transportation of the goods in the destination country Cargo Insurance in FOB: The FOB Incoterm does not involve insurance. Obtaining insurance, on the other hand, is frequently done. To cover the full ocean freight journey, the buyer, seller, or both can provide the cargo with insurance. To prevent problems, make sure your cargo insurance conditions are fully stated and detailed in your sales contract.
CFR
According to CFR, the seller clears the products for export, transfers them onboard at the port of destination, and pays for transportation of the commodities to the stated port of destination. When the seller delivers the goods to the ship, the risk is transferred to the buyer. Remember that this incoterm is only used for ocean or inland waterway shipping. All additional transportation costs from the port of destination, including import clearance and tariffs, are the responsibility of the buyer. Use CPT instead if the freight is containerized and will only be delivered to a terminal. Cost and Freight incoterm is absolutely similar to CIF, with the exception that, unlike CIF, insurance is optional with this incoterm. Seller’s Responsibility Under CFR: Delivery of goods Preparing invoices and documents Packaging and marking Transportation of the goods in the country of origin Customs handling fees in the country of origin Charges in the country of origin Proof of delivery Customs formalities and export licenses Buyer’s Responsibility Under CFR: Goods payment according to the sales contract Customs formalities and import licenses Charges in the destination country Transportation of the goods in the destination country Customs handling fees in the destination country Payment of taxes and duties Cargo Insurance in CFR: Despite the fact that Incoterms regulations do not require cargo insurance under Cost & Freight incoterm, it is strongly advised that international ocean freight shipments have insurance. The shipments may be wholly covered by a single policy purchased by either the buyer or the seller, or by two separate policies issued by both the buyer and seller to cover their respective duties. When negotiating your sales contract, make sure the insurance terms and conditions are fully stated and described.
CPT
CPT, or Carriage Paid To, is an Incoterm that means the cost of the goods covers everything needed to deliver the goods to the agreed-upon location. Only import regulations, local delivery, and unloading charges are the buyer’s responsibility. Once the products are delivered to the first carrier, which is normally at the origin port, the shipment’s liability is transferred. CPT is similar to an FCA agreement in that it can be used for all modes of transportation; but, unlike FCA, the delivery point is not a specific place. While CPT is not a commonly used Incoterm, it can be useful in some instances. Because the buyer and seller must designate two central locations, which are not necessarily obvious, CPT may be a confusing Incoterm. The delivery place and the destination are the two points that must be established under a CPT agreement. When the seller hands over goods to their contractual carrier, the cargo is transported to the buyer. The buyer’s risk begins at this stage. The seller is also responsible for the cost of shipping the freight to its final destination. The seller is still responsible for completing the shipment until it reaches the agreed-upon destination, even if the shipping risk and obligation have been passed to the buyer. Seller’s Responsibility Under CPT: Packaging and marking Delivery of goods to the carrier in the country of origin International freight Handling import customs clearance Preparing commercial invoice Clearing goods for export Transportation of goods in the country of origin Paying goods-related charges and customs duties Bearing the risk of damage or loss until delivery Buyer’s Responsibility Under CPT: Payment of goods Clearing goods for import Transportation of goods in the destination country All costs after delivery, including transit and unloading costs Bearing the risk of damage or loss after handing over the goods to the carrier Cargo Insurance in CPT: The point of delivery is critical because it is at this point that the goods are handed over to the carrier and the risk is passed to the buyer. The buyer will have no influence over where this is done if it hasn’t been stated earlier. However, if the transaction involves more than one carrier, the risk transfer can be done at a later or even earlier stage by stating it in the contract of sale. It is also strongly advised that both parties specify the destination in the contract, as this is the point at which the seller must arrange the carriage and the point at which the seller is responsible for carriage charges.
CIF
Among the full list of Incoterms approved by ICC, CIF is an acronym for Cost, Insurance, and Freight, and it refers to the seller’s obligation for all three. When buying anything from another country, the seller is responsible for exporting the cargo and transporting it till it arrives at the target port, as well as protecting the cargo along the journey. When exporting under CIF Incoterms, ownership passes to the buyer after the cargo is securely loaded on the boat, but the seller is responsible for paying duty and obtaining shipping insurance. This means that the seller is responsible for all shipping costs until the goods reach the target port. The buyer is liable for the import procedure as well as the costs of moving the cargo through customs and getting the goods to their final destination. CIF only applies to ocean freight; it does not apply to other modes of transportation. This Incoterm is most usually used when shipping full containers, however, it can also be used for smaller container loads. Seller’s Responsibility Under CIF: Delivery of goods and documents Packaging Inland transportation in the origin country Customs handling fees in the origin country Charges in the origin country International shipping Cargo insurance Buyer’s Responsibility Under CIF: Goods, Duties, and Taxes payment Charges in the destination country Customs handling fees in the destination country Inland transportation in the destination country Cargo Insurance in CIF: The seller is contractually obligated to provide insurance for the goods’ transportation under CIF. CIF and CIP are the only two Incoterms that force the seller to supply insurance. In practice, customers prefer the CFR Incoterm if they can obtain higher cargo insurance coverage. This is due to the fact that, unlike CIF, insurance is not a seller’s responsibility under CFR and can be obtained by the buyer as well.
CIP
According to CIP incoterm, the seller takes all risks until the goods are delivered to the first carrier at the site of shipment—not the place of destination. All risks pass to the buyer once the goods are delivered to the first carrier. However, until the freight reaches the stated destination, the seller is responsible for the cost of transportation as well as risk insurance coverage. Any person or corporation that transports things, such as a shipping line, airline, trucking firm, railway, or freight forwarder, is referred to as a carrier. Remember that CIP incoterm is a versatile term since it can also be used for intermodal transportation. Seller’s Responsibility Under CIP: Goods delivery Packaging and marking Transportation of the goods in the country of origin Proof of delivery Insurance Customs handling fees in the country of origin Customs formalities and export licenses Charges in the country of origin Buyer’s Responsibility Under CIP: Goods payment Charges in the destination country Customs handling fees in the destination country Customs formalities and import licenses Transportation of the goods in the destination country Payment of taxes and duties Cargo Insurance in CIP: The CIP Incoterm is one of only two in which insurance is required (the other being the CIF Incoterm). The seller is responsible for getting cargo insurance, according to both incoterms. If you can get better or cheaper insurance as a buyer, consider going with CPT instead, where the seller is not contractually obligated to provide cargo insurance, and you, as the buyer, can choose your desired insurance.
DAP
DAP or ‘Delivered-at-Place’ is an international commerce phrase that refers to a deal in which the seller bears all expenses and responsibility for shipping from the country of origin to a specified destination. The delivered-at-place incoterm applies to all modes of transportation, including intermodal, and is frequently followed by the location where the buyer takes responsibility, such as “DAP, Port of Shanghai.” The seller is responsible for the majority of the shipping process under DAP, leaving the buyer with few responsibilities. This makes it one of the two most popular Incoterms, the other being Delivery Duty Paid (DDP), for sellers trying to stand out by providing excellent customer care to their customers. The seller is fully responsible for all risks and costs from the country of origin to the agreed-upon destination, as well as appropriate packaging and all necessary paperwork, under the DAP Incoterm. When the shipment arrives at the specified location in the contract of sale, the buyer takes full responsibility and risk. The buyer is also responsible for any expenses and risks associated with unloading at the specified location, as well as any further transit. The seller is in charge of customs clearance in the importing country, which includes supplying import licenses, proof of payment, and customs taxes and duties, among other things. Seller’s Responsibility Under DAP: Goods delivery Packaging and marking Transportation in the country of origin Transportation in the destination country Customs handling fees and charges in the country of origin Charges in the destination country International freight Buyer’s Responsibility Under DAP: Goods payment Duties and taxes payment Customs handling fees in the destination country Insurance in DAP: Under the DAP Incoterm, neither party is required to provide cargo insurance. However, most sellers exporting under DAP prefer to obtain insurance because of their major responsibility. They may just cover the areas for which they are responsible. However, it is more probable that they provide insurance for the entire journey from beginning to end. Make sure the insurance terms and conditions are included in the sales contract when arranging insurance under DAP.
DPU
DPU was previously known as DAT for “Delivered at Terminal” in Incoterms 2010. It requires the seller to place the goods at the buyer’s disposal once they have been unloaded from the arriving carrier. The only Incoterm requiring the seller to unload goods at the destination is DPU. DPU can be used for any mode of transportation, including air and sea. A particular destination should be specified and agreed upon by the buyer and seller according to this incoterm. DPU requires the seller to clear goods for export, but does not force the seller to clear them for import, pay import duty, or complete import customs formalities. Seller’s Responsibility Under DPU: Delivery of goods at the specified place Preparing invoices and documents Packaging and marking Transportation of the goods in the country of origin Customs handling fees in the country of origin Charges in the country of origin Proof of delivery Export formalities and licenses Loading and unloading charges Buyer’s Responsibility Under DPU: Goods payment according to the sales contract Import formalities and licenses Customs handling fees in the destination country Payment of taxes and duties Cost of delivery to the buyer DPU Vs. DAP ; What’s the Difference? The seller must ensure that he can manage unloading at the specified location under DPU Incoterms. If the parties intend for the seller to bear the risk and cost of unloading, the DPU rule should be avoided and a DAP (Delivered at Place) should be used instead. The only Incoterm in which the products are delivered and unloaded at the destination is DPU. The only difference between DPU and DAP is that the items in DPU are delivered unloaded, whereas the goods in DAP are delivered ready to unload. Cargo Insurance in DPU: There is no obligation to make an insurance contract when using DPU Incoterms. DPU was previously known as DAT for “Delivered at Terminal” in Incoterms 2010. It requires the seller to place the goods at the buyer’s disposal once they have been unloaded from the arriving carrier. The only Incoterm requiring the seller to unload goods at the destination is DPU. DPU can be used for any mode of transportation, including air and sea. A particular destination should be specified and agreed upon by the buyer and seller according to this incoterm. DPU requires the seller to clear goods for export, but does not force the seller to clear them for import, pay import duty, or complete import customs formalities.
DDP
According to DDP or Delivered Duty Paid incoterm, the seller bears all risks and costs for delivering the goods to the named place of destination. Both export and import formalities, fees, tariffs, and taxes must be done and paid by the seller. For pre-carriage or main carriage, the seller is not required to provide insurance for the goods. Until the goods are unloaded from the vehicle at the named destination, usually the buyer’s place of business, the buyer is free of any risk or cost. DDP is the only Incoterm that puts the seller in charge of import clearance and payment of taxes and/or import duties. The DDP Incoterm is versatile in that it may be used for any form of transportation. The downside of this incoterm for the importer is a lack of control over the shipping process due to his limited responsibilities, which may be an attractive choice for first-time importers. Seller’s Responsibility Under DDP: Goods delivery Packaging and marking Transportation of goods in the country of origin Transportation of goods to the agreed delivery point in the destination country Customs charges and handling fees in the origin and destination countries Additional charges and fees in the origin and destination countries Duties and taxes payment International freight Buyer’s Responsibility Under DDP: Goods payment Helping the seller in preparing any needed documents for export and import formalities Cargo Insurance in DDP: Despite the fact that DDP does not need shipping insurance, most sellers prefer to provide insurance for the cargo. This is due to the fact that sellers have far more responsibilities than buyers, and their responsibilities just end when the cargo is delivered to the buyer. Insurance terms and conditions should always be included in the sales contract.
Different INCOTERM Groups
Group C
The seller is responsible for all charges to the destination port in this group. The risks are passed to the buyer once the items are put onto the carrier. Incoterms in Group C include: Cost & Freight (CFR) CFR is highly similar to FOB. The difference is that the seller is responsible for all costs and freight associated with delivering products to their intended location. Cost, Insurance & Freight (CIF) CIF resembles CFR. The seller, on the other hand, provides insurance coverage against the risk of any loss or damage. Both CIF and CFR refer to shipments that go by water. Carriage Paid To (CPT) The seller is responsible for arranging for the products to be transported to a specified location, but not for insuring them. Carriage & Insurance Paid To (CIP) This is similar to CPT, except the seller is also responsible for insurance the goods and commodities.
Group D
The Incoterms included in this group are related to the shipment destination. Delivered at Terminal (DAT) According to this Incoterm, the seller delivers and unloads the goods at a pre-determined destination. The seller is in charge of the safety of the goods up until he delivers them at the destination port. Delivered at Place (DAP) When the seller delivers the products ready for unloading at the specified destination, it is referred to as DAP. The seller is fully responsible for the products until they arrive at the specified location. Delivered Duty Paid (DDP) This is used when the seller accepts full responsibility for all expenses and risks involved in delivering goods to the buyer’s specified location. This includes clearing products for export and import at the customs, paying any necessary duties, and finishing customs paperwork.
Group E
EXW (EX Works) The customer (buyer) bears the burden of the responsibility in Ex Works. The buyer loads and clears the products for export at the seller’s facility or another designated place.
Group F
The seller is responsible for delivering the goods to the buyer’s pre-arranged mode of transportation in this group. Following that, the buyer takes full responsibility for all expenses and risks. In the F category of Incoterms, there are a few sub-groups, including Free Carrier (FCA) Free carrier resembles EX works. The seller of the goods delivers them to the agent of the buyer or the carrier at the chosen location. The place where the buyer accepts all risks must be stated in the contract. Free Alongside Ship (FAS) When a supplier delivers products alongside a vessel chosen by the buyer, it is referred to as FAS. Once the products are alongside the vessel, the buyer is responsible. Free on Board (FOB) Free on Board (FOB): When a seller delivers commodities to a buyer-designated vessel, the term “free on board” is used. Once the commodities are on board the ship, the buyer takes responsibility. For marine shipments, both FAS and FOB are Incoterms.