What are Incoterms?
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Incoterms, widely-used terms of sale, are a set of 11 internationally recognized rules which define the responsibilities of sellers and buyers. Incoterms specify who is responsible for paying for and managing the shipment, insurance, documentation, customs clearance, and other logistical activities.
Ex Works (EXW): The seller is responsible for packing the products and making the goods available. The cargo is transferred to the buyer while the freight is still at the seller’s site. The buyer is then responsible for exporting, shipping, and importing the cargo to their destination.
Free Carrier (FCA): The seller is responsible for transporting the cargo to a defined destination within the seller’s country, usually a shipping terminal. Once the load has arrived at the designated destination, the shipment transfers to the buyer, the buyer then must pay the freight charges and fulfill the importing and delivery process. Depending on the named place, the cargo is either exported by the seller or the buyer.
Free Alongside Ship (FAS): The seller must manage the full export process of the cargo until the goods are alongside the ship or other mode of transport. Once alongside the ship, the risk is transferred to the buyer. The buyer is responsible for loading the cargo onto their desired vessel and shipping the goods to their final destination.
Free On Board (FOB): The seller must manage the full export process of the cargo, and load the products on the ship. Once the cargo has been safely loaded, the products transfer to the buyer. The buyer must pay for the freight costs that transport the goods to their destination and is responsible for all import costs.
Cost and Freight (CFR): The seller is responsible for transporting the cargo to the buyer’s port. Once the goods have arrived at the port, the responsibility transfers to the buyer. The buyer then must unload the cargo and import the goods into the destination country, followed by importing and delivering to the final destination.
Cost, Insurance & Freight (CIF): The seller is responsible for the costs to ship and insure the cargo to the buyers requested port. Once the goods arrive at port, the responsibility of the goods transfers to the buyer. The buyer then must cover the costs to unload, import, and deliver their shipment. CIF requires the seller to purchase freight insurance.
Carriage Paid To (CPT): The seller must ship and unload the cargo from the vessel at the defined place of delivery. Once the goods are unloaded, the cargo transfers to the buyer, who is then responsible for importing and transporting the freight to the final destination.
Carriage & Insurance Paid (CIP): The seller must cover the costs to ship and insure the cargo to the defined place of delivery. The shipment transfers to the buyer after the cargo is unloaded and delivered to the terminal. After the goods are unloaded and delivered to the defined terminal, the shipment transfers to the buyer. The buyer must import and fulfill the remainder of the shipping process to move the goods to the final destination. CIP requires the seller to purchase freight insurance.
Delivered at Place (DAP): The seller must deliver the cargo to the final, defined destination. Once delivered the cargo transfers to the buyer. The buyer must unload the shipment from the truck. The buyer is also responsible for import duty, taxes, and customs clearance.
Delivered at Place Unloaded (DPU): The seller must deliver and unload the cargo to the final destination. Once the shipment is successfully unloaded at the buyer’s warehouse, the responsibility transfers to the buyer. The buyer is responsible for import duty, taxes, and customs clearance.
Delivered Duty Paid (DDP): The seller is responsible for delivering the cargo to the final destination, and paying the import duty, taxes, and customs clearance. Once the cargo arrives at the destination, the responsibility transfers to the buyer, who must cover the costs to unload the shipment. DDP is the only Incoterm that requires the seller to pay all duty charges.
Selecting an Incoterm for Importers
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Selecting the correct Incoterm can be a daunting task. If your objective is to take on as little risk as possible, then DAP, DPU, or DDP is the correct Incoterm to select. The downside to these options is that they're much more expensive for importers/buyers because you will not have control over transportation costs.
By selecting FOB or EXW, and working with a reputable freight forwarder such as us, we can ensure your cargo arrives to your door reliably, safely and at an affordable cost.
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Freight on Board (FOB)
Why: Under the terms of FOB, the seller clears the goods for export and ensures they are delivered and loaded onto the vessel for transport at the named port of departure (for example, Port of Qingdao, China). The seller assumes all the risk until the container is loaded onto the vessel. The buyer/importer will be responsible for the ocean transportation to the destination, import duties and taxes, and delivery to their door.
Ex Works (EXW)
Why: Under the terms of EXW, 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. If you're unable to handle export procedures at the country of export, FCA is also an option.
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