INCOTERMS REFERENCE GUIDE
January 1, 2020, Incoterms® are used in bothinternational and domestic contracts. They clearly define the buyer and seller's responsibilities, risks, and costs. They are reviewed and updated
every ten years and the new edition is now available.
What are Incoterms?
Incoterms are the user terms that the buyer and seller of merchandise both agree to during international transactions.These rules are accepted by governments and legalauthorities around the world. It is essential to know the Incoterms as they are a vital part of International Trade as they clearlystate whichtasks, costs and risks are associated with the buyer and the seller.
The Incoterm states when the seller’s costs andrisks are transferred onto the buyer. It’s also important to understand that not all rules apply in all cases.Some of them include any mode or modes of transport. Transport by all modes of transport (road, rail, air and sea) covers FCA, CPT, CIP, DAP, DPU (replaces
DAT) and DDP. Sea/Inland waterway transport (Sea) covers FAS, FOB, CFR and CIF,
which we explain below.
Why are Incoterms vital in International Trade?
Incoterms are referred to as International Commercial Terms. They are a set ofrules published by the ICC, which relate to International Commercial Law. According to the ICC, Incoterm Rules, provideinternationally accepted definitions and rules of interpretation for most common commercial terms used in contracts for the sale of goods.
All International purchases will be processed on anagreed Incoterm to define which party legally incurs costs and risks. Incoterms will be clearly stated on correct shipping documents.
These are a summary of Incoterms 2020.
EXW –Ex-Works or Ex-Warehouse
· Ex works is when the seller places the goods at thedisposal of the buyer at the seller’s premises or at another named place (i.e.,works, factory, warehouse, etc.).
· The seller does not need to load thegoods on any collecting vehicle. Nor does it need to clear them for export, where such clearance is applicable.
FCA – Free Carrier
· The seller delivers the goods to the carrier oranother person nominated by the buyer at the seller’s premises or another named place.
· The parties are well advised tospecify as explicitly as possible the point within the named place of delivery,
as the risk passes to the buyer at that point.
FAS – Free Alongside Ship
· The seller delivers when the goods are placedalongside the vessel (e.g., on a quay or a barge) nominated by the buyer at the named port of shipment.
· The risk of loss of or damage to thegoods passes when the products are alongside the ship. The buyer bears all costs from that moment onwards.
FOB –Free on Board
· The seller delivers the goods on board the vessel nominatedby the buyer at the named port of shipment or procures the goods already so
delivered.
· The risk of loss of or damage to thegoods passes when the products are on board the vessel. The buyer bears all costs from that moment onwards.
CFR –Cost and Freight
· The seller delivers the goods on board the vesselor procures the goods already so delivered.
· The risk of loss of or damage to the goods passeswhen the products are on board the vessel.
· The seller must contract for and paythe costs and freight necessary to bring the goods to the named port of
destination.
CIF – Cost, Insurance and Freight
· The seller delivers the goods on board the vesselor procures the goods already so delivered. The risk of loss of or damage to
the goods passes when the products are on the ship.
· The seller must contract for and pay the costs andfreight necessary to bring the goods to the named port of destination.
· The seller also contracts for insurance coveragainst the buyer’s risk of loss of or damage to the goods during the carriage.
· The buyer should note that under CIFthe seller is required to obtain insurance only on minimum cover. Should the buyer wish to have more insurance protection, it will need either to agree as much expressly with the seller or to make its own extra insurance arrangements.
CPT – CarriagePaid To
· The seller delivers the goods to the carrier oranother person nominated by the seller at an agreed place (if any such site is agreed between parties).
· The seller must contract for and paythe costs of carriage necessary to bring the goods to the named place of
destination.
CIP – Carriage andInsurance Paid To
· The seller has the same responsibilities as CPT,but they also contract for insurance cover against the buyer’s risk of loss of or damage to the goods during the carriage.
· The buyer should note that under CIPthe seller is required to obtain insurance only on minimum cover. Should the buyer wish to have more insurance protection, it will need either to agree as
much expressly with the seller or to make its own extra insurance arrangements.
DAP – Delivered atPlace
· The seller delivers when the goods are placed atthe disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination.
· The seller bears all risks involvedin bringing the goods to the named place.
DPU – Delivered atPlace Unloaded (replaces Incoterm® 2010 DAT)
· DPU replaces the former Incoterm® DAT (Delivered at Terminal). Theseller delivers when the goods, once unloaded are placed at the disposal of the buyer at a named place of destination.
· The seller bears all risks involvedin bringing the goods to, and unloading them at the named place of destination.
DDP – Delivered Duty Paid
· The seller delivers the goods when the goods areplaced at the disposal of the buyer, cleared for import on the arriving means of transport ready for unloading at the named place of destination.
· The seller bears all the costs andrisks involved in bringing the goods to the place of destination
They must clear the products not only for exportbut also for import, to pay any duty for both export and import and to carry out all customs formalities.
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