Image by Timelab Pro

INCOTERMS

Rustic Metal Structure

THE IMPORTANCE OF INCOTERMS IN INTERNATIONAL TRADE

International trade is mainly characterized by the notion of Incoterms, also known as "International Commercial Terms". Incoterms are a set of rules published by the International Chamber of Commerce (ICC) in relation to international trade law.

 

According to the ICC, the Incoterms rules provide a common trade framework, allow to share the responsibilities and facilitate communication between the buyer and seller.

WHAT ARE INCOTERMS ?

To put it simply, Incoterms are the terms and conditions of sale that the buyer and seller of the goods agree to abide by in a commercial transaction. Moreover, these terms of sale are recognized by governments and legal authorities around the world.

 

All international transactions are processed on the basis of an Incoterm agreed upon by the buyer and the seller. Therefore, a good understanding of Incoterms is an essential part of international trade as they clearly indicate which tasks, costs and risks are associated with the buyer and seller.

Incoterms-containers-compressed.jpg

A GENERAL OVERVIEW OF INCOTERMS

LOADING
TRANSPORTATION
EXPORT CUSTOMS
LOADING
FREIGHT TRANSPORT
UNLOADING
IMPORT CUSTOMS
TRANSPORT TO DESTINATION
UNLOADING
PACKING & INSPECTION

EXW - EX WORKS

EXWORKS is when the goods are made available to the buyer at the seller's premises or at another designated location (factories, warehouses, etc.). The seller does not need to load the goods onto a supply vehicle. 

FCA - FREE CARRIER

The seller delivers the goods to the carrier chosen by the buyer. It is recommended that both parties explicitly specify the point of delivery, as the risk is subsequently transferred to the buyer at that point of delivery.

FAS - FREE ALONGSIDE SHIP

The seller delivers the goods alongside the vessel (e.g., on a dock or barge) designated by the buyer to the port of shipment. When the goods are alongside the vessel, the risk of loss or damage to the goods is transferred to the buyer. Therefore, the buyer bears all costs and risks.

FOB - FREE ON BOARD

The seller shall deliver the goods on the vessel designated by the buyer at the port of shipment. Once the goods are on the vessel, the risk of loss or damage to the goods shall be passed to the buyer. The costs and risks are transferred to the buyer.

CIF - COST, INSURANCE AND FREIGHT

The seller shall deliver the goods on board the vessel at the port of shipment. The seller shall also contract for and pay the costs and freight necessary to deliver the goods to the port of destination designated by the buyer. The risk of loss or damage to the goods shall pass to the buyer when the goods are on board the vessel.

CFR - COST AND FREIGHT

The seller delivers the goods to the port of destination. He shall contract for and pay the costs and freight necessary to deliver the goods to the port of destination designated by the buyer. The risk of loss or damage to the goods shall be passed on to the buyer when the goods are on the vessel.

CPT - CARRIAGE PAID TO

The seller delivers the goods to the carrier abroad, without insurance. The seller must contract and pay for the transportation costs necessary to bring the goods to the agreed destination.

CIP - CARRIAGE AND INSURANCE PAID TO

The CIP Incoterm is similar to the CPT, the only difference is that the seller is responsible for the insurance of the transport in case of lost or damaged goods during transportation.

DAP - DELIVERED AT PLACE

The seller delivers the goods, not unloaded, to the buyer at the agreed place in the country of destination. The buyer is responsible for the unloading, import clearance and the risks involved in bringing the goods to the designated place of destination.

DPU - DELIVERED AT PLACE UNLOADED

Formerly known under the Incoterm "DAT (Delivered at Terminal)", the seller delivers the goods unloaded at the agreed destination (warehouse, terminal, ...). The seller must verify that the place where he has to deliver the goods is a place where he is able to unload the goods. The seller assumes all risks associated with the transport and unloading of the goods.

DDP - DELIVERED DUTY PAID

The seller delivers the goods to the buyer, cleared for import and ready to be unloaded at the designated destination. The goods must therefore be cleared by the seller for export and for import and pay all customs formalities. The seller assumes all risks associated with the shipment until the delivery at the destination. 

EXW - EX WORKS

EXWORKS is when the goods are made available to the buyer at the seller's premises or at another designated location (factories, warehouses, etc.). The seller does not need to load the goods onto a supply vehicle.

CIP - CARRIAGE AND INSURANCE PAID TO

The CIP Incoterm is similar to the CPT, the only difference is that the seller is responsible for the insurance of the transport in case of lost or damaged goods during transportation.

DDP - DELIVERED DUTY PAID

The seller delivers the goods to the buyer, cleared for import and ready to be unloaded at the designated destination. The goods must therefore be cleared by the seller for export and for import and pay all customs formalities. The seller assumes all risks associated with the shipment until the delivery at the destination. 

CFR - COST AND FREIGHT

The seller delivers the goods to the port of destination. He shall contract for and pay the costs and freight necessary to deliver the goods to the port of destination designated by the buyer. The risk of loss or damage to the goods shall be passed on to the buyer when the goods are on the vessel.

FCA - FREE CARRIER

The seller delivers the goods to the carrier chosen by the buyer. It is recommended that both parties explicitly specify the point of delivery, as the risk is subsequently transferred to the buyer at that point of delivery.

DAP - DELIVERED AT PLACE

The seller delivers the goods, not unloaded, to the buyer at the agreed place in the country of destination. The buyer is responsible for the unloading, import clearance and the risks involved in bringing the goods to the designated place of destination.

FAS - FREE ALONGSIDE SHIP

The seller delivers the goods alongside the vessel (e.g., on a dock or barge) designated by the buyer to the port of shipment. When the goods are alongside the vessel, the risk of loss or damage to the goods is transferred to the buyer. Therefore, the buyer bears all costs and risks.

CIF - COST, INSURANCE AND FREIGHT

The seller shall deliver the goods on board the vessel at the port of shipment. The seller shall also contract for and pay the costs and freight necessary to deliver the goods to the port of destination designated by the buyer. The risk of loss or damage to the goods shall pass to the buyer when the goods are on board the vessel.

CPT - CARRIAGE PAID TO

The seller delivers the goods to the carrier abroad, without insurance. The seller must contract and pay for the transportation costs necessary to bring the goods to the agreed destination.

DPU - DELIVERED AT PLACE UNLOADED

Formerly known under the Incoterm "DAT (Delivered at Terminal)", the seller delivers the goods unloaded at the agreed destination (warehouse, terminal, ...). The seller must verify that the place where he has to deliver the goods is a place where he is able to unload the goods. The seller assumes all risks associated with the transport and unloading of the goods.

FOB - FREE ON BOARD

The seller shall deliver the goods on the vessel designated by the buyer at the port of shipment. Once the goods are on the vessel, the risk of loss or damage to the goods shall be passed to the buyer. The costs and risks are transferred to the buyer.

THE IMPACT OF INCOTERMS

Incoterms have an important role in international trade and procurement, they are used as an universal language, understood and accepted by all the actors in international trade. It significantly reduces the inconsistencies in communication and language by standardizing specific terms. Thus, Incoterms reduce the risk of unfair trade practices by bringing more clarity and transparency to export transactions.

DON’T KNOW WHICH INCOTERMS TO CHOOSE ?

At MWT Sourcing, we help you to choose the best Incoterm according to your needs. We know that it is fundamental to choose and define the Incoterms for each trade transaction in order to establish the conditions of sales and purchases.

 

We simplify your work by reducing costs and risk transfers. 

 

Do not hesitate to contact us if you want us to help you organize the transport of your goods.