Incoterms, or International Commercial Terms, are a set of codes relating to the transportation of goods. Incoterms are used in trade. They are rules or conditions of the commercial contract related to the transport of goods. Incoterms define the conditions of delivery of goods, and determine the reciprocal obligations of the seller and the buyer regarding transportation.
What is the role of Incoterms?
- Obligations: the role of the seller and the buyer in organizing transportation, insurance of goods, shipping documents, etc.
- Risks: defines the transfer of risks, e.g. in case of breakage or damage
- Costs: who is responsible for the costs between the seller and the buyer. For example: packaging, loading/unloading of goods, security, etc.
What Incoterms are not:
- Do not process:
- transfer of ownership of the goods sold
- intellectual property rights
- export or import bans
- possible remedies for breach of contract of sale
- sales contract
- imposition of customs duties
- etc.
- Is not a sales contract and does not replace it: they reflect commercial practices
What are the Incoterms?
These rules are defined and revised by the International Chamber of Commerce (ICC) every 10 years, in order to keep them in line with international trade practices. The last update of the Incoterms was made on January 1st, 2020.
There are 11 Incoterms for commercial exchanges, which consist of three letters:
- EXW - Ex Works : goods are made available by the buyer at an agreed location (e.g. at the buyer's warehouse), with the buyer taking care of the transport costs and formalities. This means that the supplier only makes the packaged goods available and the buyer takes care of the necessary steps to collect them.
- FCA - Free Carrier : the obligation for the seller is to deliver the goods packed for export in a warehouse on the port. All customs procedures are the responsibility of the buyer. This is a pre-carriage Incoterms which covers the loading of the goods.
- FAS - Free Alongside Ship :The seller is responsible for the arrangements and costs for the transportation of the goods to the port of shipment designated by the buyer, alongside the vessel, as well as for the customs clearance for export. He must also provide the buyer with a commercial invoice and a receipt "alongside the ship". The buyer has to take care of the insurance, loading and transportation. The transfer of risks is done at the moment of placing the goods "along the board".
- FOB - Free On Board : is also reserved for transport by ship. In this case, it means that the seller has to clear the customs and put the goods on a ship chosen by the buyer. The seller is responsible for clearing the goods through customs and loading them on board. The supplier puts the goods ready to leave at the disposal of the port. The seller takes care of supplying the goods, packing them, delivering them to the port and taking care of the customs clearance for the export.
- CFR - Cost and Freight : the seller takes care of the transport to the port of destination (including the export process). The unloading is the responsibility of the buyer. Only freight and sea transport are included. The transfer of risks is done once the goods are on board, and the supplier is no longer responsible for the goods once they arrive at the destination port.
- CIF - Cost, Insurance and Freight : regarding this Incoterm, it is very similar to the CFR. Like CFR, CIF includes the supplier's responsibility until the port of arrival, the transfer of costs is done on arrival, and the buyer is responsible for the unloading of the goods. Here freight and insurance (breakage, loss, theft) are included.
- CPT - Carriage Paid To : the transport of the goods to the first carrier in the country of destination is at the supplier's expense, in this case the transport insurance is not included. The transfer of risk takes place when the goods are handed over to the first carrier. The buyer is responsible for all formalities upon receipt of the goods by the same carrier.
- CIP - Cost, Insurance and Freight : this is the same as the CPT except that the seller also takes over the insurance of the transport.
- DPU (back in the days DAT) - Delivered at Place Unloaded : the seller takes care of the entire transport to the destination but also takes care of the unloading of the goods. The seller also takes care of the import formalities, as well as the related duties and taxes.
- DAP (or DDU, Duty Delivery Unpaid) - Delivered At Place : the seller takes charge of the entire transport from the departure of the goods from its premises to the buyer's address, only the unloading (the express carriers of the Upela network accompany the consignees on the unloading) and the import formalities are the responsibility of the buyer.
- DDP - Delivered Duty Paid : the seller takes charge of the entire transport from the departure of the goods from his premises to the place of delivery designated by the buyer (can be the address of the buyer directly), which includes the assumption of all formalities, duties and taxes. To summarize this option you the buyer has nothing to do.
What are the most commonly used Incoterms?
In a classic commercial transaction, the most common Incoterms are DAP or DDP, of course it depends on the case. With Upela, it is possible to transport goods with the following Incoterms: EXW, DAP (mainly for international shipments, duties and taxes must be paid by the consignee) and DDP (only with UPS by opening a Duty UPS account).
Transport modes: which Incoterms to use?
Transport of goods by boat (sea or river) :
- FAS (Free Alongside Ship)
- FOB (Free On Board)
- CFR (Cost and Freight)
- CIF (Cost, Insurance and Freight)
Multimodal freight transport (all modes covered) :
- EXW (Ex Works)
- FCA (Free Carrier)
- CPT (Carriage Paid To)
- CIP (Cost, Insurance and Freight)
- DPU (Delivered at Place Unloaded)
- DAP or DDU (Delivered At Place)
- DDP (Delivered Duty Paid)
Do you need assistance with Incoterms? Do not hesitate to contact us.
Have a good shipment!
