Incoterms Glossary

Do you get your CFRs mixed up with your FOBs?

Well no more!

Read on for the low-down on all things Incoterms below.

Incoterms is an acronym for International Commercial Terms, a set of internationally recognised rules defined by the International Chamber of Commerce to determine the terms of sale between sellers and buyers.

The specific incoterm for a sales contract will specify who is responsible for the payment and management of shipping, documentation, customs clearance, and insurance activities for the carriage of goods, as well as when risk for the goods is transferred between parties.

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Incoterms

The seven incoterms for any form of transport are:

EXW - Ex works (insert place of delivery)

The seller is responsible for making the goods available at a specific location, usually the seller's warehouse. The buyer is responsible for all transportation costs and assumes all risk for the goods once they are collected.

FCA - Free Carrier (insert place of delivery)

The seller is responsible for delivering the goods to an agreed place; generally an airport, shipping terminal, or warehouse. The seller is responsible for the costs of transporation and bears risk for the goods until they are delivered.

CPT - Carriage Paid to (insert place of destination)

The seller is responsible for the delivery of goods to a carrier or person nominated by the buyer and the transport costs associated with this. Risk for the goods stays with the seller until they have been received by the nominated party.

CIP - Carriage and Insurance Paid To (insert place of destination)

The seller is responsible for the delivery of goods to a carrier or person nominated by the buyer and the insurance and transport costs associated with this. Risk for the goods stays with the seller until they have been received by the nominated party.

DAP - Delivered at Place (insert named place of destination)

The seller agrees to pay all costs and bears the risk of delivering the goods to a location specified by the buyer. The buyer is responsible for paying import duties and any applicable taxes, once the shipment has arrived at the specified destination.

DPU - Delivered at Place Unloaded (insert of place of destination)

The seller agrees to pay all costs and bears the risk of delivering and unloading the goods at a location specified by the buyer. The buyer is responsible for paying import duties and any applicable taxes, once the shipment has arrived at the specified destination. The goods must be unloaded for the risk for the goods to be transferred to the buyer.

DDP - Delivered Duty Paid (Insert place of destination)

The seller is responsible for all shipping, insurance, export, and import, costs and duties, as well as any other expenses incurred during shipping to an agreed- upon location in the buyer's country. The seller also bears all risk for the goods until they are transferred to the buyer.

The four incoterms for shipping are:

FAS - Free Alongside Ship (insert name of port of loading)

The seller is responsible for delivering the goods to the port of export where they are to be deposited alongside the designated shipping vessel for easier loading. Risk for the shipment is assumed by the buyer at this point.

FOB - Free on Board (insert named port of loading)

The seller is responsible for delivering the goods on board to a shipping vessel designated by the buyer. Risk for the goods is generally assumed by the buyer at the shipping port. The buyer is also responsible for all shipping expenses.

CFR - Cost and Freight (insert named port of destination)

The seller is responsible for delivering the goods to a designated port and bears the cost of transportation and loading the goods. The buyer then assumes the risk and costs associated with moving the goods form the delivery port to its own location.

CIF - Cost Insurance and Freight (insert named port of destination)

The seller is responsible for delivering the goods to a designated port and bears the cost of transportation, insurance, and loading the goods. The buyer then assumes the risk and costs associated with moving the goods form the delivery port to its own location.

What's Not Included?

Incoterms do not cover all of the details regarding the transfer of goods. Whilst they are normally included in a contract of sale they do not:

• Address all the conditions of a sale

• Identify the goods being sold nor list the contract price

• Reference the method nor timing of payment negotiated between the seller or buyer

• Determine when title, or ownership of the goods, passes from the seller to the buyer

• Specify which documents must be provided to facilitate import customs clearance

• Address liability for inconformities with the contract of sale in delivering the goods

• Address liability for delivery delays

• Define any dispute resolution mechanisms