Who’s responsible for what? Which terms are ocean only and which are for all modes of transportation?
International trade is no simple matter, shipping can be costly in terms of time, money, and sanity. It’s difficult to predict what costs or obstacles might pop up out of nowhere during the course of moving products from one part of the world to another. To help reduce the chance of unforeseen fees or legal issues arising, the International Chamber of Commerce (ICC) created a list of terms of agreement called the Incoterms® rules.
What are Incoterms?
Incoterms is an abbreviation that stands for “international commercial terms.” The Incoterms® rules are created as a guide for easing the process of negotiating contracts for the import and export of global trade. Incoterms are universal terms that define the responsibilities, risks, and liabilities of both parties at each stage of the freight shipping process.
Incoterms can be incorporated into contracts to establish and define each party’s responsibility and expectation. The Incoterms are broken into 11 acronyms that define buyer and seller responsibilities under those terms. Seven of the Incoterms apply to all forms of transport where the remaining 4 are specific to sea and inland waterway transport.
Incoterms - All Modes of Transport
The following Incoterms apply to all modes of transport (land, sea, or air) and are listed in descending order of most to least cost and responsibility for the buyer.
EXW - Ex Works
places most responsibility with the buyer. The seller is expected to have the goods ready for collection at the agreed place of delivery
FCA - Free Carrier
requiring the seller of goods to deliver those goods to a named airport, shipping terminal, warehouse, or other carrier location specified by the buyer.
CPT - Carriage Paid To
seller delivers the goods at their expense to a carrier or another person nominated by the seller. The seller assumes all risks, including loss, until the goods are in the care of the nominated party.
CIP - Carriage and Insurance Paid To
seller assumes all risk until the goods are delivered to the first carrier at the place of shipment—not the place of destination. Once the goods are delivered to the first carrier, the buyer is responsible for all risks.
DAT - Delivered at Terminal (Replaced by DPU - Delivered at Place Unloaded in Incoterms 2020)
seller delivering the goods, once unloaded from the arriving means of transport. Goods are placed at the disposal of the buyer at the named terminal, at the named port or place of destination.
DAP - Delivered at Place
seller takes on all the risks and costs of delivering goods to an agreed-upon location. Delivered-at-place is an international trade term that was introduced in the International Chamber of Commerce's (ICC) eighth publication of its Incoterms.
DDP - Delivered Duty Paid
seller assumes all of the responsibility, risk, and costs associated with transporting goods until the buyer receives or transfers them at the destination port.
Incoterms - Sea and Inland Waterway Transport
The following Incoterms apply only to transport by way of sea or inland waterways and are listed in descending order of most to least cost and responsibility for the buyer.
FAS - Free Alongside Ship
seller fulfils his obligation to deliver when the goods have been placed alongside the vessel on the quay or in lighters at the named port of shipment. This means that the buyer has to bear all costs and risks of loss of or damage to the goods from that moment.
FOB - Free On Board
seller fulfils his obligation to deliver when the goods have passed over the ship's rail at the named port of shipment. This means that the buyer has to bear all costs and risks of loss of or damage to the goods from that point.
CFR - Cost and Freight
seller is required to clear the goods for export, deliver them onboard the ship at the port of departure, and pay for transport of the goods to the named port of destination. The risk passes from seller to buyer when the seller delivers the goods onboard the ship.
CIF - Cost, Insurance, and Freight
seller delivers the goods, cleared for export, onboard the vessel at the port of shipment, pays for the transport of the goods to the port of destination, and also obtains and pays for minimum insurance coverage on the goods through their journey to the named.
Incoterms on their own do not constitute a complete contract but are instead a component of it. Incorporating Incoterms into a contract helps to clarify the specific duties of each party. When using Incoterms in a contract, the year of the Incoterms rule being applied should be added to avoid any potential confusion as Incoterms rules have changed over time.
For help figuring out which Incoterm is best for you or to obtain a printable copy, contact one of our logistic experts today.