INCOTERMS - DETAILED EXPLANATION

INCOTERMS 101 continued...  

In the last blog, we tried understanding Incoterms as a concept. Now let's bring you up to speed on what each of the 11 terms mean by categorizing them based on the mode of transport.

INCOTERMS FOR ANY MODE/MODES OF TRANSPORT:

1. EXW (Ex-Works):
The seller has to only make the goods available at his premises / agreed location. From then on, all risks and costs are borne by the buyer.

2. FCA (Free Carrier):
The seller is responsible for loading the goods, cleared for export, onto a buyer-nominated carrier at the seller's premises/specified place.The delivery takes place once the goods are loaded onto the carrier at the seller's premises or when the loaded carrier arrives at the agreed location. Once delivered, all the risks and costs get transferred to the buyer.

3. DDP (Delivered duty paid):
This is the exact opposite of EXW. Here, the seller is responsible to deliver the goods from his premises to the buyer's premises / agreed location. All the costs and risks are borne by the seller.

4. CPT (Carriage Paid To):
The seller is obligated to deliver the goods to a carrier nominated by him and also pay for the carrier to the agreed destination. However, he's not responsible for insuring the goods while they are in transit. That risk transfers to the buyer once the goods get delivered to the first carrier.

5. CIP (Carriage and Insurance Paid):
It's the same as CPT but with an added obligation for the seller to obtain insurance against the buyer’s risk of damage to the goods while they're in transit. However, the seller is required to obtain only minimum insurance. It’s  then for the buyer to figure out if he wishes to take extra insurance. It’s important to note that although the seller pays for the insurance, he doesn’t bear the risk of damage to the goods. That risk transfers to the buyer once the goods get delivered to  the first carrier (in case of multiple carriers). 

6. DAT (Delivered At Terminal):
The seller takes responsibility for delivering and unloading the goods at the destination terminal or established point. From then on, all risks and costs get transferred to the buyer.  

7. DAP (Delivered At Place):
The seller takes responsibility for delivering the goods to the final destination. The buyer only pays for import duties/taxes and is responsible for unloading the goods once they arrive at the final destination.


INCOTERMS ONLY FOR SEA/INLAND WATERWAYS:

8. FAS (Free Alongside Ship):
Here, the delivery takes place once the seller places the goods, cleared for export, alongside the vessel at the designated port. From there on, the buyer bears all the costs and risks.

9. FOB (Free On Board):
The seller delivers the goods, cleared for export, on board the vessel at the designated port. Once on board, all the costs and risks associated with moving goods get transferred to the buyer.

10. CFR (Cost and Freight):
In CFR, the seller delivers the cleared goods aboard the vessel at the port of origin. He also pays for the carriage of goods to the endpoint. The risk, however, gets transferred to the buyer, once the goods are loaded onto the vessel at the port of origin.

11. CIF (Cost, Insurance, Freight):
It's the same as CFR but with an added obligation for the seller to procure insurance against the buyer’s risk of damage to the goods while they're in transit. However, the seller is required to obtain only minimum insurance. It is then up to the buyer to decide if he wishes to obtain additional insurance.  

For a more detailed explanation on Incoterms, click on https://iccwbo.org/resources-for-business/incoterms-rules/incoterms-rules-2010/ 



INCOTERMS RESPONSIBILITY CHART



That's it for Incoterms 2010.

It's important to know that although Incoterms 2010 is the latest version that is used worldwide, parties can also follow the previous versions (such as Incoterms 2000) if they desire, provided they specify it clearly in the contract.

We hope with this we have managed to simplify Incoterms for you.


Do let us know what you think in the comments section below.

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