Shipping Terms for International Trade: INCOTERMS

The International Commercial Terms or Incoterms are a set of rules which define the responsibilities of sellers and buyers for the delivery of goods under sales contracts in international business. There are series of three-letter pre-defined commercial terms published by the International Chamber of Commerce (ICC) relating to international commercial law.

The Incoterms release a new version on 1st January, after the usual ten year period. Currently, we are using the eight-version of the Incoterms released in 2010. The Incoterms 2010 has 11 rules, reduced from the 13 rules defined by Incoterms 2000. The four rules of the 2000 version are removed and replaced by two new rules; DAT and DAP in the 2010 Incoterms.

Definition and Use Cases

Free Alongside Ship (FAS)

The seller delivers goods, clear for export, alongside the vessel at a named port, at which point risk transfers to the buyer. This rule is limited to goods transported by Sea or Inland Waterway, and the main carriage is paid by the buyer.

Free On Board (FOB)

The seller delivers the goods on board as directed by the buyer to the nearest harbor. The buyer has to bear all the costs & risks to the goods from that point. The main carriage is paid by the buyer and used in Sea and Inland Waterway.

Cost and Freight (CFR)

The seller arranges and pays for transport to the said port. The goods are delivered, cleared and loaded on board the vessel. The risk of loss or damage of goods passes when the goods are on board the vessel, as the seller doesn’t cover insurance.

Cost, Insurance and Freight (CIF)

It is similar to the CFR, but the only difference is that the seller is only required to obtain minimum insurance coverage. However, if the buyer wishes to have more insurance protection, it can add its own.

Ex-Works (EXW)

An ex-works or ex-factory price is one where the seller makes goods available to the buyer at the seller’s factory where the buyer is responsible for paying and transported to where they need.

Free Carrier (FCA)

The seller delivers the goods to the carrier or another person nominated by the buyer at the seller’s location or another agreed place. This term is suitable for all modes of transport, carriage by air, rail, road, and multimodal transportation.

Carriage Paid To (CPT)

The seller delivers and pays the goods to the carrier or another person nominated by the seller at an agreed place. It is similar to CFR, but CPT is used for multimodal transportation.

Carriage and Insurance Paid To (CIP)

It is similar to CPT, where the seller delivers and pays the goods to the carrier or another person nominated by the seller at an agreed place. The only difference is to obtain minimum insurance coverage and is used for MMT (Multimodal Transportation).

Delivered at Terminal (DAT)

The seller delivers the goods to the named port or place of destination. Risk transfers from seller to buyer when the goods have been unloaded. The supplier considers all the costs to that destination, except related to import customs clearance.

Delivered at Place (DAP)

The seller pays for carriage to the delivery point named by the buyer. Risk transfers from seller to buyer when the goods are available for unloading; so unloading is at the buyer’s risk. The buyer is responsible for import clearance and any applicable local taxes or import duties.

Delivered Duty Paid (DDP)

The seller is responsible for arranging carriage and delivering the goods at the named place, cleared for import and all applicable taxes, customs clearance and duties paid.

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