INCOTERMS for International Trade

Incoterms, established by the International Chamber of Commerce (ICC) in 1936, serve as globally recognized commercial terms that outline the responsibilities and obligations of buyers and sellers throughout the shipping process. Updated regularly to adapt to evolving trade practices, Incoterms encompass vital aspects of international trade, including payment, insurance, transportation, and associated costs. It is crucial for both buyers and sellers to reach a mutual agreement on Incoterms to prevent any disputes or misunderstandings. - Aniithaa KP, Chief Operating Officer (COO) at TASchem Industries.

The ELEVEN Incoterms® 2020 rules for any mode(s) of transport are: 

1.EXW - Ex Works

Ex Works (EXW) - seller delivers when it places the goods at the buyer’s disposal at the seller’s premises or another named place (i.e., works, factory, warehouse, etc.). The seller does not need to load goods or clear them for export. In principle, until the goods have not been delivered as specified in the sale contract, the seller bears all risks of loss or damage to the goods. Once delivered, such risk is automatically shifted to the buyer.

2.FCA - Free Carrier

Free Carrier (FCA) is an Incoterm that outlines the responsibilities of the buyer and seller during the shipping process. Under FCA, the seller is responsible for delivering the goods to a destination specified by the buyer, which may be an airport, shipping terminal, warehouse, or other location. The seller includes transportation costs in its price and assumes the risk of loss until the carrier receives the goods. At that point, the buyer assumes all responsibility and bears the risk of loss or damage to the goods. FCA is commonly used in international trade and helps clarify the roles and responsibilities of both parties.

3.CPT - Carriage Paid to

Carriage Paid To (CPT) is an Incoterm that outlines the responsibilities of the buyer and seller during the shipping process. Under CPT, the seller is responsible for delivering the goods at their own 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. The carrier may be responsible for the carriage of the goods or may be enlisted to procure the performance of the carriage. The CPT price may also include Terminal Handling Charges (THC) in freight rates.

CPT vs. Cost, Insurance, and Freight (CIF)

Cost, Insurance, and Freight (CIF) is similar to CPT but slightly different. The primary difference is that CIF only applies to maritime shipping, per Incoterms. The seller is responsible for the costs, insurance, and freight for transporting goods up until they are loaded on the shipping vessel at port. From that point on, the responsibility is with the buyer.

4.CIP-Carriage and Insurance Paid To 

Carriage and Insurance Paid To (CIP) is an Incoterm that defines the responsibilities of the buyer and seller during the shipping process. Under CIP, the seller is responsible for delivering the goods and covering the delivery and insurance costs until they are transferred to the first carrier who will transport the goods. Once the goods have been given to the page, the responsibility shifts to the buyer, who becomes responsible for any risks or costs associated with the goods. In summary, the seller is responsible for the goods until they are transferred to the first carrier, after which the buyer assumes responsibility.

5.DAP-Delivered at Place

Delivered at Place (DAP), an Incoterm used in shipping. Under DAP, the seller is responsible for all costs and risks of delivering the goods to the final agreed-upon place, typically the buyer's premises. DAP is suitable for various modes of transportation, such as sea freight, air freight, road freight, and rail freight. The buyer is only responsible for importing and unloading the cargo, while the seller bears all other expenses and risks.

However, buyers need to note that additional charges may be outside of the DAP product cost. These charges may include freight insurance, import taxes, customs brokerage, and expenses incurred to unload the cargo from the container at the final destination.

In the past, similar Incoterms such as DAF, DES, and DDU were retired and replaced by DAP.

6.DDP-Delivered Duty Paid

Delivered Duty Paid (DDP) is an Incoterm used in international trade. The seller is responsible for delivering goods to the buyer at the destination, covering all costs, including import duties and taxes. The seller takes on all risks and costs associated with transportation until the goods reach the buyer's location. This comprehensive shipping agreement may result in higher costs for buyers but can provide peace of mind as the seller is responsible for ensuring the goods arrive safely.

The DPU Incoterms replaces the old DAT with additional requirements for the seller to unload the goods from the arriving means of transport. 

7.DPU-Delivered at Place Unloaded 

Delivered at Place Unloaded (DPU) is an Incoterm where the seller is responsible for delivering the goods to the buyer at the specified destination after they have been unloaded from the arriving means of transport. DPU can apply to any mode of transport and requires the seller to clear goods for export but not for import. This is the only Incoterm that obliges the seller to unload the goods at the place of destination.

8.FOB-Free On Board

Free on Board (FOB) stands for "Free on Board" and applies to ocean or inland waterway transport. Under this term, the seller is responsible for clearing the goods for export and loading them onto the transport vessel at the named port of departure. The buyer takes over responsibility and costs, including import clearance and duties, once the goods are loaded onto the vessel. FOB is typically used for bulk cargo or freight from Asia and does not apply to air, ground, or rail transport.

9.FAS-Free Along Ship

Free Alongside Ship (FAS) is an Incoterm that requires the seller to clear goods for export and place them alongside the vessel at the named port of departure. The buyer is responsible for loading the goods onto the vessel and handling local carriage, import formalities, and duties to the final destination. This term applies only to ocean or inland waterway transport and is popular for bulk cargo such as oil or grain. FCA should be used for containerized shipments delivered only to a terminal.

10.CFR-Cost and Freight

Cost and Freight (CFR) is an Incoterm where the seller delivers goods onboard the ship at the port of departure, pays for transport to the named port of destination, and clears the goods for export. The buyer assumes responsibility and costs for additional transport from the destination port, including import clearance and duties.

This term only applies to ocean or inland waterway transport.

11.CIF-Cost, Insurance and Freight

Cost, Insurance, and Freight (CIF) is an Incoterm used in international trade where the seller is responsible for delivering the goods to the buyer at the named port of destination. The seller is responsible for covering the costs of transport and minimum insurance coverage. The buyer takes on all the risk once the goods are on board the vessel for the main carriage. CIF only applies to ocean or inland waterway transport, and it is commonly used for bulk cargo and oversized or overweight shipments. If the freight is containerized and delivered only to the terminal, CIP should be used instead.