INCOTERMS rules
INCOTERMS are the commercial conditions underlying the contracts concluded between the seller and the buyer and are a set of basic rules to be respected between at least two business partners.
Applying INCOTERMS conditions in sales contracts simplifies global trade and helps partners in different countries to understand each other and communicate effectively.
When global companies conclude contracts for the purchase and sale of goods, they are free to negotiate specific conditions. These terms or conditions include the price, quantity and characteristics of the goods. Each international contract contains at least one INCOTERM or international commercial term.
There are 13 main terms and some secondary terms that indicate where the responsibility starts and ends and the risks associated with the three agents involved in the legal goods transport procedures: sender, carrier and consignee.
The parties involved in transactions apply these INCOTERMS to determine who pays the cost for each segment of the transport, who is responsible for loading and unloading the goods and who bears the risk of loss at any given time in the context of international shipments. INCOTERMS also influences the customs valuation of imported goods.
INCOTERMS rules are changed every 10 years. The Executive Committee of the ICC (International Chamber of Commerce) – Paris supervises and administers these international terms that are taken over by the world’s leading trading nations.
INCOTERMS
INCOTERMS are international commercial terms recognized globally by tribunals and other authorities. Often the parties involved in the contract do not know the different commercial practices in the respective countries. The lack of knowledge can lead to misunderstandings and disputes between client and supplier. Incorporating INCOTERMS rules into international sales contracts reduces these risks.
Group C
CFR: COST AND FREIGHT
The seller or exporter is responsible for clearing the goods for export, shipping the goods beyond the marine vessels at the port of shipment and paying the international transport charges.
The buyer assumes the risk of loss once the goods pass beyond the seagoing ship and must buy insurance, unload the goods, pay the customs duties and pay for transportation to deliver the goods to their final destination
CIF: COST INSSURANCE FREIGHT
The seller or exporter is responsible for delivering the goods to the shipping and customs warehouse in the country of export. The exporter is also responsible for the purchase of the insurance and the buyer or the importer is named beneficiary.
The risk of loss is transferred to the buyer as the goods pass on the seagoing vessel. If the goods are damaged or stolen during international transport, the buyer is fully responsible and must file a complaint based on the seller’s insurance. The buyer has to handle the customs clearance in the import country and pay for all shipments and insurance from the importing country to the final destination.
CPT: CARRIAGE PAID TO
The seller or exporter issues the goods for export, delivers them to the carrier and is responsible for the transport costs to the destination of the contract.
The risk of loss is transferred to the buyer after the goods are transhipped to the carrier. The buyer must secure the goods at that time.
CIP: CARRIAGE INSURANCE PAID TO
The seller delivers the goods to the port of export, handles the customs procedures and delivers the carrier’s cargo. From this point, the risk of loss is transferred to the buyer.
The seller is responsible for transport costs and secures the goods to the place of destination. From this point, the buyer is responsible for any costs and bears the risk of loss.
Group D
DAF: DELIVERED AT FRONTIER
The seller or exporter is responsible for clearing the goods for export, shipping the goods beyond the sea-going vessels at the port of shipment and paying the international transport charges.
The buyer assumes the risk of loss once the goods pass beyond the seagoing ship and must purchase the insurance, unload the goods, pay the customs duties and pay for the shipment to deliver the goods to their final destination.
DES: DELIVERED EX SHIP
The seller or exporter is responsible for all costs involved in delivering the goods to an export port or any other destination. Seller is responsible for costs and risk of loss before unloading at the port of destination.
The buyer or the importer has to unload the goods, pay the customs duties and provide transportation and domestic insurance to the final destination.
DEQ: DELIVERED EX-QUAY
The seller or exporter is liable for all costs associated with the carriage of goods to the quay at the port of destination. From this point, the buyer has to pay the customs duties, take care of the customs and take responsibility for the risk of loss.
DDU: DELIVERED DUTY UNPAID
The seller or exporter is liable for all costs associated with the carriage of goods to the quay at the port of destination. From this point, the buyer has to pay the customs duties, take care of the customs and take responsibility for the risk of loss.
DDP: DELIVERED DUTY PAID
The seller or exporter is responsible for all costs related to the delivery of the goods to a contractually targeted destination and for the customs clearance in the importing countries.
Through this international trading term, the seller literally assures door-to-door delivery, including directing in the export port and destination port. The seller thus assumes the responsibility for the risk of loss until the goods are delivered to the buyer’s destination/ place of residence.
Group E
EXW: EX-WORKS
The seller or exporter puts the goods at the disposal of the buyer or importer at the seller’s premises. The buyer is responsible for all costs, taxes and transport insurance. It accepts the risk of losing goods immediately after the goods have been purchased and placed outside the factory.
The EX-Work price does not include the loading of the goods on a lorry and does not grant compensation for the clearing of the customs debt.
Group F
FCA: FREE CARRIER
The seller or exporter issues the goods for export and delivers them to the carrier at the location specified by the buyer. If the location is the place where the seller operates, then the seller has to load the goods in the transport vehicle. Otherwise, the buyer is responsible for loading the goods.
The buyer takes the risk of loss from this point and has to pay for all costs associated with the carriage of goods to the final destination.
FAS: FREE ALONGSIDE SHIP
The sellers carry the goods from the place of business, provide the goods for export and place them next to the ship in the export port, where the risk associated with the loss is the responsibility of the buyer.
The buyer is responsible for loading the cargo on the ship, unless otherwise specified in the contract, and for the payment of all costs related to the carriage of the goods to the final destination.
FOB: FREE ON BOARD
The seller or exporter is responsible for the delivery of the goods from the place of activity and their loading to the ship in the export port, as well as for the customs clearance in the exporting country.
As soon as the goods cross the ship’s threshold, the risk of loss is transferred to the buyer or importer. The buyer has to pay all transportation and insurance costs at that point and has to pay the customs duties in the import country.