Incoterms – Guiding the Import and Export Industry

If you deal with the import or export of freight anywhere in the world it’s important that you know what Incoterms are and what each term means. Incoterms governs the liability of different parties during the import and export of goods.

Incoterms are a range of three letter trade terms that are standard to the Freight Forwarding and Customs Clearing industry. The word Incoterms is an acronym for the International Commercial Terms, which is a series of predefined commercial terms published by the International Chamber of Commerce (ICC). They are widely used in International commercial transactions or procurement processes. The Incoterms rules are intended primarily to clearly communicate the tasks, costs, and risks associated with the transportation and delivery of goods. Governments and authorities abide by Incoterms and as such, it’s expected from Macro Clearing and other practitioners to do the same.

The Meaning of Different Incoterms

EXW – Ex Works (named place of delivery)

This term places the maximum obligation on the buyer and minimum obligations on the seller. The Ex Works term is often used when making an initial quotation for the sale of goods without any costs included. The seller makes the goods available at their premises. That is the seller’s sole responsibility. EXW means that a buyer incurs the risks for bringing the goods to their final destination. The buyer arranges the collection of the freight from the supplier’s designated ship site, and is responsible for clearing the goods through Customs. The buyer is also responsible for completing all the export documentation, although the seller does have an obligation to provide information relating to the goods on request.

FCA – Free Carrier (named place of delivery)

The seller delivers the goods, cleared for export, at a named place. This can be to a carrier nominated by the buyer, or to another party nominated by the buyer.

CPT – Carriage Paid To (named place of destination)

CPT replaces the venerable C&F (cost and freight) and CFR terms for all shipping modes outside of non-containerised seafreight. The seller pays for the carriage of the goods up to the named place of destination. Risk transfers to buyer upon handing goods over to the first carrier at the place of shipment in the country of Export.

CIP – Carriage and Insurance Paid to (named place of destination)

This term is broadly similar to the above CPT term, with the exception that the seller is required to obtain insurance for the goods while in transit. CIP can be used for all modes of transport, whereas the equivalent term CIF can only be used for non-containerised seafreight.

DAT – Delivered At Terminal (named terminal at port or place of destination)

This term means that the seller covers all the costs of transport (export fees, carriage, unloading from main carrier at destination port and destination port charges) and assumes all risk until destination port or terminal. The terminal can be a Port, Airport, or inland freight interchange. Import duty/taxes/customs costs are to be borne by Buyer.

DAP – Delivered At Place (named place of destination)

Incoterms 2010 defines DAP as ‘Delivered at Place’ – the seller delivers when the goods are placed at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination. Under DAP terms, the risk passes from seller to buyer from the point of destination mentioned in the contract of delivery.

DDP – Delivered Duty Paid (named place of destination)

Seller is responsible for delivering the goods to the named place in the country of the buyer, and pays all costs in bringing the goods to the destination including import duties and taxes. The seller is not responsible for unloading.

FAS – Free Alongside Ship (named port of shipment)

The seller delivers when the goods are placed alongside the buyer’s vessel 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 (named port of shipment)

Under FOB terms the seller bears all costs and risks up to the point the goods are loaded on board the vessel. The seller must also arrange for export clearance. The buyer pays cost of marine freight transportation, bill of lading fees, insurance, unloading and transportation cost from the arrival port to destination.

CFR – Cost and Freight (named port of destination)

The seller pays for the carriage of the goods up to the named port of destination. Risk transfers to buyer when the goods have been loaded on board the ship in the country of Export.

CIF – Cost, Insurance & Freight (named port of destination)

This term is broadly similar to the above CFR term, with the exception that the seller is required to obtain insurance for the goods while in transit to the named port of destination. CIP covers additional charges at the port/terminal of entrance.

Our Obligation to You in Regards to Incoterms

As an international Freight Forwarding and Customs Clearing Agent Macro Clearing has an obligation to see that our clients are both aware of and abide to the Incoterms as set out by the ICC. Feel free to contact us at any time to learn more about how Incoterms will influence the import or export of your goods.