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Incoterms

Incoterms are international trade terms which define the different responsibilities of the buyer and the seller. Their main objective is to establish criteria defined on the distribution of costs and the transmission of risks between the buyer and the seller side in international sales contract.

The main advantage consists of having simplified by 11 standardized denominations a cluster of conditions that have to be met by both contracting parties. Thanks to this harmonization or standardization, both the buying and selling party know exactly what to expect.

3 FUNDAMENTALS THAT REGULATE THE INCOTERMS:

  • The delivery of the goods, either directly or indirectly.
  • The transmission of risk.
  • The distribution of costs between the parties.

As can be seen, the management of Incoterms is critical to establish guidelines for business operations, so the knowledge of every detail is necessary to avoid problems and make operations convenient as your company wishes them to be.

RISKS COSTS FOR BOTH THE SELLER AND THE BUYER:

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  • Seller
  • Custom clearance (export)
  • Pre-carriage
  • Delivered and unloaded at port of loading
  • Alongside vessel
  • Onboard vessel port of loading
  • Main transport
  • Onboard vessel point of discharge
  • Unloaded at port of discharge
  • on-carriage
  • Customs clearance (import)
  • Buyer importer facility
TRANSPORTATION POLIVALENT
EXW
Carriage
Risks
Costs
EXW Ex Works

“Ex Works” means that the seller delivers when it places the goods at the disposal of the buyer at the seller’s premises or at another named place (i.e.,works, factory, warehouse, etc.). The seller does not need to load the goods on any collecting vehicle, nor does it need to clear the goods for export, where such clearance is applicable.

FCA
Carriage
Risks
Costs
FCA Free Carrier

“Free Carrier” means that the seller delivers the goods to the carrier or another person nominated by the buyer at the seller’s premises or another named place. The parties are well advised to specify as clearly as possible the point within the named place of delivery, as the risk passes to the buyer at that point.

CPT
Carriage
Risks
Costs
CPT Carriage Paid To

“Carriage Paid To” means that the seller delivers the goods to the carrier or another person nominated by the seller at an agreed place (if any such place is agreed between parties) and that the seller must contract for and pay the costs of carriage necessary to bring the goods to the named place of destination.

CIP
Carriage
Risks
Costs
CIP Carriage And Insurance Paid To

“Carriage and Insurance Paid to” means that the seller delivers the goods to the carrier or another person nominated by the seller at an agreed place (if any such place is agreed between parties) and that the seller must contract for and pay the costs of carriage necessary to bring the goods to the named place of destination.

‘The seller also contracts for insurance cover against the buyer’s risk of loss of or damage to the goods during the carriage. The buyer should note that under CIP the seller is required to obtain insurance only on minimum cover. Should the buyer wish to have more insurance protection, it will need either to agree as much expressly with the seller or to make its own extra insurance arrangements.”

DPU
Carriage
Risks
Costs
DPU Delivered and Placed Unloaded

“Delivered at Terminal” means that the seller delivers when the goods, once unloaded from the arriving means of transport, are placed at the disposal of the buyer at a named terminal at the named port or place of destination. “Terminal” includes a place, whether covered or not, such as a quay, warehouse, container yard or road, rail or air cargo terminal. The seller bears all risks involved in bringing the goods to and unloading them at the terminal at the named port or place of destination.

DAP
Carriage
Risks
Costs
DAP Delivered At Place

“Delivered at Place” means that 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. The seller bears all risks involved in bringing the goods to the named place.

DDP
Carriage
Risks
Costs
DDP Delivered Duty Paid

“Delivered Duty Paid” means that the seller delivers the goods when the goods are placed at the disposal of the buyer, cleared for import on the arriving means of transport ready for unloading at the named place of destination. The seller bears all the costs and risks involved in bringing the goods to the place of destination and has an obligation to clear the goods not only for export but also for import, to pay any duty for both export and import and to carry out all customs formalities.

MARITIME AND FLUVIAL TRANSPORT
FAS
Carriage
Risks
Costs
FAS Free Alongside Ship

“Free Alongside Ship” means that the seller delivers when the goods are placed alongside the vessel (e.g., on a quay or a barge) nominated by the buyer at the named port of shipment. The risk of loss of or damage to the goods passes when the goods are alongside the ship, and the buyer bears all costs from that moment onwards.

FOB
Carriage
Risks
Costs
FOB Free On Board

“Free On Board” means that the seller delivers the goods on board the vessel nominated by the buyer at the named port of shipment or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel, and the buyer bears all costs from that moment onwards.

CFR
Carriage
Risks
Costs
CFR Cost and Freight

“Cost and Freight” means that the seller delivers the goods on board the vessel or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel. the seller must contract for and pay the costs and freight necessary to bring the goods to the named port of destination.

CIF
Carriage
Risks
Costs
CIF Cost, Insurance and Freight

“Cost, Insurance and Freight” means that the seller delivers the goods on board the vessel or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel. The seller must contract for and pay the costs and freight necessary to bring the goods to the named port of destination.

‘The seller also contracts for insurance cover against the buyer’s risk of loss of or damage to the goods during the carriage. The buyer should note that under CIF the seller is required to obtain insurance only on minimum cover. Should the buyer wish to have more insurance protection, it will need either to agree as much expressly with the seller or to make its own extra insurance arrangements.”

The Incoterms® rules have become an essential part of the daily language of trade. They have been incorporated in contracts for the sale of goods worldwide and provide rules and guidance to importers, exporters, lawyers, transporters, insurers and students of international trade.

These extracts can be reproduced provided that the source is cited and a link to the ICC Store is mentioned.