The International Commerce Terms (INCOTERMS) are a group of trade terms predefined and published by the International Chamber of Commerce (ICC). They’re comprised of three letters each, which denote different contractual sales practices.
These terms enable accurate communication in a standardized manner, reducing confusion which might arise from the differences in rules and requirement interpretations amongst countries, making global commerce possible.
There are words inside INCOTERMS that have a very specific definition that sometimes differs from common usages of the word, such as:
• Delivery: moment in a transaction where the risk of loss or damage of goods is transferred from the seller to the buyer.
• Arrival: Place named in the INCOTERM to which carriage has been paid.
• Free: the seller is obligated to deliver the merchandise to a place of transfer to a carrier.
• Carrier: any person who, in contract of carriage, undertakes to perform or procures transport by rail, road, air, sea, inland, or any combination of these modes.
• Freight Forwarder: Company that either assists or makes shipping arrangements.
• Terminal: Any place, with or without cover, such as a dock, container yard, road, rail, air cargo terminal or yard.
• To clear for export: means that Shipper’s Export Declaration has been filed and an export permit has been issued.
The INCOTERMS have been divided in categories which are considered rules for any method of transportation of goods. These are divided in groups based on characteristics, like insurance requirement, and the dynamics of assumed risk between the buyer and seller.
Group E: EXW
EXW (Ex Works) The seller has the goods in their premises or in some other convened place. These terms demand maximum obligation on the buyer and minimal obligations on the seller. This means that the buyer assumes all risk of moving said goods to its final destination. This INCOTERM can be used with any mode of transportation or any combination of them (called multimodal transport).
Group F: FAS, FOB, FCA
Indirect delivery, no payment of main transport
FAS (Free Alongside Ship): The seller delivers the goods, already cleared for export, to a named terminal. These goods can be delivered to a carrier named by the buyer. In this INCOTERM, the seller assumes all expenses from customs.
FOB (Free on Board): The seller delivers the merchandise to the carrier vessel named by the buyer. This INCOTERM is used exclusively for sea transport.
FCA (Free Carrier): The seller delivers the merchandises to a place named by the buyer inside the country of origin. The seller then assumes all costs related to transportation until delivery is made on the convened place.
Group C: CPT, CIP
Indirect delivery, with payment of main transport
CPT (Carriage-Paid To): This INCOTERM replaces the old C&F (Cost and Freight) for all delivery methods outside of sea-vessel transport. In CPT, the seller pays for the transportation of goods until a named spot, which are then considered ‘delivered’ (see above for exact definition). This means a transfer of all risk from the seller to the buyer.
CIP (Carriage and Insurance Paid to): Just like CPT, except it mandates that the seller obtains insurance for the goods while in transit. Specifically, the seller must insure all goods for 110% of the contracted value as a minimum. This can be used for all means of transportation or a combination of them.
Group D: DAT, DAP, DDP
Direct delivery to arrival
DAT (Delivered at Terminal): This INCOTERM requires the seller to deliver the goods without unloading in a predetermined terminal. The seller assumes all costs of transportation (included, but not limited to: export taxes, transport, unloading from main vessel, any terminal or dock changes). Once the container are unloaded from the vessel, the risk is assumed by the buyer. This INCOTERM can be used with any means of transportation.
DAP (Delivered At Place): The seller incurs all expenses, including main vessel transport and insurance (not mandatory). Once the good arrives to the final destination, the buyer assumes all customs and unloading expenses.
DDP (Delivered Duty Paid): Similar to DAP. The seller assumes all costs, including transport and insurance (not mandatory), as well as customs, unloading, and necessary taxes in the destination country.
EXW (Ex Works – En Fábrica).
FCA (Free Carrier – Franco Transportista).
FOB (Free on Board – Franco a bordo).
FAS (Free Alongside Ship – Franco al costado del buque).
CFR (Cost and Freight – Coste y Flete).
CIF (Cost, Insurance & Freight – Coste, Seguro y Flete).
CPT (Carriage Paid To – Transporte pagado hasta…).
CIP (Carriage and Insurance Paid To – Transporte y seguro pagados hasta…)
DDP (Delivered Duty Paid – Entregada derechos pagados)
DAT (Delivered At Terminal- Entrega en la Terminal)
DAP (Delivered At Place- Entregado en Lugar)
|SERVICES||ExWorks||Free Carrier||Free Alongside Ship||Free Onboard Vessel||Cost Freight||Cost Insurance Freight||Carriage Paid To||Carriage Insurance Paid To||Delivery Duty Paid||Delivered at Place||Delivered at Terminal|
|Loading On Vessel||Buyer||Buyer||Buyer||Seller||Seller||Seller||Seller||Seller||Seller||Seller||Seller|
|Delivery to Dest’n||Buyer||Buyer||Buyer||Buyer||Buyer||Buyer||Buyer||Buyer||Seller||Buyer||Buyer|