Incoterms clauses are an international commerce rules accepted by governments, authorities and all parts involved in the international freight transport.
They are used for defining the seller and buyer responsibilities in international trade transactions. The international Chamber of Commerce (ICC) based in Paris is responsible for overseeing the updates every 10 years. The last update was done the January 1st, 2011 for the period between 2011 and 2020.
Its use is voluntary but its diffusion and its international acceptance has made them useful standards. They should be fixed before the freight delivery for being transported.
-The price scope.
-Moment and place in which the ware risks are transferred from seller to buyer.
-The delivery point of the ware.
-Who has to contract and pay the transport.
-Who has to contract and pay the insurance.
-Which documents must be processed and paid by the seller and by the buyer.
They have been categorized into two groups:
-Those used in “Any mode of transport”: EXW, FCA, CPT, CIT, DAT, DAP and DDP.
-Those only proper used in “See and Inland Waterway Transport Only”: FAS, FOB, CFR and CIF.
Below is a short explanation of every one of them: when starts the seller and buyer responsibility over the bought or sold product, when is placed the delivery, the risks transmission, costs distribution and customs documents procedures, depending on the selected Incoterm:
Group E: The buyer has all the responsibility
–EXW (Ex-Works): The seller delivers the products in his factory or warehouse and the buyer has to pay all the cost and bears all the risks up to the destination.
Group F: Not requires the seller to pay the main transportation.
–FCA (Free Carrier): The seller delivers the product to the carrier selected by the buyer, and the buyer bears the cost and risks ones the ware has been delivered to the carrier.
–FAS (Free Along Ship): The seller leave the goods at the port next to the boat but without being loaded. From this, every cost and risk is paid by the buyer.
–FOB (Free On Board): The seller should deliver the goods on board the boat and pay the stowage costs.
Group C: The main transportation is the seller obligation.
–CFR (Cost and Freight): The seller delivers the goods on the port and pays the transportation to the destination. The buyer pays the insurance during the boat transportation and the costs and risk until the warehouse.
–CIF (Cost, Insurance and Freight): The seller pays all the costs and also insurance until the port of destination but with a basic coverage.
–CPT (Carriage Paid To): The seller pays the carrier until the specified destination city, but the insurance and other costs are paid by the buyer.
–CIP (Carriage and Insurance Paid To): The seller pays the transportation and the insurance to the agreed destination.
Group D: This group includes the delivery conditions in the buyer’s country paid by the seller.
–DAT (Delivered At Terminal): The seller delivers the merchandise in the agreed terminal, since that moment costs are paid by the buyer.
–DAP (Delivered At Place): The seller delivers the goods in some named place of destination country, and the buyer bears all the cost and risks from that place.
–DDP (Delivered Duty Paid): The seller’s responsibility is extended until the merchandise is delivered in the buyer’s warehouse.