In 1919, a group of merchants and entrepreneurs decided to establish an organization that would represent businesses everywhere in the world. Following the aftermath of World War I, the global trade market was significantly impacted by the effects of wars and conflicts. At this juncture, a number of industrialists, financiers, and merchants devised a plan to revitalize economic prosperity. The first step towards development and prosperity was the establishment of the International Chamber of Commerce (ICC), and at the time, they called themselves "Merchants of Peace."The idea of founding the ICC was remarkably effective by all standards, as the world lacked organized international frameworks or a unified global system not only for trade but also for related fields such as investment, finance, and others. Impressively, the "Merchants of Peace" did not wait for governments to take this initiative. From its inception, the idea of the ICC was widely welcomed by all stakeholders in the global trade market. From that point, the ICC began to establish a central role in international trade and business, developing rules and mechanisms that have endured and are still in use to this day.
What are Incoterms, and what is their role?
Incoterms are international trade terms that govern the sales process between the seller and the buyer by defining obligations, costs, risks, and the place of delivery of goods. They provide clarity to the commercial contract and eliminate any doubts or disputes between the parties involved.
Incoterms editions from the establishment of ICC:
The Incoterms were issued in the following years: 1936, 1953, 1967, 1976, 1980, 1990, 2000, 2010, and 2020. The International Trade Terms, "Incoterms," are updated every 10 years.
Incoterms Group:
Incoterms are divided into four main groups as follows:
Group EXW: Consists of only one term.
Group F: Consists of 3 terms (FCA - FAS - FOB).
Group C: Consists of 4 terms (CFR - CIF - CPT - CIP).
Group D: Consists of 3 terms (DDP - DPU - DAP).
Some terms are used exclusively for water transport, and they are: (FAS - FOB - CFR - CIF). The remaining international trade terms can be applied to any mode of transport, whether maritime, land, or air.
What is the EXW ( Ex Works ) term?
When using the EXW term, the seller is responsible only for preparing the goods, whether at the factory, warehouse, or any designated location. On the other hand, the buyer bears all costs, obligations, and risks related to receiving the goods.
seller's responsibilities under EXW term? The seller is required to prepare the goods at their factory or warehouse without any further obligations. However, it is necessary in some countries that when using EXW, the seller is expected to load the goods onto the internal transport vehicle without charging a fee.
buyer's responsibilities under EXW term? Once the buyer receives the goods from the seller at the warehouse, they bear all costs, obligations, and risks associated with shipping the goods, which include:
Loading and transporting the goods from the seller's warehouse onto the internal transport vehicle to transfer the goods to the port of shipment.
Customs clearance procedures and all costs related to the export process.
All charges associated with handling the goods at the port of shipment, such as container handling, shipping dues, and storage costs at the port, if necessary.
Ocean freight charges for shipping the goods to the destination port.
Charges for unloading at the destination port.
Customs duties and import taxes at the destination port.
Costs of internal transportation to move the goods from the destination port to the buyer's warehouse.
Unloading the goods from the internal transport vehicle into the buyer's warehouse.
What is the FCA (Free Carrier) Term? When using the FCA term, the seller is obligated to deliver the goods to the buyer after completing the customs clearance procedures for export. Additionally, the seller is required to deliver the goods to any location or place specified by the buyer, provided that the location is within the seller's country. It is worth mentioning that if the delivery point is at the seller's premises or a place under their control, the seller is responsible for loading the goods onto the internal transport vehicle. However, if the delivery point is at any other location, the seller's obligation ends as soon as the internal transport vehicle arrives. At this point, the buyer assumes responsibility for loading the goods onto the internal transport vehicle.
seller's responsibilities Under FCA term?
Packaging the goods and ensuring that the packaging method complies with the export laws of the importing country.
Loading fees onto the internal transport vehicle to transport the goods to the port of shipment.
Customs clearance: This includes the costs and procedures required for export from the country of origin, such as pre-shipment inspections, customs checks, or any special permits required, like food safety certifications, etc.
Costs associated with transporting the goods from the seller's warehouse to the agreed-upon location, whether it is a port, airport, or train station (this varies depending on the agreed mode of transportation).
After this step, the responsibility and risks are transferred from the seller to the buyer.
Buyer’s Responsibilities under the FCA Term
The risks are transferred to the buyer as soon as the goods clear customs and reach the agreed-upon location between the seller and the buyer. From that point onward, the buyer is responsible for the following:
Port charges at the port of shipment: These include any fees or requirements specific to the shipping terminal where the goods are loaded onto the main transport vessel.
Loading fees onto the main transport vessel: The shipping company may charge fees for loading the goods onto the main transport.
Ocean freight charges.
Port charges at the destination port: Upon the goods' arrival at the destination port, there may be charges for unloading, transferring, or storing the goods until the import procedures are completed.
Customs clearance: The buyer is responsible for all expenses and obligations related to importing the goods, such as taxes, customs duties, and any requirements set by customs authorities.
Delivery to the agreed-upon location: The buyer must arrange internal transportation to transfer the goods to their desired destination.
What is the FAS (Free Alongside Ship) Term?Under FAS, the seller is responsible for customs clearance and placing the goods alongside the ship at the port of shipment. The buyer, on the other hand, is responsible for internal transport, unloading, customs and import procedures, customs duties, and loading the goods onto the ship. Important Note: Currently, the FAS term is mainly used for shipping goods transported through inland waterways or by sea and is more suitable for bulk shipments such as grains or oil.
seller's responsibilities Under FAS term
Packaging the goods to make them ready for shipment.
Costs of loading onto internal transport and transporting the goods to the port of shipment.
Paying the costs, taxes, and export duties applicable in the country of origin.
Container handling charges at the terminal (OTHC).
buyer's responsibilities Under FAS term When using the FAS term, the buyer's responsibilities begin once the seller delivers the goods alongside the ship. The buyer's responsibilities include the following:
Container handling charges at the terminal (OTHC).
Ocean freight charges.
Destination Terminal Handling Charges (DTHC) upon the shipment's arrival at the destination port.
Customs fees, taxes, and import duties.
Costs of transporting the goods from the destination port to the final destination.
Costs of unloading the goods at the final destination.
What is the FOB - (Free on Board) Term? Under this term, the seller agrees to deliver the goods to the buyer on board the ship at any port of shipment specified by the buyer. Accordingly, the seller bears all costs of transporting the goods from their warehouse until they are placed on board the ship. At that point, all risks are transferred to the buyer, and the seller's responsibility ends.
Seller's Responsibilities Under FOB term
Preparing the goods in the warehouse and packaging them to be ready for loading onto the internal transport vehicle.
Internal transportation costs.
Preparing all documents related to the shipment, such as the commercial invoice, bill of lading, packing list, insurance certificate (if required), and customs clearance.
Expenses for storing the goods, freight forwarder fees, and terminal charges at the port of shipment.
The seller is not obligated to provide insurance for the buyer. However, they may choose to offer insurance for the goods up to the terminal as part of their commitment. If requested by the buyer, the seller may assist in arranging insurance and customs clearance procedures.
Buyer's Responsibilities Under FOB term:
Ocean freight costs from the port of shipment to their warehouse, including insurance costs and any associated loading and unloading expenses from the destination port to their warehouse.
Customs clearance at the destination port, based on the seller's responsibility for customs clearance at the port of shipment.
All documents related to importing the goods.
Transportation costs from the moment the goods are loaded onto the ship until they reach the buyer's warehouse.
The buyer is responsible for unloading and storing the goods after the shipment arrives in their country.
Group C in Incoterms
What is the CFR - (Cost and Freight) Term? The first term in this group is CFR - Cost and Freight. Under this term, the seller is obligated to deliver the goods and load them onto the ship. This term is used only in sea and inland waterway transport. The risks transfer from the seller to the buyer as soon as the goods are loaded onto the ship, "before the journey begins."
seller's responsibilities Under CFR term
The seller bears expenses such as storage fees, internal transportation costs, customs duties, port charges at the port of shipment, documentation expenses, customs clearance, and the cost of ocean freight.
The seller is not required to insure the goods but may provide insurance services if agreed with the buyer.
The seller is responsible for customs clearance at the port of export and must provide all relevant documents, such as the packing list, commercial invoice, bill of lading, or any general export documentation, including any freight forwarder fees.
Regarding risks, these transfer to the buyer as soon as the goods are loaded onto the ship. This means any delays or negligence resulting in demurrage charges are not the seller's responsibility but are borne by the buyer.
buyer's responsibilities under the CFR Term
The buyer bears all costs related to insuring the goods, customs duties and taxes at the destination port, and internal transportation expenses from the destination port to their warehouse.
During the shipping phase, the buyer is responsible for unloading the goods from the ship and the associated internal transportation costs.
The risks transfer to the buyer as soon as the goods are loaded onto the ship at the port of shipment, and the buyer is liable for any delays or demurrage charges. Additionally, the buyer must pay all import duties, unloading costs at the destination port, and any additional expenses such as warehousing fees or local taxes.
What is the CIF - ( Cost, Insurance, and Freight) Term? The CIF term is used exclusively for sea and inland waterway transport and is typically applied to large, unpackaged goods. It is used when the seller has direct access to the ship for loading the goods.
seller's responsibilities under CIF
Packaging the goods.
All costs related to transporting the goods from their warehouse to the port of shipment, including internal transportation or charges within the port. This also includes export duties, taxes, terminal charges, loading the goods onto the ship, and transportation fees from the port of shipment to the port of destination.
Marine insurance covering the goods until they reach the port of destination.
buyer's responsibilities under CIF
The buyer is responsible for Destination Terminal Handling Charges (DTHC), which include transporting the goods within the terminal, unloading, and any expenses related to organizing procedures or the goods at the destination port.
All costs associated with taxes and customs, such as customs clearance or inspections.
What is the CPT (Carriage Paid To) Term?Under this term, the seller is responsible for delivering the goods to the first carrier, often at a port in the seller's country. The seller also bears all transportation costs until the goods reach the agreed-upon destination as per the contract. Meanwhile, the buyer is responsible for costs such as unloading and customs at the port of arrival.
seller's responsibilities under CPT Term
The seller is responsible for packaging the goods, the costs of loading them onto internal transport, and all expenses related to moving the goods from the seller's warehouse to the port of shipment.
The seller also bears all fees at the shipping terminal in the port of shipment, the costs of loading the goods onto the vessel, shipping costs, and finally, the terminal handling charges (THC) at the destination port.
buyer's responsibilities under CPT
The buyer must cover the cost of transporting the goods to the final destination after they are unloaded from the vessel.
The buyer is responsible for unloading expenses at their own warehouses.
The buyer bears all fees related to the import process, such as fines, customs inspections, and booking charges.
What is the CIP ( Carriage and Insurance Paid To) term?Under this term, the buyer assumes the risks once the seller delivers the goods to the first carrier or a person designated by the seller at the specified place of shipment. The seller, however, bears the costs of transportation and insurance to deliver the goods to at least the agreed-upon location. It is noteworthy that the CIP term is one of only two Incoterms specifying the party responsible for purchasing insurance; the other is CIF.
seller's responsibilities under CIP? Costs: The seller bears the costs up to the specified location, including:
Storage fees.
Internal transportation fees to move the goods from the warehouse to the first port.
Payment of temporary depot charges, if any.
Freight forwarder fees.
Air freight charges (if the goods are transported by air).
Marine insurance fees (if the goods are transported by sea).
Ocean freight costs and insurance premiums.
Customs Clearance and Duties: Export customs clearance is part of the CIP term, with the seller responsible for paying all export duties and fees. The seller also handles shipping procedures and provides the necessary documents to customs.
Buyer’s Responsibilities under CIP:
Costs: The costs borne by the buyer are clearly outlined in the contract. The buyer assumes expenses from the moment the goods reach the port, whether it is the first or second port, depending on the agreement.
If the agreed location is the first port: the buyer is responsible for transportation fees to the port in the importing country.
If the agreed location is the second port: the buyer bears the unloading fees and inland transportation costs from the port to their warehouse.
Customs Clearance and Duties: The buyer is responsible for obtaining all necessary documents from the seller to complete import procedures. They also bear import duties, taxes, and customs fees once the goods arrive at the designated port. Insurance: Under the CIP term, the buyer is not required to pay insurance costs. The seller covers insurance up to the specified location. However, if the buyer wishes to obtain additional insurance coverage, they can request it and bear its costs as agreed.
Group D in Incoterms
What is the DPU (Delivered at Place Unloaded) Term?Under this term, the seller delivers the goods and places them at the buyer's disposal after unloading them from the internal transport in the buyer's country. Notably, this is the only term where the seller is obligated to unload the goods at the destination. Additionally, the DPU term can be used for all modes of transport, whether single or multimodal. It is particularly suitable for goods shipped in shared containers with multiple consignees, as the seller can divide the shipment and provide goods to each recipient. Similarly, the DPU term is ideal for goods requiring special handling or unloading. For your information, DPU is a new term introduced in the 2020 Incoterms, replacing DAT (Delivered at Terminal).
seller's responsibilities under DPU
Costs: Storage rental fees for storing the goods - Packaging and packing costs - Internal transportation fees - Freight forwarders' fees - Costs related to preparing the necessary shipping documents.
Risks: The seller bears the risks related to the goods until they reach the agreed-upon destination port and are unloaded.
Customs clearance: The seller is responsible for export customs clearance, preparing all necessary documents for shipping, and covering port fees and local taxes related to customs clearance.
buyer's responsibilities under DPU
Costs: Customs duties for import - Port clearance fees - Internal transportation costs from the port to the warehouse - Storage fees after goods are delivered.
Delivery terms: The buyer must accept the shipping documents provided by the seller at the port and receive the delivered goods.
Risk transfer: Ownership of the goods transfers to the buyer after delivery. If the buyer fails to specify the port to the seller, they assume the risks and damages resulting from this failure.
Customs and duties: The buyer is responsible for import customs clearance, paying the required fees at the designated port, and handling any subsequent costs or risks.
What is the DAP (Delivered at Place) Term?This term can be used for any mode of transport, whether sea, air, land, or multimodal. Under DAP, the seller bears all costs and risks related to delivering the shipment to the location specified in the contract, typically the buyer's premises. Both parties must agree on the place of delivery. The buyer is solely responsible for import procedures and unloading the shipment under DAP. The buyer must also specify the unloading terms at the agreed location, as they will bear the unloading costs in addition to local customs duties and taxes. Once the goods arrive at the agreed location, the risks transfer from the seller to the buyer.
seller's responsibilities under DAP
Costs: Transportation costs from the warehouse to the port - Internal transportation costs from the warehouse to the port - Preparing documents - Freight forwarder fees - Terminal handling charges.
Insurance: The seller insures the goods until they reach the agreed location
Customs clearance: The seller bears all export taxes and duties and prepares all necessary documents, such as the Bill of Lading, commercial invoice, insurance certificate (if applicable), and packing list.
Buyer's responsibilities under DAP
Costs: Unloading goods at the destination port - Internal transportation costs until the goods are stored in their warehouses - Paying import customs duties, unloading fees, internal transportation costs, and storage fees after delivery at the port.
Insurance:The buyer does not bear insurance responsibility until they receive the goods.
Customs clearance: The buyer is responsible for import customs clearance.
What is the DDP (Delivered at Duty Paid) Term? Under DDP, the seller bears all costs and risks associated with shipping the goods to the agreed location. This is the only Incoterms term that makes the seller responsible for import customs duties. As the seller assumes most responsibilities, the DDP arrangement benefits the buyer. The agreed delivery location is a critical point in DDP, where all costs and liabilities transfer from the seller to the buyer. Both parties can agree on the final delivery location.
seller's responsibilities under DDP
Loading and unloading goods.
Transportation and delivery arrangements: Arranging the shipment to the agreed location, whether by land, sea, or other modes of transport.
Customs clearance: Handling export and import customs procedures and paying all related duties and taxes in the destination country.
Providing documents: Bill of Lading - Commercial Invoice - Insurance Certificate (if required) - Packing List - Export License .
Buyer's responsibilities under DDP
Unloading goods: After the seller delivers the goods, the buyer is responsible for unloading them. If the agreed delivery point is a port in the buyer's country, the buyer is also responsible for loading goods from the port.
Transportation and delivery: The buyer generally does not participate in transportation or delivery activities under DDP. However, if the specified delivery location is a port in the buyer's country, the buyer covers internal transportation costs to their warehouse.
Costs: DDP does not impose any costs on the buyer, except those incurred after the seller delivers the goods.
Customs and duties: The buyer does not handle customs clearance as the seller takes care of this. In some cases, the buyer may assist with customs clearance if local regulations (e.g., GST or VAT) require it.
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