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Michael Faass


July 19, 2019

Where do Incoterms® come from and why do I care??


“Incoterms®” or International CommercialTerms were originally established by the International Chamber ofCommerce in 1936 and weremeant to establish a unified code for trade terms to help facilitateinternational trade. Incoterms are generally updated each decade, 2000, 2010,and upcoming 2020, though the most used terms for international trade have beenlargely unchanged since the post-World War II economic order took shape. Theyare written in slightly arcane language that might be better suited for lawyersbut they are one of the most important details that anyone conductinginternational business will ever come across because they relate to cost, riskand liability, and last but not least, ownership of your goods.

Incoterms arespecifically designed to standardize international commerce so that all partiesinvolved in a transaction are aware of when and how payments will be owed andpaid, while also clearly laying out liabilities and responsibilities to beundertaken by both Buyer and Seller as well as when they, and your goods, transferfrom one party to another.


Understanding who ispaying for export, import, carriage and insurance on your goods and knowingexactly WHEN they become your goods is something that is very fundamental toyour business and its well-being, but it’s also something that often gets lostin the shuffle.  Being able to properly understandand account for this “minutiae” allows you to accurately calculate your landedcosts (the total all-in costs needed to get a product from the vendor into yourwarehouse) in advance BEFORE you start spending money and accumulating risk.  It is these details that can be the make orbreak between profit and loss on a given product or shipment and can also giveyou the edge when negotiating selling and buying prices or making a deal withsomeone who is a little less sharp on the Incoterms than you!


Incoterms clearlydefine the following;


·        The responsibilitiesand obligations of buyer and seller

·        Which party, the buyeror seller, will handle, licensing and needed applications

·        Who is responsible fortransportation and port fees from the buyer to the seller’s door.

·        The physical pointwhere responsibility and liability for cargo transfers from the seller to thebuyer.


Common Incoterms


EXW - ExWorks

The buyer is responsible to arrange shippingand all required export and import clearance, shipping and insurance from thebuyer’s designated location.  The sellersimply makes the goods available for pick-up.

FOB - Free On Board

Under this term the seller will be responsibleand bear costs and risk to get the product to the port and ship designated bythe buyer.  This term applies to seashipments only. Export documents and fees will be handled by the seller.   Fromthe point of export on, all liability and cost will be incurred by the buyer.

FCA - Free Carrier

The seller agrees to deliver the goods alreadycleared for export, to the carrier designated  by the buyer and pay all costs to that point.


CIF - Cost, Insurance,Freight

This term relates to sea shipment only. The selleraccepts that they will clear the goods for export. The seller is considered tohave completed delivery when the goods are onboard the ship yet is responsiblefor all related costs incurred to bring goods to the named port of destination.The seller is also responsible to obtain marine insurance against buyer's riskof loss/damage during carriage.


DDU - Delivered DutyUnpaid

The seller undertakes all costs & risks toship the goods to the designated location only. All duties and taxes and related fees for the import of the goods to thedestination are the responsibility of the buyer.  The buyer is also responsible for the unloadingof goods at the designated point.


DDP - Delivered DutyPaid

Under this term the  seller also will bear all costs & risks associatedwith carriage, export and import customs and duties up to the destinationlocation.  The buyer faces the minimumresponsibilities though the seller will need to insure that they have all theneeded export and import authorizations.





CIP - Carriage andInsurance Paid

This term is the same as CPT with theexception that the seller also has to procure insurance against the buyer'srisk of loss or damage to the goods during the carriage. This term may be usedfor any mode of transportation.

CPT - Carriage Paid To

The seller agrees to pay carriage and relatedcosts to deliver the goods to their nominated carrier  at the agreed to destination and also pays forgoods to clear export.  

DAF - Delivered AtFrontier

Normally used for land transport to a borderarea whereby the seller arranges for the goods to be taken possession of by thebuyer already cleared for export at a location on one side of a land/customsborder of another country.  The buyerthen arranges to clear import at the named point & place at the “frontier”of the first country and before the customs border of the country that thegoods will enter.

DES - Delivered ExShip

Goods are considered delivered when they areplaced at the disposal of the buyer on board ship but not yet cleared forimport at the destination port. The seller is responsible for all costs &risks associated with delivering goods to the named port up to the point ofdischarge.

DEQ - Delivered ExQuay

This terms is the same as DES with theexception that the seller is responsible to deliver the goods the Quay or dockof the destination port.


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

Buyer handles costs related to import while Selleris responsible for costs and liabilities until the goods are unloaded at theTerminal.

DAP - Delivered AtPlace (named place of destination)

Buyer handles costs related to import while Selleris responsible for costs and liabilities until the goods are ready forunloading by the buyer.  


FAS - Free Alongside Ship

The Seller will clear the goods for export and deliver themalongside the designated vessel at the designated port.   Thebuyer assumes costs & risks of loss or damage at that point This term canbe used for ocean transport only.

CFR - Cost and Freight

The Seller assumes all costs for export and delivery ofgoods to the vessel as well as destination port but delivery is considered tohave taken place once the goods are onboard at the shipping port and it is theBuyer that assumes all risks and liabilities from that point on.  This term is applicable to sea shipmentsonly.


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