Understanding Incoterms or International Commercial Terms is crucial to understanding the mechanics of international trade. Incoterms are essentially:
The terms of the transaction that an international buyer and seller, have mutually agreed upon. After an understanding has been established, all the tasks, risks, and costs associated with the transaction, are assigned one by one to the buyer and seller respectively. The Incoterms also clarify the time, when the risk and costs being incurred by the seller, are assigned to the buyer.
The list of Incoterms is extensive. This article covers the most commonly used terms, most of which apply to all transport modes, though a few are specific to certain modes.
Incoterm EXW – Ex-Works or Ex-Warehouse
“Ex Works” means the seller delivers goods at their premises or another agreed location. The seller isn’t responsible for export clearance or arranging transport.
Incoterm FCA – Free Carrier
The term implies a third party designated as the “carrier”, who is selected by the buyer. The seller has to transport the goods to the carrier, at either the premises of the seller or a mutually agreed upon destination. Clarity is advised regarding the destination as once the delivery is complete, the risk is now borne by the buyer.
Incoterm CPT – Carriage Paid To
The terms are similar to FCA, but the seller also covers costs for transporting the goods to the agreed delivery location.
Incoterm CIP – Carriage And Insurance Paid To
The terms are like CPT, but the seller must also arrange insurance for the goods.
Incoterm DAT – Delivered At Terminal
In DAT, delivery is complete when the seller delivers the goods to a terminal, port, or storage space. The seller bears all risks during transport and unloading.
Incoterm DAP – Delivered At Place
The terms are the same as DAT, except that the delivery is completed once the goods have arrived at the agreed-upon destination. Unloading, in this case, is not the responsibility of the seller. The risks of transporting the goods are borne by the seller.
Read the Differences Between DAP and DAT
Incoterm DDP – Delivered Duty Paid
In DDP, delivery is complete when goods are cleared by customs and ready for unloading in the buyer’s country. The seller covers all risks and costs, including transport, export/import clearance, and customs formalities. continue reading the Meaning of the Incoterm DDP
Incoterm FAS – Free Alongside Ship
In FAS, delivery is considered complete when the seller has delivered the goods at the delivery vessel, which is selected by the buyer. Once the goods have been placed on the vessel, all associated risks are transferred to the buyer.
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