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 complete list of Incoterms is a comprehensive one indeed. so this article is a compilation of the ones most commonly used. Most of them are applicable to all modes of transport. however, a few of them are specific to the mode of transport being used.
Incoterm EXW – Ex-Works or Ex-Warehouse
“Ex Works” means that the delivery of goods is accomplished, when the seller has brought them to the premises of the seller or a mutually agreed upon destination. The seller is not responsible for acquiring clearance for export, nor do they have to arrange for a collecting vehicle for transporting the goods.
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 exactly the same as FCA, with the addition that any costs for transporting the goods to the agreed upon place of delivery, are to be borne by the seller.
Incoterm CIP – Carriage And Insurance Paid To
The terms are exactly the same as CPT, with the seller having the additional responsibility of contracting for insurance cover for the goods.
Incoterm DAT – Delivered At Terminal
In DAT, delivery is only considered complete, once the seller has delivered the goods at a terminal or port or storage space. The risks involved in the transport of the goods and their unloading at the terminal/port/storage space, are borne by the seller.
Incoterm DAP – Delivered At Place
The terms are exactly 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.
Incoterm DDP – Delivered Duty Paid
In DDP, delivery is complete, only once the goods have been cleared by customs for being unloaded at the country of the buyer. This means that all the risks and costs of transporting the goods, having them cleared for export and import and going through all the formalities of customs, are to be borne by the seller.
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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