Defining responsibility during international goods transportationContact us
What are Incoterms®?
International Commercial Terms, or Incoterms, are a set of internationally recognised terms that clarify the responsibilities of the buyer and seller when goods are being transported.
It's for these reasons that the International Chamber of Commerce issues its Incoterms®, or International Commercial Terms.
This is a series of internationally-recognised terms that are used to clarify the duties and the responsibilities of both seller and buyer in regards to the goods being transported. There are currently 11 Incoterms.
Each Incoterm® is a three-letter abbreviation (see table below). Incoterms® should be used in any international sales contract as they make clear:
- Whether the exporter or importer is responsible for organising and paying for delivery;
- Where delivery actually takes place;
- At which point the risks associated with the delivery pass from the exporter to the importer.
For example, if you are selling 100 boxes of apples to your buyer in Italy and your agreed contract stipulates the Incoterms® FOB regulation, this means:
- You (as the exporter) are responsible for arranging and paying for the transportation of the goods from the point of manufacture to the port;
- You (the exporter) are responsible for the welfare of the goods to that point, including buying any insurances as needed;
- From the moment the goods are loaded onto the ship, the above responsibilities for payment of transport and insurance become the buyer's (the importer).
Incoterms® abbreviation explanations:
- EXW Ex Works – importer is responsible for all costs, risks and arrangements from the seller's premises.
- FCA Free Carrier – exporter holds responsibility for all costs, risks and arrangements to the port/other named destination.
- CPT Carriage Paid To – while the exporter passes responsibility for risks at the first port, he must cover transport arrangement/costs to the destination port.
- CIP Carriage & Insurance Paid – same as CPT, but the exporter also pays for insurance to cover risks up to the second port.
- DAT Delivered At Terminal – exporter holds responsibility for all costs, risks and arrangements until the goods reach a named terminal at the destination port.
- DAP Delivered At Place – exporter holds responsibility for all costs, risk and arrangements until the good are ready for unloading at a named port.
- DDP Delivered Duty Paid – exporter holds responsibility for all costs, risks and arrangements until the goods reach a place agreed with the importer.
- FAS Free Alongside Ship – the exporter is responsible for all costs, arrangements and risks until the goods are alongside the ship.
- FOB Free On Board – the exporter is responsible for all costs, arrangements and risks until the goods are loaded onto the ship.
- CFR Cost & Freight – while the exporter passes responsibility for risks when the goods are alongside the ship, he must cover transport arrangements/costs to the destination port.
- CIF Cost, Insurance & Freight – same as CFR, but the exporter also pays insurance costs.