Freight Incoterms 101: Simplify Global Trade

1. What are Incoterms?

Incoterms, short for International Commercial Terms, are a series of three-letter trade terms developed and published by the International Chamber of Commerce (ICC). Their primary purpose is to provide a standardized language for international trade contracts, specifying the allocation of risks and responsibilities between the buyer and seller for the delivery of goods.

2. The Structure of Incoterms:

Each Incoterm consists of three letters, followed by the location of delivery. The most recent version is Incoterms 2020, but some commonly used terms have remained unchanged through previous versions.

3. Incoterms for Any Mode of Transport:

a)?????EXW (Ex Works):

The seller's responsibility is to make the goods available at their own premises or another named place. The buyer is responsible for the entire transportation process, from the seller's location to the final destination. The buyer handles all costs and risks involved in the transportation.

b)????FCA (Free Carrier):

The seller delivers the goods to a carrier or another person specified by the buyer at a named place. The risk transfers to the buyer after the goods are handed over to the carrier or appointed person. The buyer arranges and pays for the main carriage of the goods.

c)?????CPT (Carriage Paid To):

The seller is responsible for the delivery of the goods to a carrier or another person specified by the seller at a named place. The risk transfers to the buyer when the goods are handed over to the carrier. The seller pays for the transportation of the goods to the specified destination.

d)????CIP (Carriage and Insurance Paid To):

Similar to CPT, the seller delivers the goods to a carrier or another person specified by the seller at a named place, and the risk transfers to the buyer at that point. Additionally, the seller is responsible for insuring the goods during transit to the specified destination. The seller pays for the transportation and insurance costs.

Note: These aren’t all Inco terms for any mode of transport. These are the 4 most commonly used.

4. Incoterms for Sea and Inland Waterway Transport:

a)?????FOB (Free on Board):

The seller is responsible for delivering the goods on board the vessel at the named port of shipment. The risk transfers to the buyer once the goods are loaded onto the ship. The buyer bears the costs and risks of transportation from the port of shipment to the final destination.

b)????CIF (Cost, Insurance, and Freight):

The seller is responsible for delivering the goods on board the vessel at the named port of shipment. The seller also arranges and pays for the transportation of the goods to the port of destination. Additionally, the seller must provide insurance coverage for the goods during transit to the destination port. The risk transfers to the buyer once the goods are loaded onto the ship.

c)?????CFR (Cost and Freight):

Similar to CIF, the seller is responsible for delivering the goods on board the vessel at the named port of shipment and pays for the transportation of the goods to the port of destination. However, unlike CIF, the seller is not required to provide insurance coverage. The risk transfers to the buyer once the goods are loaded onto the ship.

d)????DAT (Delivered at Terminal):

The seller is responsible for delivering the goods to a named terminal at the port or place of destination. The seller bears the costs and risks of transportation to the terminal. Once the goods are unloaded at the terminal, the risk transfers to the buyer, who is then responsible for transportation from the terminal to the final destination.

Note: These aren’t all Inco terms for Sea and Inland Waterway Transport. These are the 4 most commonly used.

Incoterms are indispensable tools in international trade, ensuring that both buyers and sellers have a clear understanding of their respective obligations. Choosing the appropriate Incoterm is crucial to avoid misunderstandings and costly disputes. By familiarizing themselves with these standardized trade terms, businesses can confidently engage in global trade, knowing that their roles and responsibilities are well-defined.