A Quick Guide to Incoterms

What are Incoterms?

The International Chamber of Commerce published the Incoterms 2020 standards as the recognized commercial language. They serve as a voluntary, authoritative, globally recognized, and accepted text for determining the obligations of buyers and sellers for the delivery of products under sales contracts for international trade. The United Nations Convention on Contracts for the International Sale of Goods and Incoterms are very similar to one another. All major trade nation is familiar with and uses Incoterms.

All 11 Incoterms & their descriptions:

The seven?Incoterms? 2020?rules for any type of transport are:?

EXW?- Ex Works?

• Ex-works refers to when the seller places the products at the buyer's disposal at the seller's location or another specified location (i.e., works, factory, warehouse, etc.).?
• The goods do not need to be loaded onto any collection vehicle by the vendor. Additionally, it is not necessary to give them export clearance when it is appropriate.

FCA??- Free Carrier?

• At the vendor's premises or another designated location, the seller delivers the items to the carrier or another individual the buyer designates.?
• The point within the designated place of delivery should be specified by the parties as precisely as possible because that is the point at which the buyer assumes the risk.

CPT?- Carriage Paid to?

• At a predetermined location, the seller delivers the products to the carrier or another person he or she designates (if any area is agreed upon between parties).?
• The costs of carriage required to deliver the products to the specified location of destination shall be contracted for and paid by the seller.

CIP?-?Carriage and Insurance Paid To?

• The seller is subject to the same obligations as CPT, but they also agree to an insurance policy to protect them from the possibility that the products will be lost or damaged while being transported on behalf of the buyer.?
• Buyers should be aware that just minimal cover insurance is necessary by CIP for the vendor to obtain. If the buyer wants more insurance coverage, they must either specifically agree to it with the seller or make their own additional insurance arrangements.

DAP?- Delivered at Place?

• When the products are placed at the buyer's disposal on the arriving mode of transportation and are prepared for offloading at the specified location, the seller has delivered them.?
• All risks related to transporting the items to the specified location are handled by the seller.

DPU?- Delivered at Place Unloaded?

• In place of the previous Incoterm? DAT (Delivered At Terminal) is DPU. When the items are placed at the buyer's disposal at a specified location after being unloaded, the seller has fulfilled their delivery obligation.?
• All risks associated with transporting the products to and unloading them at the specified location are undertaken by the seller.

DDP?- Delivered Duty Paid?

• When the seller places the items at the buyer's disposal, they are cleared for import on the arriving mode of transportation and prepared for offloading at the designated location.?
• The risks and expenses related to transporting the products to their destination are solely undertaken by the seller. They must clear the goods not only for export but also for import, pay any duties associated with both export and import, and complete all necessary customs procedures.

The four?Incoterms? 2020?rules for Sea and Inland Waterway Transport are:?

FAS?- Free Alongside Ship?

• When the items are positioned next to the vessel (such as on a quay or a barge) designated by the buyer at the specified port of shipment, the seller has completed delivery.?
• When the items are positioned next to the ship, the chance of loss or harm to them passes. After then, the buyer is responsible for paying all expenses.

FOB?- Free on Board

• At the stated port of shipping, the seller either obtains the already supplied items or delivers the goods on board the vessel the customer designates.?
• The moment the products are loaded onto the vessel, the risk of loss or damage to the cargo is no longer a concern. All costs after that are the responsibility of the customer.

CFR?- Cost and Freight?

• The seller either ships the products directly to the ship or purchases already-shipped goods.?
• Once the items are on board the vessel, the risk of loss or damage to them passes.?
• The costs and freight required to transport the products to the designated port of destination must be agreed upon by the seller and paid by them.

CIF -??Cost Insurance and Freight?

• The products are either delivered by the vendor to the ship or they are purchased with already-delivered commodities. Once the commodities are on the ship, the risk of loss or damage to them passes.?
• The costs and freight required to deliver the products to the designated port of destination must be agreed upon by the seller and paid by them.?
• The seller also agrees to insurance coverage against the risk of the buyer losing or damaging the goods during transportation.?
• The buyer should be aware that under CIF, the seller is only obligated to get insurance on the minimum cover. If the buyer desires additional insurance coverage, it must either expressly be agreed with the seller or make its own additional insurance arrangements.

Bonus Information:

The most popular Incoterms used in Africa are CIF and FOB

Disclaimer

The purpose of this material is to acquaint exporters and importers with Incoterms?. The material supplied is not legal advice, and neither is it a complete or official definition of each Incoterm?. You are urged to carry out your own research and, if necessary, seek legal advice.

For more detailed information you may visit the?ICC website