Understand your LC terms (Incoterms)
Incoterms? define the responsibilities of buyers (importers) and sellers (exporters) for the domestic and international delivery of goods and determine how costs and risks are allocated. The most recent version is Incoterms 2010 which came into force on 1st January 2011 and consists of 11 rules which are divided into two groups:
Rules for any transport mode
- Ex Works (EXW)
- Free Carrier (FCA)
- Carriage Paid To (CPT)
- Carriage & Insurance Paid to (CIP)
- Delivered At Terminal (DAT)
- Delivered At Place (DAP)
- Delivered Duty Paid (DDP)
Rules for sea & inland waterway only
- Free Alongside Ship (FAS)
- Free On Board (FOB)
- Cost and Freight (CFR)
- Cost Insurance and Freight (CIF)
To remember them easily:
E terms (EXW): The seller makes available its goods at their premises in order for the buyer to collect. This is the minimum obligation for the seller.
F terms (FCA, FOB, FAS): The seller delivers the goods to a carrier appointed by the buyer. The seller will arrange and pay for delivery of goods to the carrier, but the buyer pays for everything after that.
C terms (CFR, CIF, CPT, CIP): The seller has to contract for carriage, but does not assume the risk of loss or damage after the shipment.
D terms (DAT, DAP, DDP): The seller bears all risk involved in bringing the goods to the buyer.
Difference among FCA, FOB and FAS: FOB and FAS can only be used for sea and & inland waterways whereas FCA can be used for any mode of transport. Under FCA, exporter delivers the goods to the carrier or another person nominated by the importer. Under FOB, exporter delivers the goods on board the vessel nominated by the importer. Under FAS, exporter delivers the goods to the importer once the goods have been placed along side of the vessel.
Difference among CFR, CIF, CPT and CIP: CFR and CIF can only be used for sea and & inland waterways whereas CPT and CIP can be used for any mode of transport. The difference between CFR and CIF is essentially the requirement under CIF shipping terms for the shipper to provide a minimum amount of marine insurance for goods shipped. The difference between CPT and CIP is essentially the requirement under CIP the shipper is obliged to provide a minimum amount of insurance for goods shipped. Under CIP, exporter delivers the goods to the carrier or another person nominated by the seller at an agreed place. Under CIF, exporter delivers the goods on board the vessel at the port of loading.
Difference among DAT, DAP and DDP: Under DAT, delivery place of the goods must be a terminal whereas under DAP, delivery place could be any place, which is located further deep in the country comparing the terminal. Under DDP, seller assumes all the risks and costs of transport and pays any import customs/duty. The buyer has only to unload the goods at the final destination.