Amy Cawley, International Trade Coordinator, explains how Incoterms® work.
Incoterms® are three letter commercial terms that are used in domestic and international sales contracts. They are published by the International Chambers of Commerce and outline where risk and costs transfer from the seller to the buyer. When quoting or invoicing a client, one of the 11 terms should be used.
It is important that companies select the correct term for their chosen mode of transport. The latest version was published in 2010 and there are currently 11 terms.
Incoterms®- any transport mode
- EXW (Ex Works)
- The Seller makes the goods available at their premises, the buyer is responsible for transport and all associated costs, including clearing the goods for export and import. It is important to note when using this term, the seller is not the exporter of record, therefore if there is no proof of export, VAT will need to be charged on your invoice
- FCA (Free Carrier)
- The seller is responsible for all risk and cost until the goods are loaded for export, this includes clearing the goods for export
- CPT (Carriage Paid To)
- The seller is responsible for transport costs and risk to the named destination in the country of import
- CIP (Carriage and Insurance Paid To)
- The seller is responsible for transport, insurance costs and risk to the named destination in the country of import
- DAT (Delivered at Terminal)
- The seller is responsible for transport costs and risks until the goods are unloaded and placed at the disposal of the buyer at terminal
- DAP (Delivered at Place)
- The seller pays all costs and bears risk until the goods are delivered to a named place in the buyer’s country
- DDP (Delivered Duty Paid)
- The seller is responsible for all transport costs and risk, including all customs duties, taxes and formalities in the buyer’s country
Incoterms®- Sea and Inland Waterways
- FAS (Free Alongside Ship)
- The seller is responsible for all risks and costs to the port of loading. This term is not appropriate for containerised freight
- FOB (Free on Board)
- The seller is responsible for all risks and costs until the goods are loaded onboard the vessel
- CFR (Carriage and Freight)
- The seller is responsible for transport costs and risk to the port of destination
- CIF (Carriage Insurance Freight)
- The seller is responsible for transport, insurance costs and risk to the named port
Keep an eye out for our next blog, which will discuss the potential issues with using the term ‘EX Works’.
If you’re still struggling with the above, you can register for our online course dedicated to understanding Incoterms® here.
We also have a half day course at our offices on Friday 7th March. Full details can be found here.
If you have any questions or require further information, please email firstname.lastname@example.org.