Incoterms is an abbreviation of the expression “International Commercial Terms” and represents specific commercial terms originally published by the International Chamber of Commerce (ICC). These terms are primarily intended to communicate a clear set of rules to parties engaged in international trade.
Though the incoterms themselves do not conclude a contract, the understanding of these terms is intended to inform international sales contracts by clearly communicating the costs, risks and responsibilities of each party associated with the international sales and transportation of goods.
The International Chamber of Commerce (ICC) published the first Incoterms rules in 1936, and has been maintaining and developing them ever since. As of this writing, the most current version is the Incoterms® 2020. The Incoterms 2020 English ebook is available for purchase from the ICC by using the link provided, and the Incoterms practical free wallchart poster below is included in this article for visual reference.
Officially in the Incoterms® 2020 are the following eleven (11) incoterms divided into two sections. By clicking on the relevant link, each of the incoterms is described in more detail. Each incoterm is defined by the responsibility that each party has with respect to cost, risk, and insurance.
This second infographic makes clear who is responsible for both the cost and the risk during each step of the transaction for each of the 11 incoterms.
Rules for any mode of transport
1. EXW – Ex Works (named place of delivery)
2. FCA – Free Carrier (named place of delivery)
3. CPT – Carriage Paid To (named place of destination)
4. CIP – Carriage and Insurance Paid to (named place of destination)
5. DPU – Delivered At Place Unloaded (named place of destination)
6. DAP – Delivered At Place (named place of destination)
7. DDP – Delivered Duty Paid (named place of destination)
Rules for sea and inland waterway transport
8. FAS – Free Alongside Ship (named port of shipment)
9. FOB – Free on Board (named port of shipment)
10. CFR – Cost and Freight (named port of destination)
11. CIF – Cost, Insurance & Freight (named port of destination)
1. EXW – Ex Works (named place of delivery)
With EXW incoterms, the buyer has the maximum obligations and the seller has minimum obligations. The term Ex Works is often used when making an initial quote for the sale of goods without any charges included. This way the buyer can understand the cost of the goods before any transport, duty, levy, insurance or other charges are applied.
EXW implies that the seller has the goods ready for collection at its location (office, warehouse, factory) on the agreed date. EXW is suitable for all forms of transport but is not recommended for international transport due to customs formalities.
Features of CPT incoterms
Delivery
The seller must make the goods available to the buyer at the agreed place of delivery. He does not have to load the goods on the vehicle with which the goods are collected. If he does this anyway, the seller may charge at the buyer’s expense and risk. Another possibility is that a judge decides afterward that, for example, FCA has been agreed.
Transport risk
The risk of damage to or loss of the goods during transport is borne by the buyer from delivery.
Transportation costs
The costs are borne by the buyer from delivery.
Customs formalities
The buyer arranges all customs formalities and bears the costs thereof. Please note, that this is problematic for export outside the EU.
Addition of place of delivery
Where the transfer of the goods takes place must always be added to the delivery condition. At EXW this is indicated by: «named place of delivery».
2. FCA – Free Carrier (named place of delivery)
With FCA incoterms, the seller pays for carriage (transport) to the named point of delivery and the risk passes when the goods are handed over to the first carrier. FCA is suitable for all modes of transport.
Features of FCA incoterms
Delivery
The seller delivers the goods to the buyer in one of two ways:
1. If the agreed place is the seller’s business premises, the goods will be delivered as soon as they have been loaded onto the vehicle organized by the buyer.
2. If the agreed place is another place, the goods will be delivered as soon as the goods are made available to the carrier or another party designated by the buyer, on the seller’s vehicle and ready for unloading.
It is not necessary to name either option 1 or option 2, as the named place of delivery will automatically assume either of the two options. In both FCA 1 and FCA 2, the agreed place determines where the risk and costs pass from seller to buyer.
Transport risk
The risk of damage during transport is borne by the buyer from delivery.
Transportation costs
The costs of transport from the agreed place of delivery are for the account of the buyer. Until delivery, the costs are borne by the seller.
Customs formalities
The seller must take care of all customs formalities arising from the export. He shall also bear the costs, duties, and levies arising these customs formalities. Customs formalities, costs, duties and levies are borne by the buyer in transit through other countries and import into the destination country.
Transport insurance
Neither the seller, nor the buyer are required to take out transport insurance for the goods for the buyer. It is the buyer’s responsibility to have transport insurance for the goods if they want to insure that the goods arrive in the same condition as they left CAPLINQ’s facilities.
Addition of place of delivery
The place of delivery of the goods must be stated in the delivery condition. At FCA this is indicated with «named place of delivery».
3. CPT – Carriage Paid To (named place of destination)
With CPT incoterms, the seller pays for the transport. Risks are transferred to the buyer when handing over goods to the first contracted carrier. Terminal Handling Charges (THC) are charges charged by the terminal operator. These charges may or may not be included by the carrier in their freight rates – the buyer should inquire whether the CPT price includes THC, to avoid surprises. CFR is the counterpart of CPT when maritime transport is used. CPT on the other hand is a non-maritime condition and can be applied to all modes of transport.
Features of CPT incoterms
Delivery
The seller must deliver the goods to the contracted carrier.
Transport risk
The risk of damage during transport is borne by the buyer from transfer to the carrier. Before delivery, the seller bears the risk. This risk includes the risk that the dry ice has melted and/or that the temperature conditions are not maintained during transport.
Transportation costs
The costs of transport to the agreed place of destination are for the account of the seller. Further transport is at the buyer’s expense. IMPORTANT NOTE: The transfer of costs does not take place at the same time as the transfer of risk for transport damage. As shown in the image above and explained in the paragraph above, the transfer of costs remains with the seller until delivery, but the transfer of risk takes place the moment the goods are with the contracted carrier.
Customs formalities
The seller must take care of the customs formalities arising from the export. He is also responsible for the associated costs, duties, and levies. Customs formalities and costs related to transit are usually borne by the buyer. All customs formalities and the associated costs, duties and levies arising from importation into the country of destination are for the account and risk of the buyer.
Transport insurance
The seller does not have to take out transport insurance for the goods for the buyer. It is the buyer’s responsibility to have transport insurance for the goods if they want to insure that the goods arrive in the same condition as they left CAPLINQ’s facilities.
Addition of place of delivery
Where the transfer of the goods takes place must always be added to the delivery condition. With CPT this is indicated by: «named place of destination».
4. CIP – Carriage and Insurance Paid to (named place of destination)
Under CIP incoterms, the seller pays for carriage (transport) and insurance to the named destination point, but the risk passes when the goods are transferred to the first carrier. The Terminal Handling Charges (THC) are charges charged by the terminal operator and these charges may or may not be included by the carrier in their freight rates.
It is the buyer’s responsibility to inquire whether the CIP price includes THC, to avoid surprises. The seller is obliged to inform the customer that the goods are on their way. CIP is a condition that can be used for all modes of transport.
Features of CIP incoterms
Delivery
The seller must deliver the goods to the contracted carrier.
Transport risk
The risk of damage during transport is borne by the buyer from the transfer of the goods to the carrier. Before delivery, the seller bears the risk.
Transportation costs
The costs of transport to the agreed place of destination are for the account of the seller. Further transport is at the buyer’s expense. Please note, the transfer of costs does not take place at the same time as the transfer of risk for transport damage.
Customs formalities
The seller must take care of the customs formalities arising from the export. He is also responsible for the associated costs, duties and levies. Customs formalities and costs related to transit are usually borne by the seller. All customs formalities and the associated costs, duties and levies arising from importation into the country of destination are for the account and risk of the buyer.
Transport insurance
The seller concludes an insurance contract on behalf of the buyer from the point of delivery to at least the point of destination. This insurance must comply with the extensive coverage Institute Cargo Clauses (A).
Addition of place of delivery
Where the transfer of the goods takes place must always be added to the delivery condition. With CIP this is indicated with: «named place of destination».
5. DPU – Delivered At Place Unloaded (named place of destination)
The incoterms DPU mean that the goods are delivered to the destination and unloaded. The seller bears all risks with regard to bringing the goods to and unloading the goods at the agreed destination.
Features of DPU incoterms
Delivery
The seller must unload the goods from the arriving means of transport and then make them available to the buyer at an agreed place of destination or agreed point in that place.
Transport risk
The risk of damage is borne by the buyer after delivery to the agreed terminal. The seller runs this risk before delivery.
Transportation costs
The costs of transport to the agreed place of destination, including unloading costs, are for the account of the seller. Transit is at the expense of the buyer.
Customs formalities
The seller must take care of all customs formalities arising from the export. The associated costs, duties and levies are also for his account. All customs formalities and the associated costs, duties and levies arising from importation into the country of destination are for the account and risk of the buyer.
Transport insurance
Neither party is obliged to take out insurance for the goods.
Addition of place of delivery
Where the transfer of the goods takes place must always be added to the delivery condition. With DPU this is indicated with: «named place of destination».
6. DAP – Delivered At Place (named place of destination)
Under DAP incoterms, the seller pays for transportation (carriage) to the named place, except for the costs associated with import customs clearance. In addition, the seller assumes all risks prior to the goods being ready for unloading by the buyer.
Features of DAP incoterms
Delivery
The seller must make the goods, unloaded, available to the buyer on the arriving means of transport at the agreed point or place of destination.
Transport risk
The risk of damage during transport after reaching the place of delivery shall be borne by the buyer. Before delivery, the seller bears the risk.
Transportation costs
The costs of transport to the agreed point at the place of delivery shall be borne by the seller. Further transport is at the expense of the buyer.
Customs formalities
The seller must take care of all customs formalities arising from the export. The associated costs, duties and levies are also for his account. All customs formalities and the associated costs, duties and levies arising from importation into the country of destination are for the account and risk of the buyer.
Transport insurance
Neither party is obliged to take out insurance for the goods.
Addition of place of delivery
Where the transfer of the goods takes place must always be added to the delivery condition. At DAP this is indicated by: «named place of destination».
7. DDP – Delivered Duty Paid (named place of destination)
Under DDP incoterms, the seller has the maximum obligations and the buyer has the minimum obligations. The seller is responsible for delivering the goods to the named place in the buyer’s country and pays all costs to bring the goods to the destination, including import duties and taxes.
Features of DDP incoterms
Delivery
The seller must make the goods, not unloaded, available to the buyer or another person designated by the buyer on the arriving means of transport at the agreed place of destination.
Transport risk
The risk of damage during transport is for the account of the seller until delivery on the means of transport at the agreed place of destination.
Transportation costs
The costs of transport to the agreed destination are for the account of the seller.
Customs formalities
The seller must take care of all customs formalities associated with the export, transit and import to the agreed place of destination. He shall also bear the costs thereof as well as duties, taxes and levies associated therewith.
Transport insurance
The seller is not obliged to take out insurance for the goods.
Addition of place of delivery
Where the transfer of the goods takes place must always be added to the delivery condition. With DDP this is indicated with: «named place of destination».
8. FAS – Free Alongside Ship (named port of shipment)
Under the incoterms FAS, the seller must place the goods alongside the ship in the named port. If the goods are in a container, the seller usually transfers the goods at a terminal and not alongside a ship. In such situations, the FAS rule may not be appropriate and the FCA rule is better used. This term is usually used for general cargo or bulk cargo. FAS incoterms are only used with maritime transport.
Features of FAS incoterms
Delivery
The seller must deliver the goods alongside the ship specifically named by the buyer, at the loading location in the agreed port of shipment and in a manner that is customary for this port.
Transport risk
The risk of damage during transport is borne by the buyer from delivery. The seller runs this risk before delivery.
Transportation costs
The costs of transport are for the account of the buyer from delivery. Parties are strongly advised to indicate the point of loading at the agreed port of shipment as clearly as possible, because the THC (Terminal Handling Charges) for this point are for the account of the seller.
Customs formalities
The seller takes care of all customs formalities arising from the export. He is also responsible for the resulting costs, duties and levies. Customs formalities, costs, duties and levies are borne by the buyer upon importation into the country of destination.
Transport insurance
Neither party is obliged to take out insurance for the goods.
Addition of place of delivery
Where the transfer of the goods takes place must always be added to the delivery condition. At FAS this is indicated with: «named place of destination».
9. FOB – Free on Board (named port of shipment)
Under FOB incoterms, the seller must load the goods on board the vessel designated by the buyer. The costs and the risks are shared when the goods are actually on board the ship (technically, when the specific ICC Incoterms® 2020 are applied, this is when the goods pass the ship’s railing).
The FOB incoterms is only used for marine transport. FOB may be less appropriate if the goods are handed over to the carrier before they are on board the vessel, such as containerized goods already delivered to the terminal. In such cases, it may be advisable to use FCA.
Features of FOB incoterms
Delivery
The seller must deliver the goods placed on board the ship specified by the buyer at the agreed port of shipment.
Transport risk
The risk of damage during transport is borne by the buyer from delivery. The seller bears this risk before delivery.
Transportation costs
The costs of transport are for the account of the buyer from delivery.
Customs formalities
The seller must take care of all customs formalities arising from the export. The costs, duties and levies arising from this are also at his expense. Customs formalities, costs, duties and levies are borne by the buyer upon importation into the country of destination.
Transport insurance
Neither party is obliged to take out insurance for the goods.
Addition of place of delivery
Where the transfer of the goods takes place must always be added to the delivery condition. At FOB this is indicated with: «named place of destination».
10. CFR – Cost and Freight (named port of destination)
Under CFR incoterms, the seller must pay the costs and freight to take the goods to the port of destination. However, the risk is transferred to the buyer once the goods are loaded onto the ship (technically, when the specific ICC Incoterms® 2020 are applied, this is when the goods pass the ship’s railing).
Insurance for the goods is NOT included. The distinction between the port of destination and the port of shipment is also important under the CFR incoterms. Terminal Handling Charges (THC) are charges charged by the terminal operator. These charges may or may not be included by the carrier in their freight rates – and it is the buyer’s responsibility to inquire whether the CFR price includes THC, to avoid surprises.
This incoterm used to be called CNF (C&F) but has been changed in the Incoterms 2020 edition. The CFR incoterms are strictly used with marine transport and may be less suitable for container shipping.
Features of CFR incoterms
Delivery
The seller must deliver the goods on board the ship specified by the buyer at the agreed port of shipment.
Transport risk
The risk of damage during transport is borne by the buyer from the time of passing the ship’s rail at the port of shipment.
Transportation costs
The costs of transport to the agreed destination port are for the account of the seller. The seller therefore concludes a contract of carriage for transport to the port of destination. When the goods are on the quay of the port of destination, further transport is at the expense of the buyer. Please note, the transfer of costs does not take place at the same time as the transfer of risk for transport damage.
Customs formalities
The seller must take care of all customs formalities arising from the export. The associated costs, duties and levies are also for his account. All customs formalities and the associated costs, duties and levies arising from importation into the country of destination are for the account and risk of the buyer.
Transport insurance
Neither party is obliged to take out insurance for the goods.
Addition of place of delivery
Where the transfer of the goods takes place must always be added to the delivery condition. At CFR this is indicated with: «named place of destination».
11. CIF – Cost, Insurance & Freight (named port of destination)
The CIF incoterms are exactly the same as CFR incoterms, except that the seller is required to take out and pay for the insurance. Terminal Handling Charges (THC) are charges charged by the terminal operator. These charges may or may not be included by the carrier in their freight rates – and it is the buyer’s responsibility to inquire whether the CIF price includes THC, to avoid surprises.
The CIF incoterm is used only with maritime transport and may be less suitable for container transport.
Features of CIF incoterms
Delivery
The seller must deliver the goods on board the ship specified by the buyer at the agreed port of shipment.
Transport risk
The risk of damage during transport is in principle borne by the buyer from the moment the goods are placed on board at the port of shipment. Before delivery, the seller bears the risk.
Transportation costs
The costs of transport to the agreed destination port are for the account of the seller. Further transport is at the expense of the buyer.
Customs formalities
The seller must take care of the customs formalities arising from the export. The associated costs, duties and levies are also for his account. All customs formalities and the associated costs, duties and levies arising from importation into the country of destination are for the account and risk of the buyer.
Transport insurance
The seller concludes an insurance contract on behalf of the buyer from the port of shipment to at least the port of destination. The insurance must meet the requirements of the Institute Cargo Clauses (C).
Addition of place of delivery
Where the transfer of the goods takes place must always be added to the delivery condition. With CIF this is indicated by: «named place of destination».
