What is an Incoterm?
Incoterm is the abbreviation of ‘International Commercial Terms’.
This is the standard term to indicate in any sale or contract to negotiate and determine the buyer's and seller's responsibility for processing an order. The Incoterms are three-letter words, published by the International Chamber of Commerce (ICC) to have common terminology in international trade enabling visibility to all the parties involved in the order processing transaction. The first Incotem was published in 1936 and after several revisions, the current practicing terminology is Incoterms 2020.
- EXW (Ex-works)
The seller arranges the goods in a determined warehouse and the buyer is responsible for the entire cost and the risks of shipping the cargo from the seller’s warehouse to the buyer’s warehouse
- FCA (Free Carrier)
Sellers arrange the goods, export clearance by the buyer’s determined forwarder, and load the goods once the carrier picks up the cargo. The remaining shipping process cost and risks are the buyer’s responsibility
- CPT (Carriage Paid To)
The seller is responsible for the goods from their warehouse to the buyer's destination. From there, buyers are responsible for the cargo. And the buyer is responsible for the risks involved in the entire shipment process.
- CIP (Carriage and Insurance Paid to)
The seller is responsible for the entire shipment cost and the risks involved until the shipment reaches the buyer’s determined destination. From there on the buyer is responsible for the cost and the risks involved
- DPU (Delivery At Place unloaded)
The seller is responsible for the cost and risks involved until the goods are delivered to the agreed place of destination and unloading the goods. From there on, the buyer's responsibility is to bear the cost and the risk of loss or damage.
- DAP (Delivery At Place)
Seller’s responsibility for all the costs and risks in arranging the goods to deliver to the buyer’s named place of destination ready for unloading,
- DDP (Delivery Duty Paid)
The seller is responsible for all the costs and risks involved for the goods until they reach the buyer’s named place of destination including clearance costs, import duties taxes, and delivery.
- FAS (Free Alongside Ship)
The seller delivers the goods to the Port of Loading and from there, the buyer’s responsibility is to carry the goods and risks involved.
- FOB (Free On Board)
The seller is responsible for bringing the goods to the Port of loading and doing export clearance, from there on the buyer bears all the costs and risk of loss or damage
- CFR (Cost and Freight)
The seller arranges the goods to the named place of destination and from there on the buyer bears all the cost. Also, the buyer is responsible for the risk of loss or damage throughout the entire shipment.
- CIF (Cost, Freight, and Insurance)
The seller is responsible for all shipment costs and the risks involved until the consignment reaches the buyer’s named place of destination.
The above brief information provides the seller’s and buyer’s responsibility for the goods from the seller’s warehouse to the buyer’s warehouse. Using these terms in every sale of a contract will ease understanding and communication about the cargo with all the parties involved in processing (seller, buyer, banks, forwarder, export customs, import customs, shipment clearing party, and so on)
Tip: If the buyer needs to trace the cargo with clear visibility and control over the consignment, it is better to negotiate for EXW or FOB.
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