Shipping Terms

What are Incoterms and why use them?

Incoterms, short for "International commercial terms" are an international set of guidelines for the interpretation of the most commonly used international trade terms. These terms are used to help eliminate the uncertainties in the different interpretations of such trade terms in language and different countries. 

If you are new to shipping contracts you may be unaware of the different trading practices in their respective countries. A small misunderstanding could lead to disputes over who was meant to pay for the overseas freight, insurance or other costs involved in the shipment of goods. 

To avoid confusion the International Chamber of Commerce published (1936) a set of international rules for standard trade terms known as Incoterms. Since 1936 regular amendments and updates (1953, 1967, 1976, 1980, 1990 and 2000) have been made to keep all practices and terms current.

The current version is Incoterms 2000 these terms are listed below.

EXW (Ex Works)
The buyer bears all costs and risks involved in taking the goods from the seller's premises to the desired destination. The seller's obligation is to make the goods available at his premises (works, factory, warehouse). This term represents minimum obligation for the seller. This term can be used across all modes of transport.

FCA (Free Carrier)
The seller's obligation is to hand over the goods, cleared for export, into the charge of the carrier named by the buyer at the named place or point. If no precise point is indicated by the buyer, the seller may choose within the place or range stipulated where the carrier shall take the goods into his charge. When the seller's assistance is required in making the contract with the carrier the seller may act at the buyers risk and expense. This term can be used across all modes of transport.

CPT (Carriage paid to.)
The seller pays the freight for the carriage of goods to the named destination. The risk of loss or damage to the goods occurring after the delivery has been made to the carrier is transferred from the seller to the buyer. This term requires the seller to clear the goods for export and can be used across all modes of transport.

CIP (Carriage and insurance paid to.)
The seller has the same obligations as under CPT but has the responsibility of obtaining insurance against the buyer's risk of loss or damage of goods during the carriage. The seller is required to clear the goods for export however is only required to obtain insurance on minimum coverage. This term requires the seller to clear the goods for export and can be used across all modes of transport.

DAF (Delivered at Frontier)
The seller has fulfilled his obligation when the goods have been made available, cleared for export, at the named point and place at the frontier, but before the customs border of the adjoining country. The term 'frontier' may be used for any frontier including that of the country of export. Therefore, it is important that the frontier in question be defined precisely by always naming the point and place in the term. The term is generally used when goods are to be carried by rail or road, but may be used for any mode of transport.

DDU (Delivered duty unpaid)
The seller is required to deliver the goods to the named place in the country of importation. The seller is responsible for costs and risks involved in bringing the goods to the import destination (excluding duties, taxes) and arranging customs formalities. This term may be used irrespective of the mode of transport.

DDP (Delivered duty paid)
Similar to DDU however in this case the seller is responsible for delivering the goods in the named place in the country of importation, all costs and risks in bringing the goods to import destination including duties, taxes and customs formalities. This term may be used irrespective of the mode of transport.

FAS (Free Alongside ship)
The seller has fulfilled his obligation when goods have been placed alongside the vessel at the port of shipment. The buyer is responsible for all costs and risks of loss or damage to the goods from that moment. The buyer is also required to clear the goods for export. This term should only be used for sea or inland waterway transport.

FOB (Free on Board)
Once the goods have passed over the ship's rail at the port of export the buyer is responsible for all costs and risks of loss or damage to the goods from that point. The seller is required to clear the goods for export. This term should only be used for sea or inland waterway transport.

CFR (Cost and Freight)
The seller must pay the costs and freight required in bringing the goods to the named port of destination. The risk of loss or damage is transferred from seller to buyer when the goods pass over the ship's rail in the port of shipment. The seller is required to clear the goods for export. This term should only be used for sea or inland waterway transport.

CIF (Cost, Insurance and Freight)
The seller has the same obligations as under CFR however he is also required to provide insurance against the buyer's risk of loss or damage to the goods during transit. The seller is required to clear the goods for export. This term should only be used for sea or inland waterway transport.

DES (Delivered Ex Ship)
The seller has fulfilled his obligation to deliver when the goods are available to the buyer on board the ship uncleared for import at the main port of destination. The seller is responsible for all costs and risk of loss or damage in bringing the goods to the named port of destination. This term should only be used for sea or inland waterway transport.

DEQ (Delivered Ex Quay)
The seller has fulfilled his obligation to deliver when the goods are available to the buyer on the quay (wharf) at the named port of destination, cleared for importation. The seller is responsible for all risks and costs including duties, taxes in making available the goods at the port of destination. This term should only be used for sea or inland waterway transport.