Infocenter ARNAUD > Incoterms
Companies increasingly take advantage of the globalized market. In such a context, a perfect comprehension of Incoterms 2010 is needed (International Commercial Terms - version published by the International Chamber of Commerce, ICC), which have been in force since January 1st, 2011.
Since January 1st, 2011,all offers or contracts of international scope must include the wording "Incoterms 2010" and these determine the following:
— Distribution of costs
— Place of delivery of goods
— Who pays for the risk of transport
— Liability for customs duties
There are 11 of them and only these must be used.
Group E / Expedition
The term Ex Works (EXW) — goods at sellers premises
The seller’s sole responsibility is to pack the goods in a suitable packaging
for transportation, and to put them at disposition of the buyer
in his premises (usually, the price includes placing the goods in pallets).
The buyer bears all costs and risks related with transportation, since leaving the factory until reaching destination. The term EXW stands for the minimal obligations of the seller.
However, if both parties wish that loading the goods on departure is provided by the seller “EXW Loaded”, on their own risk and expense, they should clearly state that intention in an explicit clause to be inserted in the contract of sale (eg, EXW Paris loaded, Incoterms ICC 2010).
The seller should provide the buyer, whenever asked for it and at his own risk and expense, any assistance necessary for obtaining an export license or an insurance and giving all useful information the seller has that may allow the buyer to ensure export of the goods in total safety.
“EXW Loaded”. The 2010 revision of Incoterms introduced this concept of “EXW loaded”, which recognizes a common practice: the seller assumes and takes responsibility for loading the goods to a buyer’s vehicle.
Group F / Free carrier
The term FCA — (Free Carrier, named point of delivery)
If delivery is to be made at the seller’s premises, it is the seller who loads the adequately packaged goods to the vehicle made available by the buyer, (indicate “FCA seller’s premises”). Customs clearance for export is the seller’s obligation.
The buyer chooses the transport and the carrier, with whom he makes a contract for transportation and pays the main transport. The transfer of costs and risks is effective at the moment in which the carrier receives the goods. The parties must agree upon the place of collection of the goods (carrier terminal or seller’s premises). The seller must, when necessary, provide, or assist in providing, the buyer within reasonable time with the documents or information regarding necessary safety for export and/or import of his goods and/or for its transportation to the final destination. The supplied documents and/or provided assistance are at buyer’s expense and risk.
The term FAS — Free Alongside Ship, named port of shipment
The seller’s obligations become fulfilled as soon as the goods are cleared alongside the ship, on a quay or barge at the named port of shipment.
From this moment, the buyer shall bear all costs and risks of loss or damage, as long as the goods have been delivered alongside ship, namely, in case of ship’s delay or scale cancelled. The buyer designates the carrier, makes the transportation contract and pays the freight.
Time and place obligation
The seller only makes the FAS delivery if this is done alongside ship when the ship is on quay. This is a time and place obligation (from Marseilles to Antwerp, in which every company offers at least one weekly departure, to deliver within a period of more than 8 days before the ship’s date chosen by the buyer is premature).
Obtaining a license
Obtaining an export license or any other official authorization is at the seller’s expense and risk. The same happens for the buyer regarding imports. The latter must give the seller all information regarding the ship’s name, the place of shipment and the moment of delivery chosen within the designated period.
Expenses related to documentation
The seller must, if necessary, provide timely assistance to the buyer in obtaining all the documents or information regarding necessary safety for export and/or import of his goods and/or for their transportation to the final destination. The supplied documents and/or provided assistance are at the buyer’s expense and risk.
The term FOB — Free on Board (named port of shipment)
The seller must put the goods at disposition at the named port of shipment, on board the ship chosen by the buyer and must perform the customs formalities for export, if applicable. Under a FOB type contract, the seller fulfils its obligation of delivery when the goods are on board the ship on the named port of shipment.
The buyer chooses the ship, pays for the sea freight and insurance and takes care of the formalities upon arrival. He also bears all the costs and risk for loss or damages that may be suffered by the goods from the moment these were delivered.
For indication purposes, the wording “under FOB terms” is the terminology used by forwarding agents to indicate that the operations before loading have been performed, including, if necessary, operations of customs clearance for export. The seller takes responsibility for the total costs incurred by the goods at the port of shipment. The contract should, however indicate where the transfer of risks occurs. The seller must, if necessary, supply the buyer in timely way assistance in obtaining all documents or information regarding safety necessary for export and/or a import of his goods and/or for their transportation to the final place of destination. The documents supplied and/or the assistance provided are at the buyers expense and risk.
Group C / Cost and Freight + Transport Insurance
The term CFR — Cost and Freight, named port of destination
Chooses the carrier, finishes and bears the costs paying the freight until the named port of destination, not including unloading. The loading of cleared goods on board the ship also includes the shipment formalities. On the other hand, the transfer of risk is the same as in FOB.
Bears the risk of transportation from the moment when the goods are delivered on board the ship at the port of shipment, receives it from the carrier at the named port of destination. Also has to bear the cost of unloading, if this is not already comprised in the contract for transportation.
Expenses with documentation
The seller must, on its own expense, supply the buyer with a usual transport document to the named port of destination covering the contracted goods, in order to serve for the applicable purposes (e.g., claiming goods from the carrier, selling of goods in transit, etc.). Must also supply all information necessary that allow him to take necessary measures for receiving the goods. The information and documents regarding insurance that the buyer needs for export and/or import and/or transportation to final destination must be provided by the seller to the buyer at his request and on his expense and risk.
The term CIF — Cost Insurance Freight, named port of destination
Identical term to CFR with the additional obligation for the seller of supplying a marine insurance such as risk of loss or damage for the goods. The seller pays the insurance prime. The insurance must be in accordance with the minimal guarantee of the clauses supplied by the Institute of London Underwriters, or other similar clauses. The insurance must cover, at least, the price stated on the contract with a 10% surcharge and must be made in the contract’s currency designation. It is a FAP insurance (actual total loss) over 110% of the value. It is possible to surcharge up to 20% without justification. A bigger surcharge may be accepted by insurance companies if justified. This surcharge of value serves to cover the costs resulting from the fault (file creation costs and tracking, mails, etc.) and the financial losses (profits) from the moment of loss and indemnity for insurance companies. The seller pays the insurance prime.
The buyer bears the transportation risks since the goods are delivered on board the ship at the port of shipment, acknowledges delivery of the goods with the carrier at the named port of destination. He will also have to bear the cost of unloading, if this is not already included in the contract for transportation. Buyers tend to like this Incoterm, because they are exempt from the logistical formalities.
Expenses with documentation
The information and documents regarding insurance that the buyer needs for export and/or import and/or transportation to final destination must be supplied by the seller to the buyer at his own expense and risk.
The term CPT — Carriage Paid To, named place of destination
The seller manages the logistics chain. After performing export clearance, he chooses the carriers and pays the freights to the named place of destination.
The risk of faults or losses are borne by the buyer from the moment when the goods are delivered to the first carrier. Afterwards, the buyer is responsible for customs clearance for imports. He will also have to bear the cost of unloading, if this isn’t already included in the contract for transportation.
It is important to clarify the notion of costs of unloading within the scope of the contract for transportation. The buyer must usually bear the costs of unloading, unless these are included in the transport price. In such case, these costs are borne by the seller. The seller should, thus, clarify this matter with the buyer, in order to avoid seeing himself in a situation where, should the buyer refuse to pay, the carrier would return the goods to the seller and request his part of the costs for unloading and possible cost of immobilization of the vehicle while awaiting for the problem to be solved.
Rigorous geographical indications
In the CPT rule, there is a transfer of risks and costs at several different places. It is recommended that the parties should indicate accurately in the contract the place of delivery and where the risk passes to the buyer and up to where the seller has to pay the transportation cost.
Expenses with documentation
The information and documents regarding insurance that the buyer needs for export and/or import and/or transport to final destination must be supplied by the seller to the buyer upon his request and on his expense and risk.
The term CIP — Carriage and Insurance Paid To... (named place of destination)
CIP is identical to CPT, but the seller must additionally supply a transport insurance. The seller signs the contract for transportation, pays the freight and the insurance prime.
The risks of fault or loss are borne by the buyer from the moment when the goods are delivered to the first carrier. Afterwards, the buyer is responsible for import customs clearance. He will also have to bear the cost of unloading if this isn’t already included in the contract for transportation.
According to the CIP terms, the seller only needs to make insurance for a minimal coverage. If the buyer wishes to be protected by an additional broader insurance coverage, it is necessary, on such conditions, to get the seller’s agreement, or to personally make a supplemental insurance.
Expenses with documentation
Information and documents regarding the insurance that the buyer needs for export and/or import and/or transport to final destination must be supplied by the seller to the buyer upon his request and on his expense and risk.
Group D - (Delivered) at destination.
The Seller puts the goods at the disposition of the Buyer (Destination)
The term DAP — (Delivered at Place, named place)
The seller must put the goods at disposition of the buyer, in the approximation means of transportation and ready to unload at the named place of destination. He must clear the goods at export, but has no obligation of custom clearance of the goods at import. The seller must perform, at his own expense, the transportation of the goods to the named place of destination and unload them upon arrival of the approximation transport. The seller has no obligation, regarding the buyer, of making an insurance contract. He must, however, supply the buyer, at his own expense, the documents necessary for the buyer to collect the goods.
The buyer must pay the amount due for the goods, as provided in the sales contract and collect the goods when these become available.
The buyer must inform the seller of the need of providing him all information regarding safety that he may need for export, import and transportation of the goods to their final destination. This new rule replaces the DDU. It is advisable to use it solely in countries where the means of transportation to destination are reliable.
The term DAT — (Delivered at Terminal, named terminal in port or place of destination)
The seller must deliver the goods making them available to the buyer at the named terminal in the port or place of destination, on the designated date or within the designated deadlines. The seller must, on its own expense, make a contract for the transportation of the goods to this terminal and unloading the goods from the transportation means at arrival. Before the buyer, the seller is not obliged to make an insurance contract. He must, however, supply the buyer, at his own expense, with the document that allows him to collect the goods. The DAT Incoterm puts the seller under the obligation of clearing the goods for export. However, he is under no obligation of taking care of customs clearance upon import
The buyer must collect the goods as soon as these are delivered and pay the respective price, as provided in the sales contract. The buyer must inform the seller regarding the need of supplying him all information regarding safety that he may need for export, import, transportation of the goods to final destination. This Incoterms rule was created specifically for container transportation. It is also adapted to conventional sea transport provided the seller wants to keep the risks of unloading from the ship at the destination port. In such case, it is necessary to indicate the place of delivery (quay, alongside ship…).
The term DDP — Delivered Duty Paid, named place of destination
The seller here has the maximum obligations. The transfer of costs and risks is performed at the moment of delivery to the buyer. Customs clearance upon import is also his responsibility.
The buyer takes possession of the goods at the named place of destination and pays the costs of unloading. He must inform the seller of the need to provide him all information regarding safety that he may need for export, import and transport of the goods to final destination.
DDP vs. EXW
The term DDP is the exact opposite of EXW.
The costs regarding import of goods
If the parties wish to exclude some of the seller’s obligations, such as paying some of the costs due to the import of the goods, this must be specified; for example: "Delivery duties paid, VAT unpaid (DDP, VAT unpaid)".
All rights reserved © Arnaud, 2019