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Incoterms Explained

July 23rd, 2015 12:08pm

 

Your Guide To Incoterms; A Complete And Simple Explanation

 

By InXpress E-Commerce

Incoterms can be overwhelming and confusing. With the help of this article and your friends at InXpress we will make sure the correct terms and conditions are chosen for your shipment.

 

Incoterms are a set of rules / conditions when dealing with the sale of physical goods that need to shipped or transported. Therefore, they are a common hindrance to the E-commerce entrepreneur. Basically the terms answer 2 questions: 

1) Which party (buyer or seller)  is responsible for setting up the transport details. This includes choosing the carrier, optional insurance, duty and taxes, etc. 

2) At which point is the buyer (receiver) now responsible for the goods, and the seller (sender) is relieved of responsibility. This is very important to know for ocean shippers. Consider the Tsunami that struck Japan in 2011 and millions of dollars lost in shipyards. 

 

There are 4 groups in which the 11 main incoterms fit into:

- Buyer responsible for all carriage: EXW

- Buyer arranges main carriage: FAS, FOB, FCA

- Seller arranges main carriage, but risk transfers after main carriage: DAT, DAP, DDP

- Seller arranges main carriage, but risk transfers BEFORE main carriage: CFR, CIF, CPT, CIP 

 

 

(EXW) Ex-Works

 Ex Works (EXW)

The buyer is responsible for almost all steps under EXW. This includes loading the goods into carrier vessel. Even if the shipper handles these activities, the buyer is responsible for anything that may happen in the end. As a buyer, be aware also of any information needed for export clearing processes and you may not be able to handle this from a cross-border location. 

 

 

(FCA) Free Carrier 

Free Carrier (FCA)

Under FCA, the seller arranged transportation to an agreed upon location (ex. terminal or hub) where the responsibility transfers to the receiver. This is an important distinction from EXW if the agreed upon location is on the seller's property. 

The seller is always responsible for export clearance under FCA. FCA is very common for container shipments when buyer is arranging shipping. 

 

 

(CPT) Carriage Paid To

Carriage Paid To (CPT)

Very similar to FCA, the seller is responsible for SETTING UP the transfer to the agreed upon location, but seller is not responsible for insurance during this portion of transfer. Buyer beware of any fees or handling charges by the terminal or hub under CPT. 

 

 

(CIP) Carriage and Insurance Paid

Carriage and Insurance Paid To (CIP)

Very similar to CPT, CIP now puts the insurance responsibilities in the hands of the seller to the agreed upon location. So the seller is now arranging the shipping to the agreed upon location and responsible for the insurance. Again, buyer beware of any fees or handling charges by the terminal or hub.

 

 

(DAT) Delivery at Terminal 

Delivered at Terminal (DAT)

Building onto the responsibilities of CIP, under DAT the seller is now responsible for UNLOADING the goods at the agreed upon location. Once goods are unloaded, buyer claims responsibility. 

 

 

(DAP) Delivered at Place 

Delivered at Place (DAP)

Under DAP, the seller is NOT responsible for unloading the goods when vessel arrives at agreed upon location. The seller is responsible for arranging shipment to location, while the buyer assumes responsibility when the goods are available for unloading. 

Import clearance and any local or import taxes are responsibility of the buyer. 

 

 

(DDP) Delivered Duty Paid

Delivered Duty Paid (DDP)

Similar to DAP, the seller is NOT responsible for unloading the goods when vessel arrives at agreed upon location. The seller is responsible for arranging shipment to location, while the buyer assumes responsibility when the goods are available for unloading. 

However, import clearance and any local or import taxes have been already paid by the seller

 

 

(FAS) Free Alongside Ship 

Free Alongside Ship (FAS)

SEA AND INLAND WATERWAY ONLY. 

Under FAS, the seller presents the goods cleared for export, along the water vessel at the agreed upon port. In this instance is when risk is transferred to the buyer. Loading and all costs after this point is the responsibility of the buyer. 

 

 

(FOB) Free On Board 

Free On Board (FOB)

SEA AND INLAND WATERWAY ONLY. 

Similar to FAS, the seller delivers goods vessel side, but is now responsible for the loading of the product on board. Once goods are safely aboard, risk is in hands of buyer. 

 

 

(CFR) Cost and Freight

Cost & Freight

SEA AND INLAND WATERWAY ONLY. 

Identical to FOB, except now the seller clears the products for export. Buyer gains risk when good are loaded safely onboard. 

 

 

(CIF) Cost Insurance Freight

Cost Insurance and Freight (CIF)

SEA AND INLAND WATERWAY ONLY. 

Identical to CFR, only now the seller arranges insurance for goods up until main carriage (from seller location until onboard vessel at the agreed upon location). Once good are loaded onboard, buyer assumes risk. 

 

 

Now you are an expert in the 11 main incoterms and conditions and 4 categories when shipping purchased product! If you have any questions at all we would love to help you in the E-commerce department. Please contact us for world class customer service. Have a great day. 

 

To higher sales and smarter shipping... Thank you for reading. 

Blake Waller 

InXpress E-Commerce 

blake.waller@inxpress.com 

www.iwishifoundoutsooner.com

 

 

 

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Better Pages = More Sales 

 

 

 

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