Incoterms
Incoterms are the international rules agreed to and reviewed by the International Chamber of Commerce (ICC) that we can use to interpret the terms of an international contract for the sale and purchase of goods.
Incoterms are used to establish criteria for the distribution of expenses and the transfer of risks.Incoterms are part of the contract and must be regarded as a price clause since the term makes it possible to determine the total cost of the operation.
We use Incoterms to determine:
– The scope of the price of the transaction.
– When and where the risks of the goods are transferred from the seller to thepurchase.
– The place where the goods should be delivered.
– The documents to be processed by each party and their cost.
– Who takes out and pays for transit insurance for the goods.
The eleven 2020 Incoterms are presented in two different groups:
RULES FOR ANY MEANS OF TRANSPORT
EXW–EX WORKS
FCA – FREE CARRIER
CPT – CARRIAGE PAID TO
CIP – CARRIAGE AND INSURANCE PAID TO
DAP – DELIVERED AT PLACE
DPU – DELIVERED AT PLACE UNLOADED
DDP – DELIVERED DUTY PAID
RULES FOR SEA AND INLAND WATERWAY TRANSPORT:
FAS – FREE ALONGSIDE SHIP
FOB – FREE ON BOARD
CFR – COST AND FREIGHT
CIF – COST, INSURANCE AND FREIGHT
What does each Incoterm consist of?
EXW (Ex Works)
It can be used for any mode of transport. The named place of delivery must always be specified: “EXW (place of delivery of the goods)”
Under EXW conditions, the seller fulfils its obligation to deliver the goods and transfers all the risks for the goods when it makes them available to the buyer at its own facility or in another named site (factory, warehouse, depot, distribution platform, etc.) without loading them onto the vehicle.
FCA (Free Carrier)
It can be used for any mode of transport. The named place of delivery must always be specified: “FCA (place of delivery of the goods)”.
Under FCA conditions, the seller fulfils its obligations and transfers all the risks when it delivers the goods to the carrier hired by the buyer at the named site in the country of origin. The FCA rule is multimodal and can be applied to any transport mode used. The use of FCA is advisable if the goods travel in a container, whether it is a full load (in which case using the FOB rule is not advised) or partial load.
CPT (Carriage Paid to)
It can be used for any mode of transport. The named place of delivery must always be specified: “CPT (named place of destination)”.
According to the CPT rule, the seller undertakes to hire and bear all the costs involved in the transport of the goods to the place of destination (sea, land or air terminal) agreed to with the buyer, although the delivery and transfer of risks to the latter takes place at source once the goods have been delivered to the carrier hired by the seller.
CIP (Carriage and Insurance Paid to)
It can be used for any mode of transport. The named place of delivery must always be specified: CIP (named place of destination). Definition: CARRIAGE AND INSURANCE PAID TO
The seller delivers the goods to the carrier at a named place, and hires and bears the cost of transport, as well as the cost of the insurance to cover the risks of the goods borne by the buyer as of the moment the goods are delivered to the carrier to the place of destination hired by the seller for the transport. The transfer of risks takes place at source, once the goods have been delivered to the carrier hired by the seller.
DAP (Delivered at Place)
It can be used for any mode of transport. The named place of delivery must always be specified: “DAP (named place of destination)”
In DAP conditions, the seller fulfils its obligation to deliver the goods and transfers the risks once it makes the goods (on the means of transport and without unloading) available to the purchaser at the named point in the destination country: port, factory, warehouse, depot, logistics centre, etc. In this way, the seller has to bear all the risks and costs involved in all stages of transport to the place of delivery agreed to.
DPU (Delivered at Place Unloaded)
It can be used for any mode of transport. In this rule, the place of delivery agreed to must always be specified: “DPU (place of delivery)”.
The seller bears all transport costs and risks until it delivers the goods at the place of destination agreed to (sea or airport terminal, logistics centre)and they are unloaded from the delivery vehicle. Costs and risks are transferred to the buyer at this time.
DDP (Delivered Duty Paid)
It can be used for any mode of transport. The named place of delivery must always be specified: “DDP (named place of destination)”.
The seller bears the costs and risks until the goods are delivered and cleared for import, as well as all the relevant duties, at the named place of destination (buyer’s warehouse orother) without unloading them from the vehicle. Costs and risks are transferred to the buyer at this time.
FAS (Free Alongside Ship)
It can be employed for sea and inland waterway transport: “FAS (Free Alongside Ship)”.
The Incoterms rule is preferentially used for the purchase and sale of bulk, equipment, heavy machinery and large volumes, and sea or waterway transport is used.Under FAS conditions, the seller fulfils its obligations and transfers the risks when it delivers the goods alongside the named carrier ship and on the agreed date.
FOB (Free on Board)
It can be employed for sea and waterway transport. The port of loading named should always be indicated: “FOB (named port or terminal)”.
The seller bears the costs and risks until export clearance has been obtained and the goods have been loaded onto the vessel in the port of loading. As of that moment, all costs and risks (transport and others at destination) are borne by the buyer.
CFR(Cost and Freight)
It can be employed for sea and inland waterway transport. The name of the port ofdestination should always be indicated: “CFR (named port of destination)”
The seller bears all logistics costs until the goods reach the named port of destination, although delivery and transfer of risks to the buyer take place once the goods are on board the vessel in the port of loading.
Once the sea transport has been completed, the costs of unloading at the port of destination are borne by the buyer unless they are included in the seller’s transport contract.
CIF (Cost, insurance and freight)
It can be employed for sea and inland waterway transport: “CIF (cost insurance and freight)”.
The seller bears all logistics costs until the goods reach the named port of destination, although delivery and transfer of risks to the buyer take place once the goods are on board the vessel in the port of loading. The CIF rule adds the obligation for the seller to take out and bear the cost of an insurance policy that covers the risks of the goods borne by the buyer with regard to transport, or in other words, as of the loading of the goods in the port o forigin.
