Use of the Incoterms

INCOTERMS is the contraction of “INternational COmmercial TERMS”. Incoterms determine responsibilities between the vendor and the buyer within the frame of an international selling/purchasing agreement.

They allocate responsibilities but do not say when the transfer of ownership takes place.

Incoterms divide transaction costs and risks between the seller and the buyer.

Incoterms : 4 main groups

Group E : EX

• EXW : The seller has fulfilled his delivery obligations once the goods have been made available to the buyer at the seller’s premises (workshop, factory, warehouse …). The buyer incurs all the costs and bears all the risks associated with the transportation of the goods from the seller’s premises until their final destination. This term represents the minimal obligation of the seller.

Group F : Free

• FCA : The seller has fulfilled his delivery obligations once the goods have cleared customs and have been transferred to the carrier chosen by the buyer. The buyer chooses the means of transportation and the carrier. He pays for the main freight. The transfer of costs and risks takes place at the time the carrier lifts the goods.
• FAS : The seller has fulfilled his delivery obligations once the goods have been placed alongside the ship, on the wharf at the agreed port of sailing. The buyer bears all the costs and risks associated with the potential loss and damage of the goods. FAS term requires the seller to clear the goods through customs for export.
• FOB : The seller has fulfilled his delivery obligations once the goods have been placed on board the ship at the agreed port of sailing. The seller clears the goods through customs for export. The buyer chooses the ship and pays for the sea freight. The transfer of costs and risks takes place when the goods pass the ship’s rail at the port of sailing.

Group C : Cost or Carriage

• CFR : The seller chooses the ship and pays for the necessary freight and freight transportation charges until the agreed upon port of sailing. Export formalities are the responsibility of the seller. The risk transfer point is the same as in FOB.
• CIF : The seller has the same obligations as in CFR but he must, in addition to these obligations, provide maritime insurance against the risk of loss and damage to the goods during transportation. Export formalities are the seller’s responsibility. The goods travel, while at sea or inland waterway transported, at the risks of the buyer, as soon as the ship’s rail has been passed at the port of sailing.
• CPT : The seller chooses the mode of transportation and pays for the freight until the goods have been transported to the agreed upon destination. He clears the goods through customs for export. When the goods are transferred to the main carrier, the risks are transferred from the seller to the buyer.
• CIP : The seller has the same obligations as in CPT, with the additional obligation to provide insurance against the risks of loss or damage to the goods during transportation. The seller clears the goods through customs for export.

Group D : Delivered

• DAF : The seller has fulfilled his delivery obligations once the goods have been delivered, cleared through customs for export, at the agreed upon location at the boarder, but before the neighbour country’s own boarder, on the transportation vehicle which has not been unloaded. The transfer of costs and risks takes place when crossing the boarder. The buyer is in charge of clearing the goods through customs for import and paying customs duties.
• DES : The seller has fulfilled his delivery obligations once the goods, which have not been cleared through customs for import, are made available for the buyer onboard the ship, at the agreed upon destination. The seller bears all the costs and risks associated with the transportation of the goods until the agreed upon destination.
• DEQ : The seller has fulfilled his delivery obligations once the goods, which have not been cleared through customs for import, are made available for the buyer on the wharf, at the agreed upon destination. The buyer clears the goods through customs for import. The transfer of costs and risks takes place once the goods are on the wharf at the agreed upon destination.
• DDU : The seller delivers the goods, which have not been cleared through customs for import and not unloaded from the transportation vehicle upon arrival, to the buyer, at the agreed upon destination. The buyer is in charge of proceeding to and paying for the customs clearance for import of the goods and paying for the customs duties.
• DDP : Is the opposite of the EXW factory term, DDP corresponds to the maximal obligation of the seller. The seller is in charge of everything, including customs clearance and the payment of customs duties. The transfer of costs and risks takes place upon delivery to the buyer’s premises. Unloading is under the responsibility of the buyer who organizes and pays for it.