Incoterms – International Commercial Terms
The purpose of Incoterms is to determine:
Costs – Who is responsible for the expenses
Control – Who owns the good at any given point in shipment
Liability – Who is responsible for paying damages at any given point in shipment
There are two basic methods for categorizing Incoterms: the first is by the nature of the terms, the other by the means of transportation used.
Incoterms four categories: —(CDEF)—-
1. Category E contains only one term: EXW (Ex Works).
2. Category F contains three terms: FCA (Free Carrier), FAS (Free Alongside Ship), and FOB (Free on Board).
3. Category C contains four terms: CPT (Carriage Paid To), CIP (Carriage and Insurance Paid to), CFR (Cost and Freight), CIF (Cost, Insurance and Freight).
4. Category D contains three terms: DAP (Delivered at Place), DPU (Delivered at Place Unloaded), DDP (Delivered Duty Paid).
While category E imposes a minimum set of obligations on the supplier, category D indicates the opposite: most of the responsibilities and risks are put on the supplier while the buyer has little to worry about.
Let us take a look at the Incoterms by dividing them into those two groups.
-Incoterms used for all modes of transport: EXW – FCA – CPT and CIP – DAP, DPU, and DDP
-Incoterms for sea and inland waterway transport: FAS and FOB – CFR and CIF
1. EXW (Ex Works)
-Ex works (EXW) is a shipping arrangement in which a seller makes a product available at a specific location, but the buyer has to pay the transport costs.
-Once buyers have their goods, they are responsible for other risks, such as loading the goods onto trucks, transferring them to a ship or plane, and meeting customs regulations.
-Ex works is an Incoterms (International Commercial Terms), one of 11 standardized international trade terms that are published by the International Chamber of Commerce.
2. FCA (Free Carrier)
-Under FCA Incoterms, the seller must handle the full export process for the products they are selling. Once the cargo is ready to be loaded on to the vessel, responsibility transfers to the buyer
3. FOB (Free on Board)
-In ocean freight, the FOB Incoterm, or “Free on Board”, is an Incoterm that’s exclusive to ocean freight shipping. It states that the seller must load the goods onto the ship chosen by the buyer.
-The seller is also responsible for all costs and risks up until all goods are loaded on board the vessel, at which point the risks are transferred to the buyer.
-The FOB Incoterm is similar to the FCA Incoterm, the only difference being the risk transfer point upon complete loading of goods is not specifically mentioned in the FCA Incoterm. As such, unlike FCA, FOB is not recommended for shipping containerized cargo.
4. CFR (Cost and Freight)
-Not only responsible for delivering the goods to port specified by the buyer but also transportation cost of the goods to the destination port. #freight #transport #export #commerce
Post time: Nov-14-2022