The Incoterms is a group of definitions created by the International Chamber of Commerce. They came into force in 1990 and were renewed in the year 2000. They grant the business community clear concepts in order to limit the responsibilities of both the buyer and the seller in the operations between different states.
This terminology balances and conditions the terms of the purchase and sales operations so as to make it possible to exchange goods between businessmen from different countries. With the common usage of such vocabulary, the responsibilities and rights of both parties will be protected whenever they have to settle possible controversies. The publication of these concepts is done by the International Chamber of Commerce and what follows is a brief summary of the same and its updated version done in 2010.
EXW (Ex Works)
The Supplier arranges the trade of products, but it’s the Buyer’s responsibility to arrange shipment to the preferred location (which could be the Buyer’s premises or a third party address).
FCA (Free Carrier)
Title and risk pass to buyer including transportation and insurance cost when the seller delivers goods cleared for export to the carrier. Seller is obligated to load the goods on the Buyer's collecting vehicle; it is the Buyer's obligation to receive the Seller's arriving vehicle unloaded.
FAS (Free alongside Ship)
The Supplier arranges for the shipment to reach the Buyer’s vessel. At this point, the Buyer assumes responsibility for all risks and costs, including loading, transport, insurance and import costs. Used for sea or inland waterway transportation.
FOB (Free on Board)
Risks pass to the buyer including payment of all transportation and insurance cost once delivered on board the ship by the seller. Used for sea or inland waterway transportation.
CFR (Cost and Freight)
The seller delivers the commodity to the buyer on board of the vessel, cleared for export to the named port of destination. The buyer bears all risks of loss or damage once it is on board.
CIF (Cost, insurance and freight)
The seller delivers the commodity to the buyer on board of the vessel, cleared for export to the named port of destination. The buyer bears all risks of loss or damage once it is on board. However, the seller is responsible for buying the cargo insurance to the named seaport or wharf of destination, although they are only required to have the minimum cover (detailed under ICC C)4. CIF is suggested for cases where multiple modes of transport are used, for example when the commodity is handed over to a carrier at a container terminal.
CPT (Carriage paid to)
There are multiple carriers in CPT transactions. The seller hands over the commodity to their chosen first carrier, cleared for export, who then pays for the moving of the commodity to the named place of destination and in this way, the seller transfers risk of loss or damage. The seller is only responsible for arranging freight, not for insuring that the goods are shipped. From the time the commodity is transferred to the first carrier onwards, the buyer bears the risks of any loss or damage.
CIP (carriage and insurance paid to)
The seller hands over the commodity to the carrier chosen by the seller, cleared for export, who then pays for the moving of the commodity to the named place of destination and in this way, thus the seller transfers risk of loss or damage. From the time the commodity is transferred to the first carrier onwards, the buyer bears the risks of any loss or damage. However, the seller purchases cargo insurance through to the named place of destination.
DAP (Delivered at named place of destination)
The Seller is responsible for all risks and costs of goods being shipped until they reach their destination (regardless of the location) on the arriving mode of transport and are ready for unloading at the named place of destination. The seller delivers. This includes freight and insurance costs but not customs duties, import permits or the costs of unloading goods, which are the Buyer's responsibilities.
DDP (Delivered Duty Paid)
Title and risk pass to buyer when seller delivers goods. Used for any mode of transportation. The seller has, in this case, the maximum obligation; he is responsible for all transfer charges and risks until the merchandise is delivered to the buyer. The import customs clearance is also under his charge.
DPU (Delivered At Named Place Unloaded)
Once the commodity is unloaded from the arriving mode of transport, the seller delivers, and the commodity is placed at the buyer’s disposal at a place of destination. The seller bears all risks when bringing the commodity to the terminal at the named place of destination and during unloading. DPU is the only Incoterm which results in the seller paying for unloading at destination (but not customs duties or import permits). With this being the case, it is highly recommended to be as specific as possible when it comes to the named place of destination since the seller accounts for all costs through to unloading.
The replacement of DAT, a 2010 Incoterm, with DPU was a relief for many parties since DAT was notoriously confusing and, arguably, used weak language. Under DAT the seller could unload the goods at any place they determined a ‘terminal’. The language used under DPU clarifies that the seller unloads the goods at a place specified by the buyer. Still, the seller holds all the risk until the goods are discharged.