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Technical Library > COMMERCIAL > INCOTERMS 2010 > Incoterms Types: Risks for Buyers and Suppliers
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INCOTERMS 2010


The ICC (International Chamber of Commerce) defined a set of standard delivery terms (called Incoterms) to specify the responsibilities of buyers and sellers in international trading operation (goods transfer of title, sharing of risk and of shipping/insurance expenses). In this article, we give an overview of the main Incoterms, their meaning and their implications in sales and purchase contracts. Project buyers and sellers shall always agree on an Incoterm in a contract to set a clear framework of responsibilities.


 

WHAT ARE INCOTERMS?

There are several types of Incoterms that could confuse buyers and sellers of industrial materials. In this article, we clarify what means Incoterms, describe the common types of Incoterms and summarize the responsibilities of buyers and sellers depending on the Incoterm stated on the sales and purchase contract. It is very important that Incoterms are clearly understood by anyone buying and selling products, including piping materials, as they impact the execution and the risk of the order for the trading parties.

incoterms 2010

According to Wikipedia:

The Incoterms rules or International Commercial Terms are a series of pre-defined commercial terms published by the International Chamber of Commerce (ICC) relating to international commercial law. They are widely used in International commercial transactions or procurement processes as the use in international sales is encouraged by trade councils, courts and international lawyers. A series of three-letter trade terms related to common contractual sales practices, the Incoterms rules are intended primarily to clearly communicate the tasks, costs, and risks associated with the transportation and delivery of goods. Incoterms inform sales contract defining respective obligations, costs, and risks involved in the delivery of goods from the seller to the buyer. However, it does not constitute contract or govern law. Also it does not define where titles transfer and does not address the price payable, currency or credit items.


TYPES OF INCOTERMS

EXW Incoterm (Ex Works)

EXW means that the seller fulfills his obligation to deliver when he has made the goods available at his premises to the buyer. In particular, he is not responsible for loading the goods on the vehicle provided by the buyer or for clearing the goods for export, unless otherwise agreed. The buyer bears all costs and risks involved in taking the goods from the seller’s premises to the desired destination. This term thus represents the minimum obligation for the seller. Read more about the EXW Incoterm…

incoterm exw


FCA Incoterm (Free Carrier)

FCA means that the seller fulfills his obligation to deliver when he has handed over the goods, cleared for export, into the charge of the carrier named by the buyer at the named place or point. If no precise point is indicated by the buyer, the seller may choose within the place or range stipulated where the carrier shall take the goods into his charge. When, according to commercial practice, the seller’s assistance is required in making the contract with the carrier the seller may act at the buyer’s risk and expense. Read more about the FCA Incoterm…

Incoterm FCA


FAS Incoterm (Free Alongside Ship)

FAS means that the seller fulfills his obligation to deliver when the goods have been placed alongside the vessel on the quay or in lighters at the named port of shipment. This means that the buyer has to bear all costs and risks of loss of or damage to the goods from that moment. Read more about the FAS Incoterm…

FAS incoterm


FOB Incoterm (Free on Board)

FOB means that the seller fulfills his obligation to deliver when he places the goods on board at the port departure. This means that the buyer has to bear all costs and risks of loss of or damage to the goods from that point. The FOB term requires the seller to clear the goods for export. Read more about the FOB Incoterm…

FOB incoterm


CFR Incoterm (Cost and Freight)

CFR means that the seller must pay the costs and freight necessary to bring the goods to the named port of destination but the risk of loss of or damage to the goods, as well as any additional costs due to events occurring after the time the goods have been delivered on board the vessel is transferred from the seller to the buyer when the goods pass the ship’s rail in the port of shipment.The CFR term requires the seller to clear the goods for export.  This term can only be used for sea and inland waterway transport. Read more about CFR Incoterm…

CIF Incoterm (Cost, Insurance, and Freight)

CIF means that the seller delivers the goods on board the vessel or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel. The seller must contract for and pay the costs and freight necessary to bring the goods to the named port of destination. The seller also contracts for insurance cover against the buyer’s risk of loss of or damage to the goods during the carriage. The buyer should note that under CIF the seller is required to obtain insurance only on minimum cover. Should the buyer wish to have more insurance protection, it will need either to agree as much expressly with the seller or to make its own extra insurance arrangements. Read more about CIF Incoterm…

 

CIF and CFR Incoterm


CPT Incoterm (Carriage Paid to)

CPT means that the seller pays the freight for the carriage of the goods to the named destination. The risk of loss of or damage to the goods, as well as any additional costs due to events occurring after the time the goods have been delivered to the carrier, is transferred from the seller to the buyer when the goods have been delivered into the custody of the carrier.”Carrier” means any person who, in a contract of carriage, undertakes to perform or to procure the performance of carriage, by rail, road, sea, air, inland waterway or by a combination of such modes. The CPT term requires the seller to clear the goods for export. Read more about CPT Incoterm…

CPT incoterm


CIP Incoterm (Carriage and Insurance Paid To)

CIP means that the seller delivers the goods to the carrier or another person nominated by the seller at an agreed place and that the seller must contract for and pay the costs of carriage necessary to bring the goods to the named place of destination. The seller also contracts for insurance cover against the buyer’s risk of loss of or damage to the goods during the carriage. The buyer should note that under CIP the seller is required to obtain insurance only on minimum cover. Should the buyer wish to have more insurance protection, it will need either to agree as much expressly with the seller or to make its own extra insurance arrangements. Read more about CIP Incoterm…

CIP incoterm


DAT Incoterm (Delivered at Terminal)

DAT means that the seller delivers when the goods, once unloaded from the arriving means of transport, are placed at the disposal of the buyer at a named terminal at the named port or place of destination. “Terminal” includes a place, whether covered or not, such as a quay, warehouse, container yard or road, rail or air cargo terminal. The seller bears all risks involved in bringing the goods to and unloading them at the terminal at the named port or place of destination. Read more about DAT Incoterm…

 

DAT incoterm


DAP Incoterm (Delivered at Place)

DAP means that the seller delivers when the goods are placed at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination. The seller bears all risks involved in bringing the goods to the named place. Read more about DAT Incoterm…

DAP


DDP Incoterm (Delivered Duty Paid)

DDP means that the seller delivers the goods when the goods are placed at the disposal of the buyer, cleared for import on the arriving means of transport ready for unloading at the named place of destination. The seller bears all the costs and risks involved in bringing the goods to the place of destination and has an obligation to clear the goods not only for export but also for import, to pay any duty for both export and import and to carry out all customs formalities. Read more about DDP Incoterm…

ddp incoterm

 

To check the difference between the D-type Incoterms (DAP, DAT and, DDU), you can read this article.


BUYER AND SELLER RESPONSIBILITIES BY TYPE OF INCOTERM

The table shows the sharing of responsibilities and costs between buyers and supplier according to the chosen incoterm (source: Incoterms 2010)

Chart of Incoterms 2010

 

TRANSPORTATION COSTS AND RISKS BY INCOTERM TYPE

TYPE OF INCOTERM

Carriage of Goods

Risks

Costs

EXW

Carriage to be arranged by the buyer

Risk transfer from the seller to the buyer when the goods are at the disposal of the buyer

Cost transfer from the seller to the buyer when the goods are at the disposal of the buyer

FCA

Carriage to be arranged by the buyer or the seller on the buyer’s behalf

Risk transfer from the seller to the buyer when the goods have been delivered to the carrier at the named place

Cost transfer from the seller to the buyer when the goods have been delivered to the carrier at the named place

CPT

Carriage to be arranged by the seller

Risk transfer from the seller to the buyer when the goods have been delivered to the carrier

Cost transfer at the port of destination, buyer paying such costs as are not for the seller’s account under the contract of carriage

CIP

arrange and insurance to be arranged by the seller

Risk transfer from the seller to the buyer when the goods have been delivered to the carrier

Cost transfer at port of destination, buyer paying such costs as are not for the seller’s account under the contract of carriage

DAT

Carriage to be arranged by the seller

Risk transfer from the seller to the buyer when the goods are delivered and unloaded at terminal

Cost transfer from the seller to the buyer when the goods are delivered and unloaded at terminal

DAP

Carriage to be arranged by the seller

Risk transfer from the seller to the buyer when the goods are delivered to named place ready for unloading

Cost transfer from the seller to the buyer when the goods are delivered at named place ready for unloading

DDP

Carriage to be arranged by the seller

Risk transfer from the seller to the buyer when the goods are placed at the disposal of the buyer

Cost transfer from the seller to the buyer when the goods are placed at the disposal of the buyer

FAS

Carriage to be arranged by the buyer

Risk transfer from the seller to the buyer when the goods have been placed alongside the ship

Cost transfer from the seller to the buyer when the goods have been placed alongside the ship

FOB

Carriage to be arranged by the buyer

Risk transfer from the seller to the buyer when the goods pass the ship’s rail

Cost transfer from the seller to the buyer when the goods pass the ship’s rail

CFR

Carriage to be arranged by the seller

Risk transfer from the seller to the buyer when the goods pass the ship’s rail

Cost transfer at port of destination, buyer paying such costs as are not for the seller’s account under the contract of carriage

CIF

Carriage and insurance to be arranged by the seller

Risk transfer from the seller to the buyer when the goods pass the ship’s rail

Cost transfer at port of destination, buyer paying such costs as are not for the seller’s account under the contract of carriage

 

Incoterms illustrations: Source

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