Incoterms

Term Ex Works (EXW): Departure from warehouse

Person whose responsibility is to prepare the merchandise for the buyer, at his own premises, suitably packed for export shipping purposes (in general, the price includes loading the merchandise in the pallet).

Person who assumes the charges and risks involved in the shipment of the merchandise from the moment it leaves the seller’s warehouse until it reaches its destination place.

The term EXW represents a minimum obligation for the seller. However, if the parties agree that the vendor insures the loading of the merchandise at the point of departure “EXW Loaded”, and make the vendor responsible of these risks and charges, they have to precise this issue very clearly on an explicit clause included in the sales contract (ex: EXW Paris loaded, CCI 2010).

The seller is expected to provide for the buyer, at his request and at his charge and risks, all the assistance required to obtain an export license, insurance and provide the buyer with all the useful information in his possession which will allow the buyer to insure the export of his merchandise in full security.

“EXW Loaded”: The revised version of Incoterms 2000 introduced this concept of “EXW Loaded” which recognizes a frequently used practice: the seller takes care and responsibility of loading the merchandise into the buyer’s vehicle.

Term FCA: (Free Carrier / point of delivery at named place)

If the delivery takes place at the seller’s premises, it is the seller, who handles the loading of the suitably packaged goods into the vehicle provided by the buyer, (specify “FCA seller’s premises”). Export customs clearance is the responsibility of the seller.

The buyer has chosen the type of transportation and the carrier with whom he has signed a transportation contract and pays for the main transportation. The transfer of charges and risks takes place at the moment when the carrier picks up the merchandise. The parties must agree upon naming a place where to hand over the merchandise (the carrier’s terminal or the vendor’s premises).

The seller must, should the case arise, provide for the buyer, at the right time, all the assistance needed to obtain all the documents and information regarding the security requirements for the export and/or import of the merchandise and/or for its transportation to its final destination. The cost of the documents furnished and/or the assistance given are costs and risks paid by the buyer.

This Incoterm was officially added to the revised version of Incoterms 2000: it is the responsibility of the seller to load the merchandise.

More than in any of the other Incoterms, in FCA, the “named place” agreed upon must be precise and indicated with care. FCA (Le Havre) is not enough if the buyer is located in Le Havre. Is it FCA (warehouse Le Havre) or FCA (in-transit bulking warehouse X Le Havre) or even FCA (dock No. X at the port of Le Havre)?

If the delivery is going to be done at a place other than the vendor’s premises, for example: handing it over at a transportation terminal –truck, rail, air, maritime – the vendor will be in charge of transporting the merchandise up to this named terminal but he will not be responsible for unloading the vehicle. The unloading will be handled by the one in charge of receiving the merchandise at the transportation terminal. Prefer FCA instead of FOB if the transportation is done in containers or by roll-on roll-off ship.

Term CPT: Carriage Paid To / Named port of destination

The seller controls the logistic chain. After having taken care of export customs clearance, he chooses the cargo carrier and pays the charges up to the designated place.

The risk of damage or loss is borne by the buyer from the moment that the merchandise is loaded into the first carrier. After that, the buyer takes care of the import customs clearance and the unloading expenses.

It is important to clarify the concept of who is responsible for the unloading charges into the frame of the transportation contract. Normally, the buyer must be responsible for these charges unless they are included in the transportation fee. In this case, they are charged to the vendor. The vendor must clarify this question with the buyer in order to prevent finding himself in a situation where the receiver refuses to pay and the cargo carrier turns back to the provider (the seller) to demand his part of the payment for the unloading charges as well as the eventual fees for the vehicle’s immobilization while waiting for the problem to be solved.

Under the rule CPT, there are transfers of risks and charges in different places. It is recommended that the parties involved specify clearly in their contract the delivery place where the risk is transferred to the buyer and the named destination up to which the seller is required to arrange a transportation contract.

The information and documents related to security, that the buyer needs for the export/import of merchandise and/or for the transportation up to its final destination must be provided by the seller at the request of the buyer and at its own charge and risks.

Term CIP: Carriage and Insurance Paid To / Named place of destination

CIP is identical to CPT, but the seller must supply, in additional, a transportation insurance. The seller settles the transportation contract, pays the freight and the insurance premium.

The risk of damage or loss is borne by the buyer from the moment that the merchandise is loaded into the first carrier. After that, the buyer takes care of the import customs clearance and the unloading expenses.

According to the term CIP, the seller is not obliged to apply for insurance but for a minimum coverage. If the buyer wishes to protect himself by a superior coverage, under these circumstances, he would need to obtain the agreement of the seller or apply on his own for a complementary insurance.

The information and documents related to security, that the buyer needs for the export/import of merchandise and/or for the transportation up to its final destination must be provided by the seller at the request of the buyer and at his own charge and risks.

Term DAT (Delivered at terminal, named port terminal or named place of destination)

He must deliver the merchandise, placing it at the buyer’s disposal at a designated terminal either at the port or at the place of destination on the date or within the time-limit period established. The seller has to obtain, at his own expense, a contract for the transportation of the merchandise up to the point where it reaches this terminal and unload the merchandise from the transportation carrier at its arrival. The seller has no obligation towards the buyer of obtaining an insurance contract. Nevertheless, he must provide the buyer, at his own expense, the documents that will allow him to pick up the merchandise delivered. The Incoterm DAT obliges the seller to take care of the export customs clearance. However, he is under no obligation of performing the import customs clearance.

He must pick up the merchandise once it is delivered and pay the price agreed on the sales contract. The buyer has to request from the seller all the information related to the security which he will need for the export, import and transportation of the merchandise until its final destination. This Incoterm rule was created specifically for the transportation of containers. It is also adapted to conventional maritime transport when the seller wants to be responsible for the risks involved during the unloading process from the vessel at the port of destination. It is convenient in this case to specify the exact place where the merchandise will be placed at disposal (quay, hoist, etc.).

Term DAP (Delivered at named place of destination)

The seller has to deliver the merchandise and place it at the buyer’s disposal into the inland freight transportation carrier ready to be unloaded at the designated place of destination. He has to take care of the export customs clearance; however, he is under no obligation of performing the import customs clearance. The seller has to obtain at his own expense, a contract for the transportation of the merchandise up to the named destination and unload it from the transportation carrier at its arrival. The seller has no obligation towards the buyer of obtaining an insurance contract. Nevertheless, he must provide the buyer, at his own expense, the documents that will allow him to pick up the merchandise delivered.

He has to pay the price of the merchandise as stipulated in the sales contract and he has to pick up the merchandise once it has been delivered.

The buyer must request from the seller to furnish him with all the information required in relation to the security which he will need for the export, import and transportation of the merchandise until its final destination. This new rule replaces the DDU. It is advised to use it only in the countries where the means of transportation to a destination are under good control.

Term DDP: Delivered Duty Paid / Named place of destination

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.

The buyer picks up the delivery at the designated destination place and pays the unloading fees. He must request from the seller to furnish him with all the information required in relation to the security which he will need for the export, import and transportation of the merchandise until its final destination.

The term DDP is exactly the opposite of EXW.

If the parties wish to exclude from the seller´s obligations the payment of particular fees payable, by reason of imports of the merchandise, it must specify. For example: "Delivered Duty Paid, VAT unpaid (DDP, VAT unpaid)".

Term FAS: Free Alongside Ship / named port of shipment

The obligations of the seller are henceforth fulfilled when the merchandise is placed, after customs clearance, alongside the ship at the dock or at the lading of the designated port of shipment.

From this moment on, the buyer is responsible for all charges and risks of loss or damages, from the moment that the merchandise is delivered alongside the ship, especially in the case of a ship’s schedule delay or the cancellation of a port of call. The buyer designates the carrier, arranges the transportation contract and pays for the freight.

The seller does not deliver FAS if the vessel is not at the dock. It is a responsibility of time and moment (From Marseilles to Anvers, where every company offers at least one weekly departure, bringing the delivery eight days before the date of the departure of the ship chosen by the buyer is too premature).

The acquisition of an export license or any other official authorization is at the charge and risk of the seller. In the same way, the buyer is responsible for the import license. The buyer must provide the vendor with all the information regarding the name of the vessel, the loading place and the time chosen to deliver the merchandise within the period accorded.

The seller must, should the case arise, provide for the buyer, at the right time, all the assistance needed to obtain all the documents and information regarding the security requirements for the export and/or import of the merchandise and/or for its transportation to its final destination. The cost of the documents furnished and/or the assistance given are costs and risks paid by the buyer.

Term FOB: Free on Board / (named port of shipment)

He has to deliver the merchandise at the designated loading port, on board of the vessel chosen by the buyer and fulfill all the formalities of export customs clearance, if there are any.

Under a contract type FOB, the seller fulfills his delivery obligation when the merchandise is on board of the vessel at the designated loading port, or in the case of successive sales, the vendor obtains the merchandise and delivers it, as well, in order to have it all transported up to the designated destination place indicated in the sales contract.

He selects the vessel, pays the maritime freight, the insurance and he takes care of the formalities at the arrival. He is also responsible for all the charges and risks of loss and damage that could arise to the merchandise from the moment it was delivered.

For information, the "ARRANGING FOB" is the term used by the freight brokers to indicate that the operations that take place prior to placing the merchandise aboard have been done and accomplished, as well as the export customs clearance operations, if needed. All these operations represent an extra cost, to be paid by the seller, which is sometimes called “fee of placing into FOB”.

The "FOB STOWED" and/or "FOB STOWED and TRIMMED" are variations. The seller is responsible for the total charges incurred by the merchandise at the loading port. However, it has to be stipulated in the contract at which point the transfer of risks takes place.

The seller must, should the case arise, provide for the buyer, at the right time, all the assistance needed to obtain all the documents and information regarding the security requirements for the export and/or import of the merchandise and/or for its transportation to its final destination. The cost of the documents furnished and/or the assistance given are costs and risks paid by the buyer.

The American FOB is different. In the United States, the Incoterm FOB (Free on Board) does not refer to a shipment in a boat or to a port but to an American destination, at the border. In the United States there could be, mainly, four types of FOB:

• FOB/Point of departure: The buyer pays for everything
• FOB/Border: The manufacturer pays for the charges up to the border without clearing the merchandise through customs.
• FOB/Point of Sale: The merchandise arrives to a designated American city. It is then, the supplier, who pays for customs clearance. The chosen free port must always be marked, in general, the city.
• FOB/Destination Customs Clearance: In this case, the manufacturer takes care of everything, without the cooperation of the buyer. It is also called DDP/Delivery duty paid. Most of the sales into the United States are done on this basis.

Term CFR: Cost and Freight / Named port of destination

He chooses the transportation, contracts and pays for the freight up to the named port of destination; the unloading of the merchandise is not included. The loading of the merchandise after customs clearance into the vessel is his responsibility as well as the shipping formalities. However, the transfer of risk is the same as in FOB.

He is responsible for the risk of transportation from the moment that the merchandise is delivered alongside the ship at the loading port; he receives the carrier and picks up the merchandise delivered at the designated destination port.

The seller must, at his own expense, furnish the buyer with a customary transportation document to be used until the merchandise reaches the designated port of destination, covering the contractual merchandise which serves him as a guarantee (ex: claims of merchandise to the carrier, sale of merchandise while in transit, etc.). He also has to provide all the information required in order to take proper measures in receiving the merchandise.

The information and documents related to the security that the buyer needs in order to export and/or import and/or for the transportation of the merchandise until its final destination must be furnished by the seller, following the buyer’s request, and at his own expense and risks.

Term CIF: Cost Insurance Freight / Named port of destination

It is a term identical to CFR, but with the supplementary obligation for the seller to provide maritime insurance against the risk of loss or damage caused to the merchandise. The vendor pays the insurance premium. The insurance must be done according to the “minimum guarantee” clauses stipulated by the faculties of the Institute of London Underwriters or any other series with similar clauses. It has to cover the minimum anticipated price in the contract plus a surcharge of 10% and it has to be drawn up in the same currency of the contract. It is an insurance FPA (free of particular average) for 110% of its value. It is possible to add a surcharge of 20% without justification. A greater surcharge could be authorized by the insurance company if it is justified. This surcharge over the value serves to cover the expenses that can result from damage (cost of filing and following suit, correspondence, etc.) and the financial loss (interest) between the time of the loss and the indemnification by the insurance company. The seller pays the premium for this insurance.

He is responsible for the cost and risk of transportation from the moment that the merchandise is delivered alongside the ship at the loading port. He receives and takes the merchandise from the carrier at the named destination port.

The buyers appreciate this Incoterm because they are released from logistics formalities.

The information and documents related to the security that the buyer needs in order to export and/or import and/or for the transportation of the merchandise up to its final destination must be furnished by the seller following the buyer’s request and at his own expense and risks.