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Incoterms
| TIPS AND BEST PRACTICE | |
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| Know Your Strengths | Assess your company's logistics capabilities. Choose Incoterms that match your strengths. |
| Evaluate Goods | Consider the type and value of goods. Select Incoterms that ensure safe and timely delivery. |
| Consider Transport Modes | Choose Incoterms compatible with your preferred transportation method |
| Check Regulations | Understand import and export rules in both origin and destination countries Ensure Incoterm compliance |
| Assess Risk Tolerance | Determine your risk tolerance Choose Incoterms that align with your risk management strategy. |
| Consult Experts | Seek advice from logistics or legal experts for informed Incoterm selection |
| Educate Parties | Ensure all parties understand the chosen Incoterm and their responsibilities |
| Review Regularly | Review and adjust your Incoterm choice based on changing circumstances or regulations |
| Document Everything | Document the chosen Incoterm and all details in the sales contract for clarity and legal certainty. |
| LIST OF INCOTERMS | ||
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EXW (Ex Works)
Seller delivers when goods are placed at the disposal of the buyer, not cleared for export and not loaded an any collecting vehicle
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FCA (Free Carrier)
Seller delivers the goods, cleared for export, to the carrier nominated by the buyer at the named place
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FAS (Free Alongside Ship)
Seller delivers when the goods are placed alongside the vessel at the named port of shipment
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FOB (Free on Board)
Seller delivers the goods on board the vessel nominated by the buyer at the named port of Shipment
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CFR (Cost and Freight)
Seller delivers the goods on board the vessel and pays the cost of freight to the named destination port
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CIF (Cost, Insurance, and Freight)
Similar to OFR, but the seller also pays for insurance to the named destination port
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CPT (Carriage Paid To)
Seller pays freight for the carriage of goods to the named destination.
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CIP (Carriage and Insurance Paid to)
Similar to CPT, but the seller also pays for Insurance.
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DAP (Delivered at Place)
Seller delvers the goods, ready for Unloading, at the named place of destination.
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DPU (Delivered at Place Unloaded)
Seller delvers and unloads the goods at the named place of destination
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DDP (Delivered Duty Paid)
Seller delvers the goods, cleared tar import, and pays al duties at the named place of destination
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| CLASSIFICATION OF INCOTERMS | ||
|---|---|---|
| E-Terms (Departure) | ||
| F-Terms (Main Carriage Unpaid) | ||
| C-Terms (Main Carriage Paid) | ||
| D-Terms (Arrival) | ||
| SEA & INLAND WATERWAY TERMS | ||
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| FAS- Free Alongside Ship (insert name of port of loading) | ||
| FOB- Free on Board (insert named port of loading) | ||
| CFR- Cost and Freight (insert named port of destination) | ||
| CIF- Cost Insurance and Freight (insert named port of destination) | ||
SAMPLE SCENARIOS & SUGGESTED TERMS
| Scenario | Incoterms | Reason |
|---|---|---|
| Shipping rare artifacts to a museum | DDP | Seller should manage all risks, including import duties, to ensure safe arrival |
| Importing bulk raw materials for manufacturing | FOB | Buyer has better local knowledge and can get better shipping rates. |
| Sending designer clothes to a high-profile fashion show | DAP | Seller covers most costs but buyer manages import and final delivery to venue. |
| A tech startup exporting its first batch of products | EXW | Startup minimizes risks and costs by only being responsible for goods at their premises. |
| Distributing perishable goods like seafood | CIP | Seller provides shipping and insurance to ensure goods are handled properly en route. |
| A collector shipping a valuable painting to an overseas buyer | CIF | Seller ensures minimum insurance and freight but risk transfers once on board |
| Supplying machine parts to a factory in a remote location | DPU | Seller ensures that goods are unloaded and available for the factory to pick up. |
| Trading companies with a long-term partnership | FCA | Both parties have clear roles, and risk is transferred at a mutually convenient point. |
| An online marketplace that facilitates international trade | FAS | Sellers clear the items for export but buyers have control and responsibility after. |
| Importing energy drinks for a major sporting event | CPT | Seller takes care of initial freight: buyer manages the rest to ensure timely arrival. |
| KEY TAKEAWAYS | ||
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Commonly Used
Incoterms
EXW (Ex Works) and DDP (Delivered Duty Paid) are often used for their simplicity; the former minimizes the seller's obligations, while the latter does so for the buyer.
•FOB (Free on Board) and CIF (Cost, Insurance, and Freight) are traditionally popular in maritime transport due to their clear division of Costs and risks.
Significant Changes from Incoterms 2010 to Incoterms 2020.
Introduction of DPU: The term DAT (Delivered at Terminal) has been changed to DPU (Delivered at Place Unloaded) to clarity that delivery can occur at any place,not just terminal.
Levelling of Insurance Coverage in CIF and CIP: While CIF retains the same insurance requirements, CIP has increased the level of insurance coverage,providing better protection to the buyer.
Transportation Security: Enhanced provisions regarding security requirements during transport, reflecting the growing emphasis on security in the transportation sector.
Own Transport in FCA: Under FCA (Free Carrier), there's a new provision allowing the buyer to instruct the carrier to issue a transport document to the seller without the onboard notation, provided they have their own means of transportation.
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