Incoterms 2020
When importing or exporting goods, it is important to establish clear agreements with your business partner on subject of the cargo transport. Incoterms are a set of the widely-used terms of sale and internationally recognized rules. Thery define the responsibilities of sellers and buyers. Incoterms specify who is responsible for paying for and managing the shipment, insurance, documentation, customs clearance, and other logistical activities.
Types of Incoterms
There are various types of Incoterms, ranging from situations where the selling party is entirely responsible for the transportation, to situations where the buyer bears all responsibility for getting the goods from the factory to the buyer’s doorstep, and nearly everything in between.
Overview of Incoterms
Incoterms are revised every ten years by the International Chamber of Commerce, with the latest version dating back to 2020. From this, the following twelve Incoterms have emerged, each suitable in a different way for establishing agreements between seller and buyer during the transportation of goods.
- Under EXW, the buyer is responsible for almost the entire transportation process and costs.
- The seller ensures that the goods are made available to the buyer.
- The transfer of risk takes place at the seller’s premises where the buyer collects the goods.
- Under FCA, the seller is responsible for delivering the goods to the buyer’s carrier.
- The seller covers all costs and documents for the execution of the goods.
- The transfer of risk occurs when the buyer’s carrier takes possession of the goods.
- Under FAS, all risks and costs of transportation are borne by the seller until the goods are delivered alongside the designated ship on the dock.
- From that moment, the buyer is responsible for the goods and their further transportation.
- The transfer of risk takes place when the goods are delivered alongside the ship by the seller.
- Under FOB, the seller is responsible for delivering the goods on board the agreed ship.
- The seller covers all costs and documents for the execution of the goods.
- The transfer of risk occurs once the goods are delivered onto the ship.
- Under CFR, the seller is responsible for delivering the goods on board the agreed ship.
- Once the goods are on board, the buyer assumes all responsibilities for the goods and their further transportation.
- The transfer of risk takes place once the goods are on board the ship.
- Under CIF, the seller is responsible for delivering the goods on board the agreed ship.
- The seller pays for this transportation and is obligated to arrange insurance with at least a minimum coverage.
- The transfer of risk occurs once the goods are delivered onto the ship.
- Under CPT, the seller is responsible for arranging transportation to the buyer’s carrier.
- The seller covers all costs and documents for the execution of the goods.
- The transfer of risk occurs once the goods have reached the first carrier.
- Under CIP, the seller is responsible for arranging transportation to the agreed place of destination.
- The seller is required to take out insurance.
- The transfer of risk occurs once the goods have arrived at the buyer’s carrier.
- Under DAT, the seller is responsible for transport to the agreed terminal.
- The seller bears all risks and costs associated with transporting the goods and makes the goods available from the transport vehicle without being obligated to unload them.
- Transfer of risk occurs once the carrier is available to unload.
- Under DAP, the seller is responsible for transportation and its costs.
- The seller arranges everything regarding the execution of the goods, while the buyer handles the importation.
- The transfer of risk occurs once the goods are ready to be unloaded at the destination.
- Under DPU, the seller is responsible for the entire transportation process and costs.
- The seller is also responsible for unloading the goods at the agreed place of destination.
- The transfer of risk occurs once the seller has unloaded the goods at the place of destination.
- Under DDP, the seller is responsible for transportation and its costs.
- The seller also assumes the risk during the transportation of the goods.
- The transfer of risk occurs once the goods are ready to be unloaded at the destination.
Incoterms by Type of Transport
Some Incoterms are transport-specific; they apply only to the transportation of goods via a single mode of transport. There are two categories: A) transport by sea or inland waterways, and B) all other Incoterms that can be used with any mode of transportation.
Incoterms for Ocean & Inland waterways
This can include both sea and inland waterways. Depending on the Incoterm, it varies what type of goods can be transported (breakbulk cargo or containers).
The seller contracts the transportation to the destination port (excluding unloading) and arranges an export license. The seller bears the risk until the ship’s rail at the departure port.
Same as CFR, but includes the obligation for insurance, which must be at least equivalent to the ICC C terms, covering the seller up to the destination port.
The seller delivers the goods alongside a ship designated by the buyer on the quayside. The buyer arranges loading, transportation and handles import and export licenses.
Essentially the same as FAS, but the delivery obligation and risk end when the goods are on board the ship. The seller is responsible for the export license.
Other Incoterms
All other Incoterms can be used for any mode of transportation. It doesn’t matter what type of transport is used to move the goods from point A to B. This could be by road, air, or water.
- CIP – Carriage and Insurance Paid to
- CPT – Carriage Paid To
- DAP – Delivered At Place
- DPU – Delivered at Place Unloaded
- DDP – Delivered Duty Paid
- EXW – Ex Works
- FCA – Free Carrier
Incoterms Costs
When trading (International) there are many different types of costs involved. These may include amongst others; transportation costs, loading and unloading costs, taxes/duties for importing and exporting goods and insurance. It varies per Incoterm which party is responsible for which costs.
Import Shipments with Customs Obligations?
Goods received from outside the European Union are subject to customs duties. The specific steps needed for the import/export formalities and the documents needed vary case by case. The Freight Forwarders at Ferliner are experienced specialists who can provide solutions for all your customs obligations. For us, this is daily work! So, feel free to ask for advice and support in handling customs matters.