Terms of delivery

Incoterms (Incoterms®, International commerce terms) is a set of international rules for the interpretation of the most commonly used trade terms in foreign trade. These terms contain the standard terms of international sales, which are pre-defined in the internationally recognized document.

Three key transportation issues are regulated under the Incoterms:

  • Distribution between the seller and the buyer of transportation costs for the delivery of goods;
  • Moment of transfer of risks of damage, loss or accidental loss of the goods from the seller to the buyer;
  • Date of delivery of the goods, i.e. the date of actual transfer of the goods by the seller to the buyer or his representative, for example, the transportation organization, and, therefore, execution or non-execution by the seller of its obligations under the terms of delivery. 

Classification of Incoterms ® 2010

Category E 
Departure

EXW

Ex Works (... named place)

The term “Ex Works” means that the seller fulfills its obligation to deliver when he places the goods at the disposal of the buyer at the seller’s premises or another named place (i.e. works, factory, warehouse, etc.). Seller is not responsible for loading the goods on any collecting vehicle, as well as customs clearance of the goods for export.

This term thus represents the minimum obligation for the seller, and the buyer has to bear all costs and risks involved in taking the goods from the seller's premises to the destination. However, if the parties wish the seller to be responsible for the loading of the goods on departure and to bear the risks and all the costs of such loading, this should be made clear by adding explicit wording to this effect in the contract of sale. This term should not be used when the buyer cannot carry out the export formalities directly or indirectly. In such circumstances, the FCA term should be used, provided the seller agrees to bear the costs and risks for the shipment of goods.

Any mode of transport

Category F

Main Carriage Unpaid

FCA

Free Carrier (... named place)

The term “Free Carrier” means that the seller delivers the goods, cleared for export, to the carrier nominated by the buyer at the named place. It should be noted that the chosen place of delivery has an impact on the obligations of loading and unloading the goods at that place. If delivery occurs at the seller's premises, the seller is responsible for loading. If delivery occurs at any other place, the seller is not responsible for unloading. This term may be used irrespective of the mode of transport, including multimodal transport.

"Carrier" means any person who, in a contract of carriage, undertakes to perform or to procure the performance of transport by rail, road, air, sea, inland waterway or by a combination of such modes. If the buyer nominates a person other than a carrier to receive the goods, the seller is deemed to have fulfilled his obligation to deliver the goods when they are delivered to that person.

Any mode of transport

FAS

Free alongside Ship (... named port of shipment)

The term “Free Alongside Ship” means that the seller delivers when the goods are placed alongside the vessel at berth or on 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. The FAS term requires the seller to clear the goods for export. However, if the parties wish the buyer to clear the goods for export, this should be made clear by adding explicit wording to this effect in the contract of sale.

Sea or inland waterway transport

FOB

Free on Board (... named port of shipment)

The term “Free on Board” means that the seller delivers when the goods pass the ship’s rail 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 point. The FOB term requires the seller to clear the goods for export. This term can be used only for sea or inland waterway transport. If the parties do not intend to deliver the goods across the ship’s rail, the FCA term should be used.

Sea or inland waterway transport

Category C

Main Carriage Paid

CFR

Cost and Freight (... named port of destination)

The term “Cost and Freight” means that the seller delivers when the goods pass the ship’s rail in the port of shipment.

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 for damage to the goods, as well as any additional costs due to events occurring after the time of delivery, are transferred from the seller to the buyer. The CFR term requires the seller to clear the goods for export.

If the parties do not intend to deliver the goods across the ship’s rail, the CPT term should be used.

Sea or inland waterway transport

CIF

Cost, Insurance, Freight (... named port of destination)

The term “Cost, Insurance and Freight” means that the seller delivers when the goods pass the ship’s rail in the port of shipment. 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 of delivery, are transferred from the seller to the buyer. However, in CIF the seller also has to procure marine insurance against the buyer's risk of loss of or damage to the goods during the carriage. Consequently, the seller contracts for insurance and pays the insurance premium. The buyer should note that under the CIF term the seller is required to obtain insurance only on minimum cover.

Should the buyer wish to have the protection of greater cover, he would either need to agree as much expressly with the seller or to make his own extra insurance agreements.

The CIF term requires the seller to clear the goods for export. If the parties do not intend to deliver the goods across the ship’s rail, the CIP term should be used.

Sea or inland waterway transport

CPT

Carriage paid to… (... named place of destination)

The term “Carriage paid to…” means that the seller delivers the goods to the carrier nominated by him but the seller must in addition pay the cost of carriage necessary to bring the goods to the named destination. This means that the buyer bears all risks of loss of or damage to the goods, as well as any other costs occurring after the goods have been so delivered.

“Carrier” means any person who, in a contract of carriage, undertakes to perform or to procure the performance of transport by rail, road, air, sea, inland waterway or by a combination of such modes.

If subsequent carriers are used for the carriage to the agreed destination, the risk passes when the goods have been delivered to the first carrier.

The CPT term requires the seller to clear the goods for export.

Any mode of transport

CIP

Carriage and Insurance paid to… (... named place of destination)

The term “Carriage and Insurance paid to…” means that the seller delivers the goods to the carrier nominated by him but the seller must in addition pay the cost of carriage necessary to bring the goods to the named destination. This means that the buyer bears all risks and any additional costs occurring before the goods have been so delivered. However, in CIP the seller also has to procure insurance against the buyer’s risk of loss of or damage to the goods during the carriage. Consequently, the seller contracts for insurance and pays the insurance premium. The buyer should note that under the CIP term the seller is required to obtain insurance only on minimum cover.

Should the buyer wish to have the protection of greater cover, he would either need to agree as much expressly with the seller or to make his own extra insurance agreements.

“Carrier” means any person who, in a contract of carriage, undertakes to perform or to procure the performance of transport by rail, road, air, sea, inland waterway or by a combination of such modes.

If subsequent carriers are used for the carriage to the agreed destination, the risk passes when the goods have been delivered to the first carrier. The CIP term requires the seller to clear the goods for export.

Any mode of transport

Category D

Arrival

DAP

Delivered at Place (… named place of destination)

This requirement is in place DAF, DES and DDU (Incoterms 2000).

The seller delivers when the goods are placed at the disposal of the buyer on the arriving means of transport available for unloading at the named place of destination. The seller must conclude a contract of carriage at his own expense for the carriage of the goods to the named destination. He must also bear all the costs connected with the customs formalities payable upon export, payment of all duties, taxes and other charges levied on the export of goods, as well as the cost of transportation through any country prior to delivery. The seller bears all risks of loss of or damage to the goods until such time as they have been delivered.

This term is used in place of DAF, DES and DDU (Incoterms 2000).

Any mode of transport

DAT

Delivered at Terminal (… named terminal at port/place of destination)

This term is used in place of DEQ (Incoterms 2000). The seller delivers when the goods, once unloaded from the arriving means of transport, are placed at the disposal of the buyer at the named terminal at the named port or place of destination. “Terminal” includes any 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. The seller must conclude a contract of carriage at his own expense for the carriage of the goods to the named terminal at the named port or place of destination, as well as to pay the costs of customs formalities necessary for export, payment of all duties, taxes and other charges levied on the export as well as the cost of transportation through any country prior to delivery.

Any mode of transport

DDP

Delivered Duty paid (… named place of destination)

The seller delivers the goods to the buyer, cleared for import, and not unloaded from any arriving means of transport at the named place of destination. The seller has to bear all the costs and risks involved in bringing the goods to the place of destination, and shall be obliged to carry out the customs formalities necessary not only for export but also for import, to pay any customs duties, taxes and other charges levied for the export and import, and carry out all customs formalities. DDP represents the maximum obligation for the seller.

Any mode of transport

 

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