Incoterms: Shipping Terms You Need To Know
The International Chamber of Commerce (ICC) established a standard set of shipping terminologies called Incoterms 2000/2010. These terms are used universally and define critical aspects of freight forwarding.
There are two main types of Incoterms; Multimodal (Rail/Road) and Maritime (via sea-going vessel or barge) transport. Take a look at the top 10 Incoterms (2000/2010) for Maritime and Multimodal transport in use today.
1. Ex Works (EXW)
The term Ex Works refers to delivering cargo to a business destination such as an office, factory, or warehouse. This means that the seller doesn’t need to load goods onto a ship.
The buyer is responsible for the rest of the shipment, including customs duty and overseas shipment. In this regard, EXW is favorable to sellers as they are only held accountable for freight till it is on their premises.
2. Free Alongside Ship (FAS)
FAS involves the agreed port of loading. The term refers to the situation where the cargo is delivered by the seller and placed alongside the sea-going vessel at the desired port of shipment.
The seller is also required to complete all export requirements of the goods. From that point on, the buyer bears all costs of transport and risk of damage or loss. It’s only used for ocean transport.
3. Free Carrier (FCA)
Free Carrier is essentially the opposite of EXW, where it places the responsibility of delivering cargo on the sellers. The goods have to reach the nominated premises as indicated by the buyers and be accompanied by relevant export documents.
4. Free On Board (FOB)
FOB is a term that denotes the seller delivering the cargo once it passes the ship’s rail. This has to be at the designated port of shipment.
Then the buyer bears the costs and risks of the cargo. It needs to be cleared for export by the seller. If the shipment is not delivered across the ship’s rail, both parties should mutually agree to use FCA terms.
5. Carriage Paid To (CPT)
CPT is more detailed than FCA because it specifies the transportation costs to the seller. The goods must be delivered to a nominated designation as requested by the buyer. Carriage Paid To transfers the risk to the buyer when the goods arrive at the destination. CPT can be used in any mode of transport.
6. Cost and Freight (CFR)
Once the cargo reaches the ship’s rail at the shipment port, the delivery is complete. The seller is responsible for clearing the goods for export and paying the costs and freight required to deliver the goods to this port. However, the buyer bears the risk of damage or loss and the additional costs.
7. Carriage and Insurance Paid To (CIP)
This term means that the seller must pay for the transport costs and the goods’ insurance cover. This insurance is specific to the in-transit time and is applicable on any mode of transport.
The level of insurance coverage can be minimal and is regulated by the ICC’s Incoterms. After the cargo reaches the nominated destination, the risk is transferred to the buyer.
8. Cost, Insurance, Freight (CIF)
This term is similar to that of Cost and Freight (CFR). However, the seller is responsible for procuring marine insurance against the risk of damage during carriage. The buyer bears this risk. It’s only used for ocean transport.
9. Free On Truck (FOT)
The term refers to the seller’s agreement to load the cargo onto a truck at the buyer’s designated loading port—at his own expense.
10. Delivered At Terminal (DAT)
DAT refers to the total costs of transport up till the delivery of goods to the nominated terminal, quay, or port. The buyer needs to take care of duties and taxes and clear goods through customs.
The terminal should be specified clearly regarding DAT, as the seller also has to ensure that the cargo is unloaded safely.
11. Delivered At Place (DAP)
This term is an extension of DAT and can be used for any mode of transport. The seller is responsible for delivering the cargo to the destination that the buyer specified.
The buyer is also responsible for unloading the cargo as per ICC regulations. Like DAT, they also need to handle duties and taxes and clear goods through customs.
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