Mastering Incoterms: Shipping Responsibilities and Risk Transfer

Incoterms: Defining Shipping Responsibilities and Risk

Incoterms (International Commercial Terms) are a series of predefined commercial terms published by the International Chamber of Commerce (ICC). These terms communicate the tasks, costs, and risks associated with the transportation and delivery of goods in international trade.

Key Incoterms Rules Explained

EXW (Ex Works)

This term places minimum responsibility on the seller, who merely has to make the goods available, suitably packaged, at their premises. The buyer is responsible for loading the goods into a vehicle and for all export procedures.

FCA (Free Carrier)

A very flexible rule suitable for all situations where the buyer arranges the main carriage. The seller is responsible for export clearance. The buyer assumes all risks and costs after the goods have been delivered at the named place.

FAS (Free Alongside Ship)

The seller delivers goods, cleared for export, alongside the vessel at a named port, at which point risk transfers to the buyer. The buyer is responsible for loading the goods and all costs thereafter.

FOB (Free On Board)

The seller delivers goods, cleared for export, loaded on board the vessel at the named port. Once the goods have been loaded on board, risk transfers to the buyer, who bears all costs thereafter.

CFR (Cost and Freight)

The seller arranges and pays for transport to the named port, covering the cost of freight (duty unpaid) to the named port of destination. The seller delivers goods, cleared for export, loaded on board the vessel. However, risk transfers to the buyer once the goods have been loaded on board.

CIF (Cost, Insurance, and Freight)

The seller arranges and pays for transport to the named port. The seller delivers goods, cleared for export, loaded on board the vessel. The seller also arranges and pays for insurance and for freight for the goods for carriage to the named port. Risk transfers to the buyer once the goods have been loaded on board.

CPT (Carriage Paid To)

The seller is responsible for arranging carriage to the named place, but not for insuring the goods to the named place. However, delivery of the goods takes place, and risk transfers from seller to buyer, at the point where the goods are taken in charge by a carrier.

CIP (Carriage and Insurance Paid To)

The seller is responsible for arranging carriage to the named place and also for insuring the goods. As with CPT, delivery of the goods takes place, and risk transfers from the seller to the buyer at the point where the goods are taken in charge by a carrier.

DAT (Delivered at Terminal)

The seller is responsible for arranging carriage and for delivering the goods, unloaded from the arriving conveyance, at the named place. Risk transfers from seller to buyer when the goods have been unloaded. The buyer is responsible for import clearance and any applicable local taxes or import duties.

DAP (Delivered at Place)

The seller is responsible for arranging carriage and for delivering the goods, ready for unloading from the arriving conveyance, at the named place. The buyer is responsible for import clearance and any applicable local taxes or import duties.

DDP (Delivered Duty Paid)

The seller is responsible for arranging and delivering the goods at the named place, cleared for import and all applicable taxes and duties paid. Risk transfers to the buyer when the goods are made available to the buyer, ready for unloading from the arriving conveyance.