Incoterms – What are they?

International Commerce Terms by ICC

Trade Finance Global / Freight Forwarding / Incoterms – What are they?

Shipping Terms: What are Incoterms?

Incoterms are a standard set of terminology, first created by the International Chamber of Commerce (ICC) in 1936, used universally, defining the key parts of freight forwarding for traders, buyers, sellers and banks.

Get in touch with our incoterms experts. Enquire now.

First Name*

Last Name*

Your Organisation*

How much trade finance are you seeking?*

Your Email*

Telephone Number*

Briefly, what type of stock or trade are you looking to finance?

(Marketing Terms can be found here)

In 1936 the ICC first defined the INternational COmmerce Terminology (INCO Terms), and we have summarised the 11 most commonly used terms below.

Incoterms is a registered trademark of the International Chamber of Commerce.

Want our Incoterms PDF?

(Free 38 Page Guide)

Download Free

Who uses incoterms?

Incoterms 2010 are used today by practitioners and traders, anyone involved in the supply chain of delivering goods overseas will probably come across incoterms, including:

  • Traders
  • Producers
  • Buyers
  • Sellers
  • Governments
  • Banks

What do incoterms cover?

The language that was agreed by incoterms guidance covers the following areas of international commerce and trade:

  • Tasks involved in shipping
  • Which parties hold contract
  • Responsibility of risk
  • Delivery of goods (buyers and sellers)
  • Insurance duties
  • Customs and taxes

Incoterms

EXW – Ex Works

Delivery of goods at which the seller takes on the least risk

Find out more

FCA – Free Carrier

Buyers organise shipping of goods and export documentation

Find out more

CPT – Carriage Paid To

Like FCA, but where goods are delivered to a defined destination

Find out more

CIP – Carriage and Insurance Paid To

Seller required to purchase minimum insurance required, and transport

Find out more

DAT – Delivered At Terminal

Seller needs to deliver goods (and insure them) to a defined terminal

Find out more

DAP – Delivered At Place

Multimodal incoterm for seller to deliver goods to a defined destination

Find out more

DDP – Delivered Duty Paid

Multimodal incoterm extending on DAT, to deliver goods at named destination

Find out more

FAS – Free Alongside Ship

Non-containerised incoterm where it’s acceptable to ship with other goods

Find out more

FOB – Free on Board

Common incoterm where the seller delivers to port but buyer responsible for insurance

Find out more

CFR – Cost and Freight

Seller delivers goods to destination and is responsible for all transport insurance

Find out more

DDU – Delivery Duty Unpaid

Consignee takes responsibility of cost, and delivery, once shipment signed for

Find out more

CIF – Cost, Insurance & Freight

Seller pays for transport insurance and delivery of goods up until end port

Find out more

Rules for all modes of transport

Figure 1: Incoterms Infographic. SOURCE: O.Berk 101 Shipping Terms, Visual.ly

1. EXW Ex Works

Ex Works (EXW) is the term used to describe the delivery of goods to an available designation at their place of business, normally in their factory, offices or warehouse.

The seller does not need to then load items onto a truck or ship, and the remainder of the shipment is the responsibility of the buyer (e.g. overseas shipment and customs duty). EXW is therefore more favourable to the seller as they do not need to worry about the freight once it has left their premises.

2. FCA Free Carrier

Unlike EXW, Free Carrier pushes the responsibility of delivering the goods to the buyers nominated premises onto the seller, so they have to organise shipping and various export documents.

3. CPT Carriage Paid To

“Carriage Paid To”, or CPT, goes into a little more detail than FCA, specifying that the seller bears the costs for transporting the goods to the nominated place that the buyer requests.

Carriage Paid To can be used in any transport mode, and the risk transfers from the seller to the buyer as soon as the goods reach the nominated destination and the carrier takes charge of these.

4. CIP Carriage And Insurance Paid To

“Carriage and Insurance Paid to”, or CPI, specifies that the seller needs to pay the costs of transport as well as the insurance cover for the goods in transit (by any transport mode) to the destination named by the buyer.

In terms of level of insurance, the cover level can be minimum, defined by the ICC’s INCO Terms, and should they request a higher level of insurance, this would need to be agreed on the contract.

The risk is then transferred from the seller onto the buyer once the goods reach the nominated point.

5. DAT Delivered At Terminal

“Delivered at Terminal”, or DAT, means that all of the costs up until the point of delivery to a nominated terminal (e.g. a port or a quay) need to be covered. As in the table above, the buyer would need to arrange Duties and Taxes and clearing goods through customs. With DAT, the seller is also responsible for unloading the goods at the terminal.

It’s advisable to ensure the terminal, hub or port is clearly specified, given the size of many terminals.

6. DAP Delivered At Place

“Delivered at Place”, or DAP, can also be used for any mode of transport. An extension of DAT, the seller delivers the goods at a named destination, specified by the buyer, although under the ICC rules, the unloading of the goods are the responsibility of the buyer.

The buyer is also required to sort out duties and taxes, as well as clearing the goods through customs.

7. DDP Delivered Duty Paid

“Delivered Duty Paid”, or DPP, can be used for any mode of transport. In this case, the seller is responsible for delivering the goods at a place specified by the buyer, up to the point of unloading. Unlike DAP rules, the seller is also required to pay for all Duties and Taxes, clear the goods for import and pay relevant taxes.

DPP is often complex as shipment of goods into a market are often best left to local experts (e.g. the in-market buyer), so it’s a less commonly used INCO Term.

Get in touch with our finance experts. Enquire now.

First Name*

Last Name*

Your Organisation*

How much trade finance are you seeking?*

Your Email*

Telephone Number*

Briefly, what type of stock or trade are you looking to finance?

(Marketing Terms can be found here)

The ICC INCO Terms also have a section specifically for goods transported by sea or inland waterway.

incoterms infographic risk transfer for inland waterways and shipping

Figure 2: Incoterms Infographic. SOURCE: O.Berk 101 Shipping Terms, Visual.ly

8. FAS Free Alongside Ship

“Free Alongside Ship”, or FAS, is used in situations when the seller can place the goods alongside other non-containerised goods (e.g. on a vessel or barge).

The seller might do this if they have access to sea or inland waterway routes and want to place the goods en route to the buyer alongside other goods on the ship. It’s not recommended for goods that can be placed in a container (more on this below, see FCA).

The risk of transporting the goods ‘alongside ship’ move from the seller to the buyer once the goods are delivered to a terminal or port and unloaded.

9. FOB Free On Board

“Free On Board”, or FOB, occurs when the seller delivers the goods to the port of shipment, at which then it becomes the responsibility of the buyer once unloaded onto a vessel. If the goods are damaged when on board the vessel, it’s the responsibility of the buyer.

10. CFR Cost and Freight

“Cost and Freight”, or CFR, incurs more risk and responsibility onto the seller. The seller delivers the goods up and takes all responsibility and cost right up until the ship has docked at the end point and the goods have been unloaded. The seller will also cover the cost of insurance at atleast the minimum level.

11. CIF Cost, Insurance and Freight

“Cost, Insurance and Freight”, also known as CIF, is also restricted to sea or inland waterway modes of transport. In this case, the seller insures the goods transported up until they arrive at the port, but it becomes the responsibility of the buyer (in terms of risk and insurance).

Figure 3: Incoterms Infographic. SOURCE: O.Berk 101 Shipping Terms, Visual.ly

What is the History of Incoterms?

1936 – First Incoterms were agreed and published, these include FAS, FOB, C&F, CIF, Ex Ship and Ex Quay

1953 – As the rise of rail during the war increased, DCP – Delivered Costs Paid, FOR – Free on Rail and FOT – Free on Truck were added to bring clarity to new forms of transportation. To further revision of incoterms were published in 1967 to cover off some common misinterpretations in these terms

1974 – FOB Airport was introduced in the newer publication of ICC incoterms to account for increased goods travelling by air

1980 – With the containerisation revolution at full swing, more details were added to incoterms rules to define destination points (e.g. shipping shore ports and container yards)

1990 – Previous incoterms that were added to account for rail and air transport made the terms very complex, particularly when goods were transported using more than one transport node. So the ICC scrapped a few of the F incoterms (FOR; Free on Rail, FOT; Free on Truck, and FOB Airport; Free on Board Airport) to simplify and completely renew the language of incoterms

2000 – The terms were amended to account for further changes in customs requirements and to comply with global changes

2010 – The most radical of reforms of the ICC Incoterms, where D terms were consolidated from: DAF, DES, DEQ to DDU, DAT and DAP

2020 – A new revision of incoterms is underway – see the latest updates here.

History of Incoterms - Timeline and Infographic by the International Chambers of Commerce

Get in touch with our finance experts. Enquire now.

First Name*

Last Name*

Your Organisation*

How much trade finance are you seeking?*

Your Email*

Telephone Number*

Briefly, what type of stock or trade are you looking to finance?

(Marketing Terms can be found here)

Want to find out more about freight forwarding?

View our Freight Forwarding and Shipping Transport Guide

View now

 

Summary
product image
Author Rating
1star1star1star1star1star
Aggregate Rating
no rating based on 0 votes
Brand Name
Trade Finance Global
Product Name
Incoterms
Back to Top