Incoterms stands for trade Terms that are key elements of international contracts of sale. Incoterms tell the parties of such contracts what to do with respect to carriage of the goods from buyer to seller, in addition to the clearance of export & import. Incoterms also explain the division of costs and risks between the seller and the buyer, incoterms used to be 13, but in 2010 they were reduced to 11 as four incoterms were replaced by two.
First, we will talk about those rules that can be used for several means of transportation:
EXW stands for Ex Works, and this term represents the seller’s minimum obligation, as the seller will be responsible for only placing the goods at the disposal of the buyer, while the buyer will be responsible for carrying all the tasks of import and export clearance in addition to that, carriage and insurance arrangement will be the responsibility of the buyer.
FCA stands for Free Carrier, and this term indicates that the seller is responsible for delivering the goods cleared for export to the carrier which is nominated by the buyer at the named place, the seller is responsible for the payment for carriage to the named place.
CPT stands for Carriage Paid To, and this is used when the seller is responsible for delivering the goods to the carrier that is nominated by him, and the seller will be responsible for any costs needed to make the goods arrive at the agreed upon destination, and the buyer will bear all the costs that occur after delivery, the clearance of the goods for exports is also the responsibility of the seller.
CIP stands for Carriage and Insurance Paid, and this is similar to the CPT, except for the fact that the seller is also obliged to pay for the insurance on the carriage against risks or losses.
DDP stands for Delivered Duty Paid, and this is considered to place the maximum obligation on the seller, as the seller is responsible for making the goods available for the buyer at the destination, but not unloaded from the mean of transportation or cleared for imports, as the seller will be responsible for paying the duties, customs and taxes.
The upcoming terms are only used for ocean transport:
FAS stands for Free Alongside Ship, and this term indicates that the goods will be delivered alongside the agreed upon port, that means that the seller will be responsible for clearing the goods for export, the buyer will be responsible for paying all the costs and bearing all the risks of damage and loss to the goods, the FAS is close to the term FOB which stands for free on board and in which the goods are also delivered across the ship’s rail.
CFR stands for Cost and Freight, this term indicates that the delivery is made by the seller when the goods pass the ship’s rail in port, and all the costs and events after that are the responsibility of the buyer.
CIF stands for Cost, Insurance, Freight, and this term is similar to CFR except that the seller is also obliged to pay for the insurance on the goods against damages and losses.