Interpreting INCOTERMS for Logistics Managers

International trade is possible thanks to a clear set of rules which create a fair balance in the exchange of goods for money. One of the key issues which need to be cleared in overseas transportation of goods is who carries the risk of ownership during transit and who is liable for customs, transportation fees and other duties and charges.

This is where INCOTERMS step in to bring clarity in merchandize shipping agreements. INCOTERMS represents a set of international trade rules and helps companies from across the globe establish commercial relationships in terms which are understandable and acceptable for each of them.

The INCOTERMS codes are classified by letters and refer to various places of delivery. The place of delivery is very important, both from the point of view of local and international taxes, and for the general liability for the goods in transit.

The experts from Logistic Packaging have compiled the list of these terms with clear and easy to understand explanations for all our readers and customers.

Group E (Departure)

EXW: Ex-Works

The seller makes available the products to the buyer at the seller’s premises. The buyer is responsible to arrange for transportation, to pay all costs, customs, cargo insurance and to carry the risk of property loss. This responsibility starts with the moment when the goods were purchased and exit the seller’s factory or point of sale.

Ex-Works prices do not include handling fees, such as loading into the trailer or on the ship. This is a pricing policy which offers maximum protection to the seller, who cannot be hold liable for any kind of costs and losses the buyer incurs.

Group F (Main Carriage Not Paid By Seller)

FAS: Free Alongside Ship

The seller pays the custom duties and brings the product from their factory or point of sale to the loading pier in the harbor. At this point, the buyer becomes liable for all risks associated to ownership. Also, the buyer has to arrange for the loading of the products on the ship and pay all transportation fees until the products reach the place of delivery.

FCA: Free Carrier

The seller will deliver the goods to a place specified by the buyer and cover all customs, handling and transportation costs. The buyer takes over risks and liability of ownership at the point of delivery and will pay for further transportation costs if that place is not the final destination of the products.

FOB: Free On Board

The seller delivers the products from their production facility to the ship and pays the export duties. From the moment the products have crossed the threshold of the ship, the risk is transferred to the buyer. The buyer must also cover transportation costs and cargo insurance, as well as custom duties in the country of delivery.

Group C (Main Carriage Paid By Seller)

CFR: Cost and Freight

The seller pays the export duties, delivers the merchandize past the ship rail at the port of shipment, and pays the international shipment fee. The buyer assumes risk of loss at the moment when the products cross the ship’s rail, and will pay for insurance, unloading of the products, import duties and local transportation to the point of delivery.

CIF: Cost, Insurance and Freight

This code can be used when at least one part of the shipment itinerary is across water. Under CIF, the seller delivers the products onto the ship and pays export duties and cargo insurance (the buyer being the beneficiary of the policy). The buyer assumes the risk of loss at the moment when the products pass the ship rail – in case of damage of loss they are responsible to fill in the paperwork in order to receive the insured amount.

CPT: Carriage Paid To

The seller pays the export fees, delivers them to the transporting company any pays the transport fee until the place of delivery. Insurance must be purchased by the buyer from the moment the products are received by the transporter.

CIP: Carriage and Insurance Paid To

The seller delivers the products to the port, pays export duties, and hands over the products to the transporting company. The seller also pays for the transportation fee and insurance for the goods in transit, while the risk of loss is transferred to the buyer at the moment when the transporter receives the products.

Group D (Arrival)

DAF: Delivered At Frontier

The seller shall pay all the costs involved in delivering the products at a specified place at the frontier (the border between the two countries). The buyer assumes risk of loss at the frontier and shall pay the handling fees, customs and transportation costs from the frontier to the final place of delivery.

DES: Delivered Ex-Ship

The seller shall pay all the costs involved in delivering the products to the port of destination. The products are considered delivered when the ship arrives in the port. The buyer assumes the risks and costs for unloading the products from the ship, pays the customs and the transportation fees to the final point of destination.

DEQ: Delivered Ex-Quay

The seller shall pay all costs involved in transporting the merchandize to the quay of the port of destination. The buyer must pay customs, unloading and transportation fees and assume risk of loss from this point onwards.

DDU: Delivered Duty Unpaid

The seller shall pay all costs for the delivery of the products delivering the products to a specific place of destination. The buyer assumes the risk of loss at this point and must pay customs, transportation fees and insurance until the arrival of the products at destination.

DDP: Delivered Duty Paid

The seller shall pay all the costs for the delivery of the products to a specific place of destination and will also cover import duties and insurance. The seller also bears the risk of loss during the entire delivery, until the buyer receives the products at their specified location (headquarters). This is the option where the seller bears most of the risks involved in international trade, being known in informal terms as a “door-to-door” delivery option.