FAQ INCOTERMS

1. What does EXW (Ex Works) mean?

EXW, or Ex Works, is an international trade term where the seller makes the goods available at their premises or another named place. Under EXW, the buyer bears the maximum obligation and the seller has minimum obligations. The buyer is responsible for transporting the goods to their final destination, and the seller may or may not assist with loading and export clearance.

2. What are the seller's responsibilities under EXW terms?

Under EXW terms, the seller's responsibilities are limited to making the goods available at their premises or another named place. The seller is not obligated to arrange transportation, loading, or export clearance. However, the seller must provide necessary information and documents at the buyer's request and cost.

3. What are the challenges associated with EXW terms?

One challenge of EXW terms is the requirement for the buyer to complete export formalities, which can be problematic in jurisdictions where only residents can act as declarants. Additionally, the seller may face tax liabilities if the buyer fails to provide proof of export. Communication and clarity between the parties are essential to mitigate these risks.

4. What is FCA (Free Carrier) and how does it differ from EXW?

FCA, or Free Carrier, is another international trade term where the seller delivers the goods, cleared for export, at a named place. Unlike EXW, FCA places the responsibility for loading the goods on the buyer's carrier on the seller if delivery occurs at the seller's premises. FCA also offers more control over the export process compared to EXW.

5. Under CPT (Carriage Paid To), what are the seller's obligations regarding transportation?

CPT requires the seller to pay for the carriage of the goods to the named place of destination. The seller is responsible for origin costs, including export clearance and freight costs, up to the agreed destination. However, once the goods are handed over to the carrier, the risk transfers to the buyer.

6. What is the main difference between CIP (Carriage and Insurance Paid to) and CPT?

While both CIP and CPT involve the seller paying for carriage to the named place of destination, CIP also requires the seller to obtain insurance for the goods while in transit. Under CIP, the seller is responsible for insuring the goods for at least 110% of the contract value, providing added protection for both parties.

7. What does DAP (Delivered At Place) entail for the buyer and seller?

DAP, or Delivered At Place, means the seller delivers the goods to the buyer at the named place of destination. The seller is responsible for all transportation costs and risks until the goods are ready for unloading at the destination. After that, the buyer assumes responsibility for customs clearance and any further transportation costs.

8. Under DDP (Delivered Duty Paid), what obligations does the seller have regarding customs clearance?

DDP requires the seller to deliver the goods to the named place in the buyer's country and pay all costs, including import duties and taxes. The seller is responsible for clearing the goods through customs in the buyer's country, making DDP a term with maximum obligations for the seller and minimum obligations for the buyer.

9. DAF – Delivered at Frontier (named place of delivery)

This term can be used when the goods are transported by rail and road. The seller pays for transportation to the named place of delivery at the frontier. The buyer arranges for customs clearance and pays for transportation from the frontier to their factory. The passing of risk occurs at the frontier.

10. DES – Delivered Ex Ship

Under this term, the passing of risk does not occur until the ship has arrived at the named port of destination and the goods are made available for unloading to the buyer. The seller pays the same freight and insurance costs as they would under a CIF arrangement. Unlike CFR and CIF terms, the seller has agreed to bear not just the cost, but also the risk and title up to the arrival of the vessel at the named port. Costs for unloading the goods and any duties, taxes, etc., are borne by the buyer. This term is commonly used in shipping bulk commodities, such as coal, grain, and dry chemicals, and when the seller either owns or has chartered their own vessel.

11. DEQ – Delivered Ex Quay (named port of delivery)

This term is similar to DES, but the passing of risk does not occur until the goods have been unloaded at the port of discharge.

12. DDU – Delivered Duty Unpaid (named place of destination)

DDU means that the seller delivers the goods to the buyer at the named place of destination in the contract of sale. It is a transaction in international trade where the seller is responsible for making a safe delivery of goods to a named destination, paying all transportation and customs clearance expenses but not the duty. The seller bears the risks and costs associated with supplying the goods to the delivery location, where the buyer becomes responsible for paying the duty and taxes.


Incoterms

The Incoterms or International Commercial Terms are a series of pre-defined commercial terms published by the International Chamber of Commerce (ICC) relating to international commercial law. They are widely used in International commercial transactions or procurement processes as the use in international sales is encouraged by trade councils, courts and international lawyers. A series of three-letter trade terms related to common contractual sales practices, the Incoterms rules are intended primarily to clearly communicate the tasks, costs, and risks associated with the transportation and delivery of goods. Incoterms inform sales contract defining respective obligations, costs, and risks involved in the delivery of goods from the seller to the buyer. However, it does not constitute contract or govern law. Also it does not define where titles transfer and does not address the price payable, currency or credit items.

The Incoterms rules are accepted by governments, legal authorities, and practitioners worldwide for the interpretation of most commonly used terms in international trade. They are intended to reduce or remove altogether uncertainties arising from different interpretation of the rules in different countries. As such they are regularly incorporated into sales contracts worldwide.

The first work published by the ICC on international trade terms was issued in 1923, with the first edition known as Incoterms published in 1936. the Incoterms rules were amended in 1953, 1967, 1976, 1980, 1990, and 2000, with the eighth version— Incoterms 2010 — having been published on January 1, 2011. The ICC have begun consultations on a new revision of Incoterms, to be called Incoterms 2020. "Incoterms" is a registered trademark of the ICC.

National Incoterms chambers.

Incoterms 2010

Incoterms 2011 is the eighth set of pre-defined international contract terms published by the International Chamber of Commerce, with the first set having been published in 1936. Incoterms 2010 defines 11 rules, down from the 13 rules defined by Incoterms 2000. Four rules of the 2000 version ("Delivered at Frontier"; DAF, "Delivered Ex Ship"; DES, "Delivered Ex Quay"; DEQ, "Delivered Duty Unpaid"; DDU) were removed, and are replaced by two new rules ("Delivered at Terminal"; DAT, "Delivered at Place"; DAP) in the 2010 rules.

In the prior version, the rules were divided into four categories, but the 11 pre-defined terms of Incoterms 2010 are subdivided into two categories based only on method of delivery. The larger group of seven rules may be used regardless of the method of transport, with the smaller group of four being applicable only to sales that solely involve transportation by water where the condition of the goods can be verified at the point of loading on board ship. They are therefore not to be used for containerized freight, other combined transport methods, or for transport by road, air or rail.

Incoterms 2010 also formally defined delivery. Before, the term has been defined informally but it is now defined as the point in the transaction where "the risk of loss or damage [to the goods] passes from the seller to the buyer."

Incoterms in government regulations

In some jurisdictions, the duty costs of the goods may be calculated against a specific Incoterm (for example in India, duty is calculated against the CIF value of the goods, and in South Africa the duty is calculated against the FOB value of the goods). Because of this it is common for contracts for exports to these countries to use these Incoterms, even when they are not suitable for the chosen mode of transport. If this is the case then great care must be exercised to ensure that the points at which costs and risks pass are clarified with the customer.

Defined terms in Incoterms

  • Delivery: The point in the transaction where the risk of loss or damage to the goods is transferred from the seller to the buyer
  • Arrival: The point named in the Incoterm to which carriage has been paid
  • Free: Seller has an obligation to deliver the goods to a named place for transfer to a carrier
  • Carrier: Any person who, in a contract of carriage, undertakes to perform or to procure the performance of transport by rail, road, air, sea, inland waterway or by a combination of such modes
  • Freight forwarder: A firm that makes or assists in the making of shipping arrangements;
  • Terminal: Any place, whether covered or not, such as a dock, warehouse, container yard or road, rail or air cargo terminal
  • To clear for export: To file Shipper’s Export Declaration and get export permit

Variation of Incoterms

Parties adopting Incoterms should be wary about their intention and variations. The desire of the parties should be expressed clearly and casual adoption should be refrained. Also, making additions or variations to the meaning of a certain term should be carefully done as parties' failure to use any trade term at all can produce unexpected results.

Rules for any mode of transport

  • EXW – Ex Works (named place of delivery)
  • FCA – Free Carrier (named place of delivery)
  • CPT – Carriage Paid To (named place of destination)
  • CIP – Carriage and Insurance Paid to (named place of destination)
  • DAT – Delivered At Terminal (named terminal at port or place of destination)
  • DAP – Delivered At Place (named place of destination)
  • DDP – Delivered Duty Paid (named place of destination)
Rules for sea and inland waterway transport
  • FAS – Free Alongside Ship (named port of shipment)
  • FOB – Free on Board (named port of shipment)
  • CFR – Cost and Freight (named port of destination)
  • CIF – Cost, Insurance & Freight (named port of destination)

Previous terms from Incoterms 2000 eliminated from Incoterms 2010

While these terms do not feature in the current version of Incoterms it is possible that they may be seen in sales order contracts. Care must be taken to ensure that both parties agree on their obligations in this case.

  • DAF – Delivered at Frontier (named place of delivery)
  • DES – Delivered Ex Ship
  • DEQ – Delivered Ex Quay (named port of delivery)
  • DDU – Delivered Duty Unpaid (named place of destination)

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Allocations of costs to buyer/seller according to Incoterms 2010

Incoterm 2010
Export customs declaration
Carriage to port of export
Unloading of truck in port of export

Loading on vessel/airplane in port of export

Carriage (sea/air) to port of import
Insurance
Unloading in port of import
Loading on truck in port of import
Carriage to place of destination
Import customs clearance
Import duties and taxes

EXW

Buyer

Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer

FCA

Seller

Seller
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer

FAS

Seller

Seller
Seller
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer

FOB

Seller

Seller
Seller
Seller
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer

CPT

Seller

Seller
Seller
Seller
Seller
Buyer
Buyer/Seller
Buyer/Seller
Seller
Buyer
Buyer

CFR

Seller

Seller
Seller
Seller
Seller
Buyer
Buyer/Seller
Buyer
Buyer
Buyer
Buyer

CIF

Seller

Seller
Seller
Seller
Seller
Seller
Buyer/Seller
Buyer
Buyer
Buyer
Buyer

CIP

Seller

Seller
Seller
Seller
Seller
Seller
Buyer/Seller
Buyer/Seller
Seller
Buyer
Buyer

DAT

Seller

Seller
Seller
Seller
Seller
Seller/Buyer
Seller
Buyer
Buyer
Buyer
Buyer

DAP

Seller

Seller
Seller
Seller
Seller
Seller/Buyer
Seller
Seller
Seller
Buyer
Buyer

DDP

Seller

Seller
Seller
Seller
Seller
Seller/Buyer
Seller
Seller
Seller
Seller
Seller


Allocations of risks to buyer/seller according to Incoterms 2010
The risk and the cost is not always the same for Incoterms. In many cases, the risk and cost usually goes together but it is not always the case.
Rules for sea and inland waterway transport


Incoterm 2010
Seller
Carrier
Port/terminal

Onboard

Port/terminal
Buyer

FOB

Seller

Seller
Seller
Seller
Buyer
Buyer

FAS

Seller

Seller
Seller
Buyer
Buyer
Buyer

CFR

Seller

Seller
Seller
Seller
Buyer
Buyer

CIF

Seller

Seller
Seller
Seller
Buyer
Buyer


Rules for any modes of transport


Incoterm 2010
Seller
Carrier
Port

Ship

Port
Terminal
Named place
Buyer

EXW

Seller

Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer

FCA

Seller

Seller
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer

CPT

Seller

Seller
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer

CIP

Seller

Seller
Insurance
Insurance
Insurance
Insurance
Insurance
Buyer

DAT

Seller

Seller
Seller
Seller
Seller
Seller
Buyer
Buyer

DAP

Seller

Seller
Seller
Seller
Seller
Seller
Seller
Buyer

DDP

Seller

Seller
Seller
Seller
Seller
Seller
Seller
Seller


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