International Terms of International Trade
INCOTERMS are updated after a period of 10 years by the ICC – International Chamber of Commerce so on 1 January 2020 it establishes new terms of international trade by 2030.
INCOTERMS are important because they define for each commercial operation in order to avoid incompatibility with clauses intended by traders.
INCOTERM DPU is new and replaces the previous DAT.
EXW – FCA – FAS – FOB – CFR-CIF – CPT – CIP – DAP – DPU – DDP
INCOTERMS 2020 are divided into four groups (C, D, E, and F).
The rules by group are classified according to rates, risk, responsibility for formalities, as well as issues related to import and export.
|Grupo||INCOTERMS 2010||Cost Transparency Point||Risk Transparency Point|
|E (Departure)||EXW – EX Work||Origin||Warehouse at Origin|
|FAS – FREE ALONG SIDE SHIP||Main carriage Not Paid||Alongside the Ship|
|F (Main Carriage Unpaid)||FOB – FREEON BOARD||Main carriage Not Paid||First Ship Rails|
|FCA – FREE CARRIER||Main carriage Not Paid||First International Carriage|
|C (Main Carriage Paid)||CFR – COST AND FREIGHT||Main carriage Paid||First Ship’s Rails|
|CIF – COST, INSURANCE AND FREIGHT||Main carriage Paid||First Ship’s Rails|
|CPT – COST AND FREIGHT||Main carriage Paid||First International Carriage|
|CIP – COST, INSURANCE AND FREIGHT PAID||Main carriage Paid||First International Carriage|
|D (Arrival)||DAP – DELIVERY AT PLACE||Determined location of destination||Det. location of destination|
|DPU – DELIVERED AT PLACE UNLOADED||Expenses to the place of disembarkation||Determined location of destination|
|DDP – DELIVERY DUTY PAID||Expenses Including taxes to final delivery location||Determined location of destination|
EXW – EX Works
From the production place
The merchandise is made available to the buyer at the premises of the seller or at another appointed location (factory, warehouse, etc.), without being ready for export or loaded into any transport vehicle. In this term, the exporter fulfills its participation in the business when it adds the goods in the carriage packaging (box, bag, etc.) and makes it available, within the established period, at its own establishment. Thus, it is up to the foreign importer to adopt all measures for the removal of goods from the exporter’s establishment, internal transportation, shipment abroad, licensing, international freight and insurance contracts, etc. The term “EXW” should not be used when the seller is not able, directly or indirectly, to obtain the necessary documents for the export of goods. As it can be seen, the buyer assumes all costs and risks involved in transporting the goods. The buyer assumes all costs and risks involved in transporting the goods from the place of origin to the destination.
FCA – FREE CARRIER
Free Carrage (… designated place)
In this term, the seller (exporter) completes its obligations when it delivers the goods cleared for export to the care of the international carrier indicated by the buyer, at the designated place of the country of origin. It should be noted that the chosen delivery location has an impact on the loading and unloading obligations of the goods at that location. If delivery takes place at the seller’s property, the seller is responsible for shipment. If delivery takes place elsewhere, the seller is not responsible for shipping. Thus, it is up to the buyer (importer) to contract freight and international insurance. This can be used in any mode of carriage.
FAS – FREE ALONGSIDE SHIP
Free Alongside Ship (… named port of shipment)
In this term, the seller’s liability ends when the goods are placed along the ship’s side, at the named port of shipment. The contracting of freight and international insurance is the responsibility of the buyer. The seller is responsible for the clearance of goods for export.
This term can only be used in water carriage (sea, river or lake).
FOB – FREE ON BOARD
Free on board (… designated port of shipment)
In that term, the seller’s responsibility for the goods, until the moment of transposition of the ship’s rail (ship’s rail), at the port of shipment, although placing the goods on board the ship is also, in principle, the responsibility of the seller. The FOB term requires the seller to unload the goods for export. It should be noted that the international carrier is hired by the buyer (importer). Right at the FOB sale, the exporter needs to know the maritime term agreed between the buyer and the ship owner in order to verify who should cover the shipping costs of the goods. This term can only be used in water carriage (sea, river or lake).
CFR – COAST AND FREIGHT
Cost and Freight (… named port of destination)
In this term, the seller assumes all costs prior to international shipment, to transport the goods to the port of destination indicated.
It is noteworthy that the risk of loss and damage to the goods is transferred from the seller to the buyer while still at the cargo port (same as FOB on the ship’s rail). So, the negotiation (sale itself) is still taking place in the seller’s country. The CFR term requires the seller to clear the goods for export. This term can only be used in water carriage (sea, river or lake)..
CIF – COAST, INSURANCE AND FREIGHT
Cost, Insurance and Freight (… designated port of destination)
In this term, the seller has the same obligations as in the CFR and, in addition, has to contract marine insurance against risk of loss and damage during carriage. As negotiation is still taking place in the exporter’s country (the ship’s rail, at the port of shipment, is the point of transfer of responsibility for the goods), the buyer should note that in the CIF term the seller is only required to take out insurance with minimum coverage. The CIF term requires the seller to clear the goods for export. This term can only be used in water carriage (sea, river or lake).
CPT – CARRIAGE PAID TO
Carriage paid to (… designated port of destination)
In that term, the seller hires the freight to transport the goods to the designated location. The risks of loss and damage to the goods, as well as any additional costs due to events occurring after delivery of the goods to the carrier, are transferred from the seller to the buyer when the goods are delivered to the carrier’s custody. The CPT term requires the seller to clear the goods for export. This term can be used in any mode of carriage, including multimodal.
CIP – CARRIAGE AND INSURANCE PAID TO
Carriage and Insurance Paid to (… designated port of destination)
In this term, the seller has the same obligations as in the CPT and, additionally, bears the insurance against risks of loss and damage of the goods during international carriage. The buyer should note that in the CIP term the seller is only required to take out insurance with minimum coverage, since the sale (transfer of responsibility for the goods) takes place in the seller’s country. The term CIP requires the seller to clear the goods for export. This term can be used in any mode of carriage, including multimodal.
DAP – DELIVERED AT PLACE
Delivered at place (… designated port of destination)
This new term was introduced to replace the terms DAF, DES and DDU. With its application, the goods may be made available to the buyer (importer) at the designated port of destination, still inside the transporter ship and before import clearance, as was already the case with the DES term, or in any other place, as was the case with the DAF terms, in which delivery would take place at the designated border and DDU, in which delivery would take place at a location designated by the buyer (importer), however, in any case, before the goods are cleared for import. The seller’s responsibility is to place the goods at the buyer’s disposal, ready to be unloaded, not dealing with import formalities, at the designated destination terminal, or in another combination, assuming the costs and risks inherent in carriage to the destination.
DPU – DELIVERED AT PLACE UNLOADED
The Incoterm DPU replaces the DAT (Delivery at Terminal) that has been suppressed. The seller delivers the cargo by placing it at the buyer’s disposal at the designated destination, unloaded from the means of carriage. The seller must assume all the risks and costs involved and the DPU uses any mode of carriage: the seller contracts and pays the carriage of the cargo from the place of origin to the place of destination.
The risk lies with the seller up to the place and time when the goods are placed at the buyer’s disposal, unloaded at the destination; unloading operations are at the seller’s risk and expense. As for insurance, the seller has no obligation to insure the cargo.
Therefore, this is the only INCOTERM in which the seller has an obligation to land the goods upon delivery.
Customs procedures for export are the responsibility of the seller, when applicable, but not in the countries of import and transit by third countries.
DDP– DELIVERED DUTY PAID
Delivered to the buyer with the duty paid (… named port of destination)
It is Incoterms that establishes the greatest commitment for the seller. In this term, the seller only fulfills its delivery when the goods have been made available in the designated place of the country of final destination, cleared for import. The seller assumes all risks and costs, including taxes, fees and other charges on imports. Unlike the EXW term which represents the minimum obligations for the seller, DDP entails the maximum obligations for the seller. The term DDP should not be used when the seller is not able, directly or indirectly, to obtain the necessary documents to import the goods. This term can be used in any mode of carriage, including multimodal.
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