Incoterms are unified international rules recognized by state customs and tax authorities, carriers, banks and private companies engaged in foreign economic activities.
The latest version of Incoterms 2020 entered into force on January 1, 2020 and will be valid until 2030. When entering into a contract, companies have the right to stipulate the terms of earlier versions, but it is necessary to specify which version is used in the document.
E terms (shipment, no transportation and custom clearance)
EXW stands for ‘Ex Works’ (specified place). This implies the minimum responsibility of the seller. The buyer assumes the risks associated with the transportation of the goods to the country of destination.
The seller merely has to make the goods available at the seller’s factory or depot, and the buyer is responsible for all export and import procedures and arranges shipping to the place of destination.
When choosing EXW, the buyer should preliminary study the transportation tariffs and conditions in the region, the nuances and potential problems of custom procedures in the seller's country, otherwise the shipping costs may significantly exceed the benefits of a low contract price.
F terms (main carriage is paid by a buyer)
FCA stands for ‘Free Carrier’ (specified place). Seller's responsibilities include export customs operations and shipment of the goods to the buyer's carrier. From this point on, the buyer takes all the risks. The buyer has to pay for the main carriage of goods to the destination and carry out import customs clearance.
This is one of the most common conditions in international contracts, as such split of responsibilities is convenient for both parties.
This term includes certain obligations for the parties – a seller has to provide complete and reliable information about the safety and requirements for the transportation of the goods, and a buyer has to provide the necessary data for export clearance (the name of the carrier, car numbers, etc.).
FAS is used for waterway transport shipping and stands for ‘Free Alongside Ship’ with the indication of the port of departure. According to this term, the seller clears goods for export and places them alongside the vessel at the port of departure specified in the contract. Mandatory condition – the presence of the vessel designated by the buyer at the port. If, for some reason, the ship fails to arrive at the port on time, the seller bears storage costs in customs warehouses. The buyer pays loading charges, freight charges and import duties.
FAS is convenient for buyers who purchase goods simultaneously from several sellers and combine them in one shipping to the destination.
Similarly to the previous term, FOB is used for waterway transport shipping and stands for ‘Free on Board’. Unlike FAS, the seller carries out loading of the goods released by customs onto the vessel at his own expense, and he is also the shipper in all support documentation. The buyer pays further main carriage expenses and import duties. Once the goods are delivered to the deck or to the hold of the ship, the buyer takes all the risks of cargo damage or loss.
FOB is convenient for the buyer when he does not have the opportunity or desire to load the goods on the ship, and the seller has this process well managed. For the seller, FOB makes it easier and faster to resolve issues with banks, when issuing a letter of credit and tax authorities when reporting and paying taxes.
C terms (main carriage is paid by a seller)
This term applies to waterway transport shipping and stands for ‘Cost and Freight’ with the mandatory specification of the port of destination.
Seller's responsibilities include export clearance, delivery onboard the ship and transport of the goods to the named port of destination. In all documents, the seller is the shipper. The buyer, in turn, receives the goods on arrival, unloads them at his own expense, and pays import duties.
Please note that the risks under CFR pass from a seller to a buyer when the seller delivers the goods onboard the ship!
CIF stands for ‘Cost, Insurance and Freight’. The terms are similar to CFR, but here, the seller has to obtain and pay for minimum insurance coverage on the goods in favoir of the buyer. The buyer assumes all risks once the goods are on board the vessel for the main carriage.
CIP is used for carriage by any type of transport, including surface and air, and stands for ‘Carriage and Insurance Paid To’ with a specified destination of unloading and accepting the goods by the buyer. The export duties are paid by the seller, and the import duties are paid by the buyer. The risks pass from the seller to the buyer once the goods are delivered to the carrier.
The shipper has to ensure all-risk insurance coverage on the goods in favour of the buyer. In comparison with Incoterms 2010, the new version of the insurance amount increased from the minimum to 110%.
CIP also implies that the supplier has to pay for custom storage in case of a delay in import clearance. CIP is beneficial for the buyer, as it does not incur shipping costs and is insured against all risks.
CPT stands for ‘Carriage Paid To’ requires the indication of the specified place of shipment and includes the seller's obligations to deliver the goods at his own expense to the destination as well as export clearance and charges. The seller can use hired or its own transport. The buyer pays for unloading and import duties. Insurance is not included. The buyer’s risk begins when the carrier receives goods from the seller.
CPT is convenient for suppliers with their own fleet of vehicles for the delivery of goods or with reliable, long-term contracts with carriers.
D terms (full carriage of goods to a buyer)
‘Delivered At Place’ indicates the place of unloading. Almost all the shipment costs, including export duties and storage in customs warehouses in the event of a clearance delay, are paid by the seller. The seller also carries the risks of damage and loss of cargo during shipping. The buyer accepts all risks once the goods are unloaded.
DAP, as well as other D terms, may cause some inconvenience to the seller when using a letter of credit, since the goods are transferred to the buyer at the very end of the delivery process.
DPU, standing for ‘Delivered at Place Unloaded’ and indicating the specified place of delivery of the goods to the buyer, replaced the former DAT, which was stipulated in Incoterms 2010 and provided for delivery to the terminal. According to DPU, the seller unloads the goods and performs shipment and export procedures. The buyer only receives the goods and arranges the customs clearance.
‘Delivered Duty Paid’ implies that the seller performs all operations related to the delivery of the goods to the buyer, including export and import clearance. The buyer has to receive the goods at the place specified in the contract.
DDP is convenient for the buyer, but the contract price will be higher than when sharing responsibility for the carriage and clerance of the goods.
FRUTLINE SP. Z O. O. ships fruits and vegetables grown in Poland to the EU and the CIS countries, as well as to Africa and the Asian region. We comply with the standards of international commercial law and enter into contracts under Incoterms.
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