Incoterms provide standard trade definitions commonly used in international sales contracts. Devised and published by the International Chamber of Commerce (ICC), Incoterms are accepted by governments, legal authorities and practitioners worldwide. Incoterms cut out uncertainties arising from differing interpretations of transportation terms in different countries, and go a long way towards providing the legal certainty upon which mutual confidence between business partners must be based.
Each Incoterm is referred to by a three-letter abbreviation. Some of the main ones used in our industry are defined below. You can also click here to view an easy-to-use graphic displaying the main differences between the Incoterms.
EXW (Ex Works)
The seller is not obliged to load the goods into the truck or container, nor does it oblige the seller to fulfil the necessary export customs formalities.
FCA (Free Carrier)
The seller/exporter is responsible for loading the goods and providing export documentation.
FAS (Free Alongside Ship)
The seller delivers the goods, cleared for export, at a named port of shipment. The buyer pays for the THC incurred at the terminal.
FOB (Free On Board)
The seller clears the good for export, and pays for the THC at a named port.
CFR (Cost And Freight)
The seller pays for the main carriage of good to named destination port, but the buyer is liable for loss and damage during transportation and should be properly insured.
CIF (Cost, Insurance and Freight)
The seller has to provide marine insurance against the buyer’s risk of loss and damage during transportation.
DDU (Delivered Duty Unpaid)
Buyer pays for duties and customs clearance.
DDP (Delivered Duty Paid)
Seller pays both duties and customs clearance. Note: Whether wine and spirits excise tax is included or not must be specifically agreed as these are not part of the import duties.
All Incoterms include a ‘named place’, which is extremely important to in the agreement. If the terms are EXW or FCA, the named place is the loading location. For FAS and FOB, it is the port of loading, while for CFR and CIF, it is the destination port. For CIP, DDU and DDP the final delivery address is the named place.
To ensure you are using Incoterms correctly, please consult the full ICC texts, available at: www.incoterms.com