EXTRANS GLOBAL - Realize the INCOTERMS® 2020 RULES

What are Incoterms ?

Incoterms are international rules created by the International Chamber of Commerce (ICC) in 1936, and stands for "International rules for the interpretation of trade terms." Incoterms are standardized terms used in international contracts for the transportation of goods across borders. These terms establish the responsibilities of each party involved in Customs-clearance/Transportation/Risk allocation at each stage of the transaction.

There are 11 Incoterms conditions to choose from when deciding the trade terms, each specifying the obligations of the buyer and seller in international trade, including responsibilities, costs, and when and where risks are transferred.

Why are Incoterms Important ?

International trade transactions incur various costs such as Delivery fee/Ocean freight/Insurance fee/customs tax. As such, the responsibilities, costs, and risks between exporters and importers differ depending on which trade terms are set. Incoterms were established as terms and conditions of international sales contracts for the purpose of preventing friction and misunderstandings caused by uncertain and unclear price terms. In addition, in international trade transactions, trade disputes that may arise due to the laws and customs of different countries between the parties can be prevented. It is important in international trade as it specifies the responsibilities, costs and risks between both parties.

An overview of Incoterms® 2020 - 11 Terms

EXW - Ex Works (insert place of delivery)

▪ Seller is only responsible for making the goods available at their specified place (i.e., factory, warehouse etc).

▪ Buyer is responsible for arranging for the goods to be picked up, packed, loaded, and transported to their final destination.

.▪ Buyer is also responsible for obtaining any necessary export licenses or permits and complying with all applicable customs regulations.

FCA - Free Carrier (Insert named place of delivery)

▪ Seller delivers the goods to the agreed-upon location (i.e., factory warehouse, shipping doc or airline terminal etc).

▪ Seller is also responsible for obtaining any necessary export licenses or permits.

▪ After the seller delivers the goods to the agreed-upon location, the buyer is responsible for all transportation costs and risks associated with the goods from that point forward.

CPT - Carriage Paid to (insert place of destination)

▪ Seller manages the shipment of goods to a named destination, the foreign destination point. ▪ Seller is also responsible for obtaining any necessary export licenses or permits.

▪ Buyer is responsible for any custom duties or taxes that may be levied on the goods upon import.

CIP - Carriage and Insurance Paid To (insert place of destination)

▪ Seller is responsible for all transportation costs and risks as well as for purchasing insurance to cover the goods during transit.

▪ Seller is also responsible for obtaining any necessary export licenses or permits.

▪ Buyer is responsible for any custom duties or taxes that may be levied on the goods upon import.

DAP - Delivered at Place (insert named place of destination)

▪ Seller is responsible for arranging and paying for the transportation of the goods to the named destination, but not for unloading the goods.

▪ Buyer is responsible for any custom duties or taxes that may be levied on the goods upon import.

DPU - Delivered at Place Unloaded (insert of place of destination)

▪ Seller is responsible for arranging and paying for the transportation of the goods to the named destination and for unloading the goods at that destination.

▪ Buyer is responsible for any custom duties or taxes that may be levied on the goods upon import.

DDP - Delivered Duty Paid (Insert place of destination)

▪ Seller is responsible for arranging and paying for the transportation of the goods to the named destination and for paying all import duties and taxes associated with the goods.

▪ Seller assumes all costs, risk and responsibilities of the shipping process, Including foreign customs clearance and potential delays Note: the DPU Incoterms replaces the old DAT, with additional requirements for the seller to unload the goods from the arriving means of transport.

Incoterms® 2020 rules for Sea and Inland Waterway Transport - 4 Terms

FAS - Free Alongside Ship (insert name of port of loading)

▪ Seller’s responsibility is fulfilled when the goods are positioned alongside the vessel, which has been selected by the buyer, at the named port of shipment

▪ Seller is responsible for export documentation and clearance

▪ From that moment onward, the buyer assumes all risks and expenses related to the goods. *Typically used for bulk or non-containerized shipments.

FOB - Free on Board (insert named port of loading)

▪ Seller delivers the goods on the shipping vessel

▪ Seller is responsible for export documentation and clearance and for terminal charges, and risk while the goods wait at the pier for loading.

▪ From that moment onward, the buyer assumes all risks and expenses related to the goods.

CFR - Cost and Freight (insert named port of destination)

▪ Seller delivers the goods on board the vessel or procures their delivery. Seller must contract and pay for all costs and freight necessary to transport the goods to the named port of destination.

▪ The risk of loss or damage to the goods passes on to the buyer once the goods are on board the vessel.

CIF - Cost Insurance and Freight (insert named port of destination)

▪ Seller delivers the goods on board the vessel or procures their delivery. Seller must contract and pay for all costs and freight necessary to transport the goods to the named port of destination.

▪ The buyer assumes any risk of loss or damage to the goods once they are loaded on the ship.

▪ The seller must also obtain insurance coverage against the buyer's risk of loss or damage to the goods during the carriage.

▪ It is important to note that the insurance coverage provided by the seller only offers minimum protection. If the buyer requires additional insurance coverage, it must either negotiate with the seller or arrange for its own insurance.

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