Incoterms are international terms and conditions for the transport of goods. More specifically, incoterms are agreement between seller and buyer about who is liable for damages or loss of the goods in transit. Are you an importer or exporter, but still confused by the term like FOB, EXW, or DDP? There are a total of11 Incoterms. In this blog, we will explain each incoterm and clarify your responsibilities.
EXW (Ex Works)
This incoterm is suitable for trade within the EU. The buyer takes full responsibility from the seller, including loading, shipping, and insurance. The seller only needs to place the goods at the agreed location.
FCA- A and B
Free-carrier A is suitable for full containers. The seller delivers the goods to a carrier or a place chosen by the buyer. The transfer of risk and costs from seller to buyer takes place after the seller has loaded the goods onto the buyer’s means of transport. The place of delivery must be clearly specified. FCA-A often occurs with full container loads. In maritime transport this is called Full Container Load (FCL).
Free-carrier B is suitable for groupage shipments. the seller delivers the goods to another location, such as a consolidation warehouse or port of departure. For LCL shipments (Less than Container Load), goods from different companies are combined in one container. This usually happens at the consolidation warehouse. The risk and cost transfer to the buyer once the seller’s transport arrives (but is not yet unloaded) at that location.
CPT (Carriage paid to)
With CPT, the seller arranges and pays for the transport to the agreed destination inside the destination country. However, the risk of loss or damage transfers to the buyer earlier as soon as the goods are handed over to the carrier at the seller’s location or another agreed pickup point. The transfer of costs and risk are at different times.
CIP (Carriage and insurance paid to)
CIP is almost the same as CJP. The seller arranges and pays for transport to the agreed destination. The risk transfers to the buyer once the goods are handed over to the carrier at the seller’s location or another agreed pickup point. The main difference from CPT is that the seller also provides insurance for the goods during transport which is beneficial for the buyer (better for buyers who want extra security).
DAP (Delivered at place)
For DAP, the seller has many responsibilities. The seller arranges and pays for transport up to the agreed destination, and also bears the risk of loss or damage until the goods arrive there. The buyer is responsible for unloading the goods. The seller and buyer may both choose to arrange transport insurance for the part of the journey where they carry the risk, but this is not required.
DPU (Delivered at place unloaded)
With DPU, the seller has even more responsibilities than with DAP. The seller arranges and pays for transport to the agreed destination, and also takes care of unloading the goods. The risk of loss or damage stays with the seller until the goods are unloaded at the destination. DPU is basically DAP with unloading included.
DDP (Delivered duty paid)
With DDP, the seller has the most responsibilities of all incoterms. The seller arranges and pays for transport to the agreed destination and also bears the risk of loss or damage until the goods arrive. The buyer is responsible for unloading the goods. DDP is the only Incoterm where the seller must handle import clearance and pay all import duties, VAT, or other charges in the destination country.
FAS (Free alongside ship)
This is suitable for transport by ship of bulk and general cargo. The seller delivers the goods next to the shipnamed by the buyer. From that moment, the buyer takes over all costs and risks, including loading the goods onto the ship. It’s important to clearly state the exact loading location in the contract, as that’s where the risk transfers to the buyer.
FOB (Free on board)
FOB is used for bulk cargo (like grain or iron ore) or breakbulk goods, items that can’t be stacked in containers, such as cars. Under FOB, the seller places the goods on board the vessel named by the buyer, at the agreed port of shipment. From that moment, the costs and risks of transport transfer to the buyer.
CFR (Cost and freight)
With CFR (Cost and Freight), the seller arrangesand pays for transport to the agreed port of destination. However, the risk transfers to the buyer earlier once the goods are loaded onto the ship at the port of departure. CFR is used only for sea and inland waterway transport. CFR works well for bulk cargo (like grain or iron ore) and breakbulk goods (such as cars), because these are easier to inspect when loaded onto the vessel. For container shipments, CFR is less suitable, because containers are usually sealed before reaching the port. In that case, CPT is a better option, because goods can be inspected at the place where the container is loaded.
CIF (Cost insurance and freight)
CIF is suitable for transport of bulk and general cargo. The seller pays the transport to the port of destination and takes out transport insurance. The risk of loss or damage to the goods stays with the seller until the goods are loaded onto the ship at the agreed port of departure. This is the official point of delivery. From that moment, the buyer takes over the transport risk.F s
Whether you are exporting from China or importing into Europe, choosing the right incoterms can make a big difference in your logistics process. Still unsure which Incoterm fits your situation? Get in touch with MN Logistics , our team is ready to guide you！