Incoterms are a series of three letters that define the risks and costs associated with transporting goods.
Incoterms are recognized by many organizations and governments of countries as a way to explain international trade terms.
Incoterms categories
The first category is the "E" category, which refers to cargo located directly at the seller's premises, which is transferred to the buyer at the same premises.
The second category is "F" terms, which oblige the seller to deliver the cargo to the buyer's place.
The third category is “C” terms, according to which the seller is obliged to pay the transportation costs, although he does not take responsibility for the loss of cargo, damage, etc.
The fourth category is the "D" category, in which all obligations for the seller, including costs and security, are provided.
7 conditions of displacement defined by Incoterms 2010:
- EXW — Ex Works (name of place of delivery).
- FCA — Free Carrier (name of place of departure).
- CPT — Carriage paid to (name of destination).
- CIP — Carriage and Insurance Paid to Carriage and insurance will be paid to... (name of destination).
- DAT — Delivered at Terminal Shipment to terminal (name of port terminal or destination).
- DAP — Delivered at Place of delivery (name of destination).
- DDP — Delivered Duty Paid before customs clearance (name of destination).
Rules for maritime transport The four conditions of sea passage defined by Incoterms 2010:
- FAS — Free Alongside Ship (name of shipping port).
- FOB — Free on board (name of loading port).
- CFR — Cost and Freight (name of port of destination).
- CIF — Cost, Insurance and Freight (name of port of destination).
E - transfer term (EX works - from the factory)
The said Incoterms minimizes the obligation of the seller as much as possible, and all responsibility rests with the buyer. The seller is obliged to assist the buyer in shipping, preparation of documents and is responsible for incorrect loading.
F - the seller does not pay for transportation (FCA - free carrier)
The seller's obligation is only to deliver to the buyer's address.
FAS (free alongside ship) from delivery to a free port
FOB (free on board) is free of charge on board
The seller's obligation to deliver will be fulfilled when the goods cross the border of the vessel. From this moment, all risks and obligations are borne by the buyer.
D - term of delivery
DAF (delivered at frontier) - the seller fulfills the obligation to deliver the cargo and places it at the customs of the neighboring country.
DAT (delivered at terminal) - shipment at the terminal, the seller pays for transportation to the terminal and fulfills all obligations before the cargo is unloaded at the terminal.
DAP (delivered at place) - the seller pays the amount to the specified place of payment and takes responsibility until the buyer takes the cargo.
DES (delivered ex ship) - the seller ships the cargo to the buyer, and the delivery costs and expenses are borne by the seller.
DEQ (delivered ex quay) - the seller's obligation is discharged when he delivers the cargo to the quay of the port. All shipping costs are the responsibility of the seller.
DDU (delivered duty unpaid) - delivery before customs clearance - the obligation of the seller to deliver the cargo is considered fulfilled when the goods are delivered to the country of import. All import costs are borne by the seller.
DDP (delivered duty paid) - the seller's duty to deliver the cargo will be fulfilled when he provides the goods to the buyer at the designated place. All costs that may be caused by the destruction or loss of the shipment shall be borne by the seller.
Summary
Knowledge of Incoterms is of great importance when it comes to imports, as these terms inform us what kind of obligations apply to the seller and the buyer and what rights both of them have.