The International Commercial Terms Rules are official terms published by the International Chamber of Commerce (ICC) and are widely used in international commercial transactions or procurement processes. They are well thought out, standard, globally accepted and complied texts that determine the responsibilities of consumers and traders to deliver goods under contracts of sale in global trade. Incoterms are closely related to the United Nations. Convention on Contracts for the International Sale of Goods. Incoterms are known and implemented in all major trading countries.
Incoterms:
EXW (factory)
According to Incoterms rules, Ex Works (EXW) means that the seller has fulfilled its responsibilities when the goods are normally provided to the buyer at the seller's destination. The seller shall package the goods properly or as specified in the mutual agreement. The buyer is responsible for everything necessary to load the goods in transit and to get the goods to their final destination. Risk or responsibility for the goods passes from the seller to the buyer when the goods are available at that location. This means that the buyer is at risk if the goods are damaged in any way while the buyer is in transit, even if the seller assists with loading. Precautions should be taken.
FCA (Free Carrier)
Free Carrier or FCA is a trade term that states that the seller of goods is responsible for delivering those goods to the destination specified by the buyer. When used in trade, the term "free" means that the seller must deliver the goods to a designated location for transfer to the carrier. Considering that the carrier is nominated by the buyer, the shipping costs under the FCA terms are paid by the buyer. The seller arranges for the goods to be loaded onto the carrier nominated by the buyer.
The seller is responsible for delivering the goods at its location. In this case, it is the seller's responsibility to load the goods on the buyer's means of transport and for delivery to the port and export clearance, including security requirements. Risk transfers once the goods are loaded onto the buyer's means of transport.
CPT (shipping paid to)
Carriage Paid to or CPT means that the seller delivers the goods to the carrier or a person designated by the seller at the agreed place, and requires the seller to sign a contract of carriage and pay the agreed freight for delivery of the goods. The seller must go through the export procedures and the buyer must go through the import procedures. But the seller is not responsible for purchasing insurance.
CIP (shipping and insurance paid to)
Carriage and Insurance Paid To (CIP) is similar to CIP with one important difference. Risk passes to Buyer when Seller clears the goods for export and delivers them to the carrier or another person designated by Seller at the place of shipment. This Incoterms rule requires the seller to take out maximum insurance for the buyer - at least 110% of the value of the goods covered by the ICC (Institute Cargo Clauses) (A) or (Air) or similar clauses to cover the buyer's risk. Seller must provide Buyer with any insurance documentation required by Buyer in case it must file a claim under that insurance.
DAP (Delivered On Site)
Delivered at Place or DAP, this incoterm rule can be used for any shipping method. An extension of DAT, the seller delivers the goods at the destination specified by the buyer, although under ICC rules the unloading of the goods is the buyer's responsibility. The buyer also needs to sort out duties and taxes, as well as clear the goods through customs.
DAT (delivered at terminal)
Previously named Delivery at Dock or DAT, this Incoterm has been renamed to Delivery at Unloading Point (DPU) as the buyer or seller may require the goods to be delivered elsewhere. The term is often used for consolidated containers with multiple consignees, and this is the only term that requires the seller to unload. The seller clears the goods for export and assumes all risks and costs involved in the delivery and unloading of the goods at the named port or terminal at the destination. Buyer assumes all costs and risks from then on, including customs clearance of imported goods at the named destination.
DDP (Delivered Duty Paid)
Delivery After Tax, or DDP, works very similarly to DAP, with one most important difference. Seller must import customs clearance goods in buyer country and pay any duties and VAT/GST. DDP is a risky clause for sellers as they may not be aware of import customs clearance procedures at the import destination. Its value is also uncertain for importers, who must rely on sellers to successfully navigate the complexities of destination countries.
