The International Commercial Terms (Incoterms) have been established by the International Chamber of Commerce on the movement of goods. These terms are grouped in such a way as to clearly identify who (the buyer or the seller) is responsible for the movement of goods from the sender to the recipient, as well as who incur the costs which may arise at each stage of transportation.
Incoterms provide guidance to individuals, companies and organizations involved in the import and export of world trade and are denoted by coded abbreviations such as EXW (Ex Works), FOB (Free on Board), CIF (Cost, Insurance, Freight) DAP ( Delivered at Place) that have precise meanings for buying and selling goods around the world.
Below is a brief analysis of the most common incoterms:
- EXW (Ex Works)
The sole responsibility of the seller is to dispense the goods in this space or in another place (factory, warehouse). In particular, the seller is not responsible for loading the goods into the vehicle provided by the buyer, unless otherwise agreed, nor does he need to clear through customs the goods for export.
- FCA (Free Carrier)
The seller delivers the goods to the carrier or any other person designated by the buyer at the seller’s premises or to any other agreed place. It is advised that the parties identify the point within the designated place of delivery as explicitly as possible as the risk at this point is transferred to the buyer.
- FOB (Free on Board)
The seller delivers the goods to the ship designated by the buyer at the designated port of shipment or supplies the goods already delivered. The risk of loss or damage to the goods is transferred from the seller to the buyer when the goods are transported to the ship and the buyer incurs all costs from that moment on.
- CFR (Cost and Freight)
The seller should pay the costs and freight required for the transport of the goods to the destination, but the risk of loss or damage to the products is transferred from the seller to the buyer.
- CIF (Cost, Insurance and Freight)
The seller incurs all costs until the goods are delivered to the port of shipment. In addition, the seller is responsible until the products are loaded. Moreover, the seller has to bear the insurance costs until the products pass from the boat to the port of loading.
- DAP (Delivered at Place)
The seller delivers the goods to a specified destination, which is determined by the buyer, although according to ICC rules, the unloading of the goods is the buyer’s responsibility. The buyer is also obliged to settle duties and taxes, as well as to clear the goods through customs.
- DDP (Delivered Duty Paid)
The risk of loss or damage to the goods is transferred to the buyer as soon as the products are delivered to the agreed place. Buyers and sellers need to be clear about when and where to take the risk. Until the delivery of the goods, all costs are borne by the seller. After the delivery of the goods, the buyer incurs all costs.
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