Incoterms

Incoterms clearly define the responsibilities of the seller and the buyer involved in an international transaction. Incoterms are commonly used throughout the world, and are accepted by banks, customs authorities, air - ocean - truck - rail - and barge carriers, transportation intermediaries and financial institutions.

EXW

EX WORKS

(…NAMED PLACE)

FCA

FREE CARRIER

(…NAMED PLACE)

FAS

FREE ALONGSIDE SHIP

(…NAMED PORT OF SHIPMENT)

FOB 

FREE ON BOARD 

(…NAMED PORT OF SHIPMENT) 

CFR 

COST AND FREIGHT 

(…NAMED PORT OF DESTINATION) 

CIF 

COST, INSURANCE AND FREIGHT 

(...NAMED PORT OF DESTINATION) 

CPT  

CARRIAGE PAID TO 

(…NAMED PLACE OF DESTINATION) 

CIP 

CARRIAGE AND INSURANCE PAID TO 

(…NAMED PLACE OF DESTINATION) 

DAF 

DELIVERED AT FRONTIER 

(…NAMED PLACE) 

DES 

DELIVERED EX SHIP  

(…NAMED PORT OF DESTINATION) 

DEQ 

DELIVERED EX QUAY  

(…NAMED PORT OF DESTINATION) 

DDU  

DELIVERED DUTY UNPAID 

(…NAMED PLACE OF DESTINATION)  

DDP 

DELIVERED DUTY PAID  

(… NAMED PLACE OF DESTINATION) 

 

EXW

EX WORKS

(...named place)


"Ex Works" is the minimum/lowest obligation of a seller under Incoterms. The seller agrees to make the goods available to the buyer at the seller's premises (named place). The seller under EXW is not even responsible for bearing the cost of loading the goods onto the vehicle provided by the buyer, unless otherwise agreed in advance. The buyer bears the full cost and risks involved in bringing the goods from the EXW location to the ultimate destination. N.B. "Works" can mean "factory" or "warehouse" or "plant" - virtually anywhere defined by seller since EXW is must always to be followed by a "named place". It is seller's responsibility during initial negotiations to clearly identify the named place/location.

FCA

FREE CARRIER

(…named place)


This is a term designed to meet the needs of multimodal transportation, and is ideally suited when a buyer has named a transportation intermediary to take control of their cargo PRIOR to loading on board a vessel, aircraft, barge, etc…. It is based upon the same principle as FOB (see below), except that the seller has fulfilled its obligations when the goods have been delivered to the "carrier" or "transportation intermediary" (usually named) at the "named place". "Carrier" means any person by whom or in whose name a contract of carriage (by road, rail, air, sea, barge, ferry, or any combination of these modes - thus "multi-modal") has been made. A transportation intermediary can also include "forwarder, nvocc, consolidator, distributor". Under FCA the seller has fulfilled its obligation upon delivery to any of the above. The usual instruments to prove such fulfillment are Bills of Lading, Waybills, Cargo Receipts, and FCR's (Forwarder's Certificate of Receipt), but completion can be proved by any means acceptable to buyer and seller (i.e. electronic notification from carrier/intermediary to buyer).

FAS

FREE ALONGSIDE SHIP

(…named port of shipment)


Under FAS terms, the seller is required to deliver the goods alongside the actual ship on the pier/quay. From that point forward, the buyer bears all costs and risk. The chief difference between FAS and FOB (see below) is that under FAS terms the buyer (not the seller) is required to clear the goods for export, and pay the cost of loading the goods. (In modern multimodal transport, this can be a very problematic term, since proving actual delivery to "shipside" might be impossible. This term is, however, commonly used for shipments of large items via breakbulk and charter.)

FOB

FREE ON BOARD

(…named port of shipment)


Goods shipped under FOB terms are placed on board the ship by the seller at the specific port of shipment named in the sales agreement/purchase order/contract. All costs and risks from the point where the cargo "crosses the ship's rail" (i.e. is lifted from the quay/pier onto the vessel) passes to the buyer. (By its very nature this term should not be used for airfreight - FCA should be used instead.)

CFR

COST AND FREIGHT [formerly C&F]

(…named port of destination)


CFR sometimes has a confusing "double standard". Under CFR, the title and risks change at the ship's rail, just as in FOB terms, but the cost allocation is different. For goods shipped under CFR, the seller pays all costs to deliver the goods up to the named port of destination (while under FOB, above, the buyer is responsible for those costs).

Therefore, in simplified terms:

Term

Costs to Destn.

Risks/Title

FOB

Buyer

Buyer

CFR

Seller

Buyer



CIF

COST, INSURANCE AND FREIGHT

(…named port of destination)


In its simplest form, CIF is CFR + Insurance. The seller must procure transport insurance against the risk of loss or damage to the goods (to the extent that is mutually agreed upon in the sales agreement). Seller contracts with insurance carrier or agent and pays the premium - but issues insurance in a form/format that allows the buyer to later make claim directly to the insurance carrier or said carrier's agent. (Since Title/Risk has changed hands at FOB point, the seller is no longer entitled to make claim, unless specifically on behalf of the buyer, who, in fact, owns the goods.)

CPT

CARRIAGE PAID TO

(…named place of destination)


Just as CIF can be considered CFR plus Insurance, CPT can be considered to be FCA plus carriage. The Risk/Title will change hands when the shipment is turned over to the carrier or intermediary, but the seller additionally prepays the transportation costs. This term is meant to be used in place of FOB when dealing with intermodal transportation methods or dealing with shipments turned over to a transportation intermediary for furtherance or for consolidation and movement at a later date. It removes the "over the ship's rail" requirement.

CIP

CARRIAGE AND INSURANCE PAID TO

(…named place of destination)


See also CIF, above. This is CPT plus insurance. All the same conditions as under CIF pertain to title and risk. The difference, again, is removal of the "on board" or "over the ship's rail" requirement.

DAF

DELIVERED AT FRONTIER

(…named place)


DAF means that the seller is obliged to move the goods to the named place at the frontier (border crossing). This is primarily a rail/truck term. The seller bears all costs/risks up to this point, but is not responsible for customs clearance, duty, or taxes.

DES

DELIVERED EX SHIP

(…named port of destination)


Using DES requires the seller to make the goods available to the buyer "on board the ship at the place named in the sales contract". Unlike CFR and CIF terms, the seller has agreed to bear not just cost, but also Risk and Title up to the arrival of the vessel at the named port. Costs for unloading the goods and any duties, taxes, etc… are for the Buyer. A commonly used term in shipping bulk commodities, such as coal, grain, dry chemicals - - - and where the seller either owns or has chartered, their own vessel.

DEQ

DELIVERED EX QUAY

(…named port of destination)


This is DES plus unloading costs. Duty/Taxes will still be to buyers account, but seller has additionally agreed to pay for the discharge (unloading) of the cargo. As with DES, this is essentially a term for bulk commodities.

DDU

DELIVERED DUTY UNPAID

(…named place of destination)


DDU terms require that the seller delivers the goods to the buyer, UNCLEARED FOR IMPORT, at the point or place named in the sales agreement. The seller bears all costs and risks up to this point/place.

DDP

DELIVERED DUTY PAID

(…named place of destination)


Just as EXW represented the seller's minimum obligation in an international transaction, DDP would represent the seller's MAXI MUM obligation. (Under Incoterms. It is possible to accept more risk/obligation contractually, but Incoterms ends at this juncture.) Under DDP, the seller agrees to all costs and risks, including customs clearance fees and payment of import duties, up to the named place/point. Buyers and Sellers sometimes agree that taxes (such as VAT or Excise or Luxury TAX) are not included in these terms. In such cases, additional words should be added, such as "Delivered Duty Paid to Anytown, AnyCountry, excluding VAT and/or other taxes".

This distinction is very important. Taken literally, DDP does not mention "tax", but a buyer will generally take the term to be the international equivalent of a shipment prepaid to the buyer's door (i.e. no charges of any kind to buyer's account). The seller may have originally intended it so, but may not have specified "including taxes" when costing out the transaction, and can be left paying much larger amounts than anticipated. To avoid any confusion it is better to list the items one intends the other to pay or not pay