An Introduction to Incoterms

There are a lot of acronyms in importing and exporting! Some are critical to learn, and others are on a need-to-know basis. This article will provide an overview to help you understand what you need to know about Incoterms.

What are Incoterms rules?

The Incoterms rules are the world’s essential terms of trade for the sale of goods. They have been developed by the International Chamber of Commerce (ICC) who published the first Incoterms rules in 1936. They have been maintaining and revising them ever since, serving to define some key responsibilities of sellers and buyers in the international sale of goods. Incoterms are tools to specify who is responsible for paying for and managing various elements of the shipping processCustoms clearance, import documentation, including an import license if required, import duties and taxes, and cargo unloading and delivery to the agreed-upon place are specified by incoterms as well. Additionally, incoterms define when the risk of loss or damage to goods transfers from the seller to the buyer. There are other risks to consider in an export transaction, including liability for export compliance obligations and the cost of a potential customs delay. Know your incoterms:

• Ex Works (EXW) – The seller makes the goods available at its location, so the buyer can take over all the transportation costs and also bears the risks of bringing the goods to their final destination.
• Free Carrier (FCA) – The seller hands over the goods into the disposal of the first carrier. After the buyer takes over all the costs, the risk passes when the goods are handed over to the first carrier.
• Free Alongside Ship (FAS) – The seller must place the goods alongside the ship at the named port, the risk of loss or damage to the goods passes when the goods are alongside the ship, and the buyer bears all the costs from that moment on.
• Free on Board (FOB) – The seller must load the goods on board of the ship, nominated by the buyer. Cost and risk are divided when the goods are actually on board.
• Cost and Freight (CFR) – Seller must pay the costs and freight to bring the goods to the port of destination. Although the risk is transferred to the buyer when the goods are loaded on the ship.
• Cost, Insurance, and Freight (CIF) – It’s exactly like CFR except that the seller must in addition procure and pay for the insurance.
• Carrier and Insurance Paid to (CIP) – The seller pays for the carriage and insurance to the named destination point, but risk passes when the goods are handed over to the first carrier.
• Delivered Duty Paid (DDP) – The seller is responsible for delivering the goods to the named place in the country of the buyer and pays all costs in bringing the goods to the destination.

Whether you are filing a purchase order, packaging and labeling a shipment for freight transport, or preparing a certificate of origin at a port, the Incoterms rules are there to guide you. If you have any questions about international trade, BorderBuddy has answers. Give us a call today so we can provide the customs solutions you need.