Your Complete Guide to Incoterms

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Incoterms sets out rules for selling physical goods that need to be transported.

These rules first cropped up in 1923 but did not become known as Incoterms until the Internation Chamber of Commerce (ICC) published them in 1936. And they have since been revised over the years.

In 1953, 1967, 1976, 1980, 1990, and 2000 they were amended. There was an eighth version– Incoterms 2010 — published on January 1, 2011. A new set of revisions, known as Incoterms 2020, is currently in the works.

What do the Incoterms Rules Focus on?

There are two main aspects to Incoterms rules, which are as follows:

1. Who is responsible for arranging and funding the transport in question?

This essentially asks whether the seller or the buyer should make the arrangements. “Arrangements” includes any loading, unloading, importing and exporting and the insurance of the goods being transported.

2. When does the responsibility shift from the seller to the buyer?

This is very important, in case the goods are lost or damaged mid-transit (which is where tracking is crucial).

The 11 Incoterms Rules

There are 11 rules in the current Incoterms layout.

The first 7 Apply to Any Mode of Transport:

1. EXW Ex Works

The individual selling the goods must deliver them to the buyer. The goods in question are then at the buyer’s disposal. Arrangements here must be made between the two parties. The place at which the goods are delivered is to be arranged between the two parties. eg: At the premises of the seller or another location agreed by both.

2. FCA Free Carrier

The seller delivers the goods to the carrier or another person nominated by the buyer at the seller’s premises or another named place.

3. CPT Carriage Paid To

The seller delivers the goods to the carrier or another person nominated by the seller at an agreed place and that the seller must contract for and pay the costs of carriage necessary to bring the goods to the named place of destination.

4. CIP Carriage And Insurance Paid To

The seller delivers the goods to the carrier or another person nominated by the seller at an agreed place and that the seller must contract for and pay the costs of carriage necessary to bring the goods to the named place of destination.

It is also up to the party doing the selling to arrange the appropriate insurance.

5. DAT Delivered At Terminal

The seller must deliver the items, take them from the method of haulage and leave them under the entrustment of the buyer. And this must be at a location disclosed by the buyer and agreed by both.

6. DAP Delivered At Place

The seller must deliver the items, take them from the method of haulage and leave them under the entrustment of the buyer. And this must be at a location disclosed by the buyer and agreed by both. The seller is responsible in the delivery and movement of the goods.

7. DDP Delivered Duty Paid

The seller delivers the goods when the goods are placed at the disposal of the buyer, cleared for import on the arriving means of transport ready for unloading at the named place of destination. The seller is responsible for the financial and potentially troublesome issues involved in delivering items to the agreed-upon location.

They are also responsible for ensuring the items are legally signed off for haulage and to cover any costs or any customs procedures that may apply to the transportation of the items.

The Final 4 Apply to Sea and Waterway Transportation:

8. FAS Free Alongside Ship

The seller is entrusted with delivering items at the ship requested by the purchaser at the shipment location. Loss or damage to the items is the responsibility of the buyer when the transaction is completed.

9. FOB Free On Board

The seller is entrusted with delivering items at the ship requested by the purchaser at the shipment location. Loss or damage to the items is the responsibility of the buyer when the transaction is completed. In this case, the transaction will see the goods put on board the vessel.

10. CFR Cost and Freight

The seller ensures the items are placed on board the ship; or procures the items that have been offloaded already. Loss or damage to the items is the responsibility of the buyer when the transaction is completed. In this case, the transaction will see the goods put on board the vessel. All freight costs are the responsibility of the buyer.

11. CIF Cost, Insurance and Freight

The seller ensures the items are placed on board the ship; or procures the items that have been offloaded already. Loss or damage to the items is the responsibility of the buyer when the transaction is completed.

In this case, the transaction will see the goods put on board the vessel. All freight costs are the responsibility of the buyer. The seller is also responsible for insurance.

Incoterms Rules Round Up

Incoterms rules were devised initially to promote the use of containerized goods, but today they are used for practically all cross-border transit.

A major example of why these rules were put into play in the first place was the Japanese tsunami of 2011 when many exporters suffered losses which could have been avoided. Their containers were destroyed whilst in the container terminal.

Also of note is that Incoterms rules do not cover all aspects of a commercial agreement and these are to be arranged independently.

If you are looking for help optimizing your in-transit inventory (or just making sure that your shipments are doing what they’re supposed to be doing), then get in touch for more information.

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