If your company engages in the world of trade, you need to understand the terminologies that come with it. These might be overwhelming especially if you’re new to this scene. However, you don’t have to go all out to slice through the jargon. Read our simple guide of the common export trade terms.
Incoterms are a universally recognised set of rules that guides buyers and sellers, and they ensure a mutual understanding and mitigate mistakes from arising when formulating and fulfilling a contract when shipping goods.
Common trade terms to be aware of:
- EXW (Ex-Works or Ex-Warehouse)
- FCA – Free Carrier
- FAS – Free Alongside Ship
- FOB – Free On Board
- CFR – Cost and Freight
- CIF – Cost, Insurance and Freight
- CPT – Carriage Paid To
- CIP – Carriage And Insurance Paid To
- DAP – Delivered At Place
- DPU – Delivered At Place Unloaded
- DDP – Delivered Duty Paid
EXW
- Least burden on the seller.
- Buyer arranges and pays for all transportation and container loading.
- Sellers are not required to clear goods for export.
- Can be used for any mode of transport.
FCA
- Seller is obligated to load goods on the buyer's transport at the seller’s premises or at some other designated place. (No unloading is required)
- Thereafter, risk for the goods transfers to the buyer, when goods are delivered to this named place.
- Seller is however responsible for export clearance.
- Can be used for any mode of transport—air, courier, truck, rail, vessel or multimodal shipments.
FAS
- Seller fulfills his responsibility when goods are made available alongside the vessel which is nominated by the buyer at the named port of shipment.
- Seller is responsible for all costs and risks associated with the goods up till delivery point.
- Thereafter, buyers are to load the goods on their transport and liable to ensure goods reach the final destination.
- Used for bulk cargo, like oil or grain.
- For sea and inland waterway transport only.
FOB
- Seller is liable for all costs and responsibilities and clearing goods for export only till the goods have crossed the ‘ships rail’ at the origin port.
- Thereafter, the buyer bears all costs, responsibilities and risks for bringing goods to the final destination.
- Used in rare instances with containers at smaller ports.
- For sea and inland waterway transport only.
CFR
- Seller fulfills his obligation when goods are delivered and loaded on the vessel they’ve nominated at the named port of shipment.
- Risk or liability shifts from seller to buyer when goods are loaded onto the vessel before carriage takes place
- May be advantageous to buyers when goods originate in a high-risk country.
- For sea and inland waterway transport only.
CIF
- CIF is the same as CFR, but with added responsibility for the seller to pay for insurance as well.
- Seller is responsible for contracting international transportation
- For sea and inland waterway transport only.
CPT
- Seller is liable for clearing goods for export and delivering them to the first carrier or another person stipulated by the seller at a named place of shipment whereby risk transfers to the buyer.
- Seller is also liable for selecting and paying the international carrier, and loading and unloading goods at the named destination.
- Though the seller routes the international carrier, the buyer carries the risk during the main carriage.
- Advantageous for buyers to use CPT when the seller has greater buying power and can negotiate better rates for transportation.
- For a variety of shipping methods - Land and air, including maritime.
CIP
- As with CPT, seller is liable for delivering goods to a carrier at which point risk transfers to the buyer. Additionally, transportation costs and insurance associated with delivering goods at least to the named place of destination.
- CIP accounts for some of the risk the buyer is taking on when the seller arranges transportation.
- Seller is obligated to insure the goods in favor of the buyer to cover the buyer's risk.
- For any mode of transportation.
DAP
- Seller is responsible for all charges and risks in transit until goods reach their destination. Thereafter, risk transfers to the buyer.
- Cost and risk transfers to buyer when goods are available for unloading.
- Buyer is liable for unloading the goods and clearing customs to import the goods into the named country of destination.
- For any mode of transportation - Ideal for multimodal transport.
DPU
- Seller is liable for clearing goods for export, and bearing all risks and costs with delivering goods and unloading them at the named port of destination.
- Thereafter, buyer is responsible for clearing goods for import at the named country of destination.
- Sellers should have prepared to have engaged someone at the destination to handle the goods to unload them. If they’d like to avoid this responsibility, using DAP is better – More helpful for new importers, as they are only required to set up customs clearance.
- For any mode of transportation.
DDP
Seller faces maximum risk and responsibility:
- Liable for clearing goods for export and import.
- Takes on all risks and costs linked with delivering goods - Import duties and executing any other customs formalities, unloading goods at the terminal of the port agreed upon, or place of destination
- Clearing goods for import clearance and payment
- Bringing goods to the place of destination.
Risk transfers to the buyer at the destination. This term can be used for any mode of transportation.
Progressing from E to D type, seller’s risk, responsibility, and control increases, while buyer’s risk and responsibility decrease.
Making use of Incoterms the right way allows you to transport and deliver your goods more easily and get paid faster as well. Trustana facilitates shipping and logistics services with economies of scale to enable SMEs to buy and sell F&B products in differing volumes without fear of high costs. Products are already Imported and ready to sell, providing great convenience.
References:
1. www.youtube.com/watch?v=p1LGg1XxXuk
Other references:
https://www.txintlfreight.com/faq-article/what-are-shipping-terms/
https://blog.globartis.com/what-are-trade-terms-and-incoterms/
https://www.xeneta.com/blog/incoterms
https://incodocs.com/blog/incoterms-2020-explained-the-complete-guide/
https://www.shippingsolutions.com/blog/beginners-introduction-to-incoterms
https://www.shippingsolutions.com/blog/incoterms-cip-spotlight-carriage-insurance-paid-to