Are you a retail seller? Are you planning to expand your business domestic/internationally? Then you must understand the standard trading terminologies used in shipping. These terminologies are called as Incoterms and they are accepted and used worldwide. This enables seller and buyer to communicate in same terms thereby avoiding miscommunications. Before understanding the terms let us understand about Incoterms.

What is Incoterms?

In the year 1936, International Chamber of Commerce (ICC) developed a set of standard trade terminologies called Incoterms (International Commerce Terminology). This clearly depicts the responsibility of seller or buyer in shipping the goods from source to destination. It is generally used while trading goods to a customer beyond borders apart from domestic shipping. Many companies incorporate these trade terms in their sales and purchase contracts for the smoother trading experience. It is accepted globally and occasionally it gets revised. The current Incoterms are the eighth edition which was incorporated in 2010.Below are the descriptions of the eleven incoterms.

Terms for — Transportation Mode

1. EXW — Ex Works

The seller is accountable only for the goods at the warehouse on the day of shipping, rest of the responsibility is entirely on the buyer i.e., loading goods from the destination, transporting and unloading the goods at the destination is entirely at buyer’s risk.

2. CPT — Carriage Paid To

The seller bears the transportation charges until it reaches the destination of the buyer. Buyer is obliged if the goods get damaged/lost.

3. CIP — Carriage and Insurance Paid to

The seller covers all the charges incurred to transport the goods to buyers destination, along with minimum insurance cover against buyer’s risk of parcel getting damaged or lost.

4. DDP — Delivered Duty Paid

The seller is in charge of transporting the goods to the buyer’s location including the customs duties, taxes and freight charges.

5. DAP — Delivered At Place

The seller is responsible for transporting the goods to the named place, except the charges of import clearance and presumes all risks before to the point that the goods are ready for unloading by the buyer.

6. DAT- Delivered At Terminal

The seller bears the cost of transportation of the goods to the named terminal & assumes all risks till the point where goods are unloaded at the terminal.

7. FCA — Free Carrier

The term means that the seller delivers the goods to the named destination, cleared for export, in the carrier selected by the buyer.

Terms for — Maritime Transport

1. FAS — Free Alongside Ship

The seller is held responsible for transporting the goods from the warehouse to alongside the vessel opted by the buyer. Any damage/loss incurred during loading into the vessel until transportation of goods to the destination is on the buyer. This term is used for only sea transport and not multimodal sea transport.

2. FOB — Free on Board

The seller will pay all the cost incurred to transport the goods from warehouse till loading it into the vessel booked by the buyer. Rest all the charges, including vessels cost, duties, taxes, insurance, unloading and transporting to the destination is given by the buyer.

3. CFR — Cost and Freight

The seller is in charge of the transportation of goods from warehouse to the named port including the clearance of goods for export and freight charges. The risk is transferred to the buyer once the goods get loaded on board.

4. CIF- Cost Insurance and Freight

The seller bears all the cost of transporting the goods from the warehouse onto the vessel in the port specified by the buyer including the freight charge. Seller covers all the insurance & customs clearance in the country of export. Buyer holds the risk of damage/loss of the goods once the goods loaded on board the vessel and also customs clearance in the country of import.

While trading internationally, it is necessary to have clear idea on the responsibility of seller/buyer in transporting the goods, these 11 Incoterms plays a major role in clearly defining the role of buyer/seller, thereby avoids misunderstanding and promotes hassle free shipping.