What are Incoterms and Common Definitions of Incoterms
As Cerasis now can help with freight management and transportation procurement in Mexico and Canada, incoterms are becoming a big part of us properly advocating and management the freight o behalf of our clients. In this post, our trusted 3PL consultant, Chuck Intrieri, who works with companies to help them choose the right 3PL company for their needs, defines the most popular and important incoterms so you may be prepared if you do international commerce.
UPDATE: The below are now updated to the 2010 most recent version of Incoterms. We give credit to Steven Ingels, a contract and consulting project logistician, to making sure we had the most updated list.
What are Incoterms?
The Incoterms rules or International Commercial terms are a series of pre-defined commercial terms published by the International Chamber of Commerce (ICC) that are widely used in International commercial transactions or Procurement processes. A series of three-letter trade terms related to common contractual sales practices, the Incoterms rules are intended primarily to clearly communicate the tasks, costs, and risks associated with the transportation and delivery of goods.
The Incoterms rules are accepted by governments, legal authorities, and practitioners worldwide for the interpretation of most commonly used terms in international trade. They are intended to reduce or remove altogether uncertainties arising from different interpretation of the rules in different countries. As such they are regularly incorporated into sales contracts worldwide.
Departure (Group E)
- EXW – EXW means Ex Works and is followed by a named place, for example EXW Dallas. EXW means the seller’s responsibility is to make the goods available at the seller’s premises. The seller is not responsible for loading the goods on the vehicle provided by the buyer, who then bears the full cost involved in bringing the goods from there to the desired destination.
Main Carriage Not Paid By Seller (Group F)
- FCA – FCA means Free Carrier and is followed by a named place, for example FCA Brownsville. FCA means the seller fulfills its obligation to deliver when it has handed over the goods, cleared for export, into the charge of the carrier named by the buyer at the named place. If no precise point is indicated by the buyer, the seller may choose within the place or range stipulated where the carrier shall take the goods into its charge.
- FAS – FAS means Free Alongside Ship and is followed by a named port of shipment, for example FAS New York. FAS means the seller is responsible for the cost of transporting and delivering goods alongside a vessel in a port in his country. As the buyer has responsibility for export clearance, it is not a practical Incoterm for U.S. exports. FAS should be used only for ocean shipments since risk and responsibility shift from seller to buyer when the goods are placed within the reach of the ship’s crane.
- FOB – FOB means Free On Board and is followed by the named port of shipment, for example FOB Baltimore. With FOB the goods are placed on board the ship by the seller at a port of shipment named in the sales agreement. The risk of loss of or damage to the goods is transferred to the buyer when the goods pass the ship’s rail, i.e. off the dock and placed on the ship. The seller pays the cost of loading the goods.
Main Carriage Paid By Seller (Group C)
- CFR – CFR means Cost and Freight and is followed by a named port of destination, for example CFR Sydney. CFR requires the seller to pay the costs and freight necessary to bring the goods to the named destination, but the risk of loss or damage to the goods, as well as any cost increases, are transferred from the seller to the buyer when the goods pass the ship’s rail in the port of shipment. Insurance is the buyer’s responsibility.
- CIF – CIF means Cost, Insurance and Freight and is followed by a named port of destination, for example CIF Miami. CIF is similar to CFR with the additional requirement that the seller purchases insurance against the risk of loss or damage to goods. The seller must pay the premium. Insurance is important in international shipping, more than domestic US shipping, because U.S. laws generally hold a common carrier to be liable for lost or damaged goods.
- CPT – CPT means Carried Paid To and is followed by a named place of destination, for example CPT Kansas City. CPT means that the seller must pay the freight for the carriage of the goods to the named destination. The risk of loss or damage to the goods and any cost increases transfers from the seller to the buyer when the goods have been delivered to the custody of the first carrier, and not at the ship’s rail.
- CIP – CIP means Carriage And Insurance Paid To and is followed by a named place of destination, for example CIP Boston. CIP has the same incoterm meaning as CPT, but in addition the seller pays for the insurance against loss of damage.
Arrival (Group D)
- DAT – Delivered at Terminal means that the seller delivers when the goods, once unloaded from the arriving means of transport, are placed at the disposal of the buyer at a named terminal at the named port or place of destination. “Terminal” includes a place, whether covered or not, such as a quay, warehouse, container yard or road, rail or air cargo terminal. The seller bears all risks involved in bringing the goods to and unloading them at the terminal at the named port or place of destination.
- DAP – “Delivered at Place” means that the seller delivers when the goods are placed at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination. The seller bears all risks involved in bringing the goods to the named place.
- DDP – means Delivered Duty Paid and is followed by a named place of destination, for example DDP Bakersfield. The seller has to pay the costs involved in shipping the goods as well as the costs and risks of carrying out customs formalities. The seller pays the duty and the buyer has to pay any additional costs caused by its failure to clear the goods for import in time. DDP should not be used if the seller is unable to obtain an import license.
If you need help picking the right 3PL or have questions about shipping to and from Mexico or Canada, please fill out the form below. If you would like to know more about international 3PLs, who Cerasis works alongside while we focus on LTL to support their more North American clients, please email Chuck Intrieri.