Complete Guide to Incoterms for Freight Transport

Table of Contents

International trade terms (Incoterms) are important rules used in global trade to regulate the allocation of responsibilities, costs, and risks between buyers and sellers in transporting and delivering goods. It is an indispensable part of international trade, providing a standardized operational guide for enterprises. This article will provide beginners with a comprehensive analysis of Incoterms’ basic concepts, classification, and application scenarios.

incoterms

What is Incoterms

Incoterm are standardized trade terms developed by the International Chamber of Commerce (ICC, International Chamber of Commerce). These terms clarify the division of responsibilities, risks, and costs between buyers and sellers in the transaction of goods, especially in transportation. They simplify the preparation of international trade contracts and reduce misunderstandings or disputes arising from differences in the interpretation of the laws of different countries.

How are Incoterms classified?

Classification according to the mode of transportation

Terms applicable to maritime and inland waterway transportation are mainly used in trade scenarios where goods are transported by sea or inland waterway. For example, terms such as CFR and CIF are closely related to the characteristics of maritime transportation in terms of the division of responsibility for the loading, transportation, and insurance of goods.

Terms Applicable to Any Mode of Transportation: These terms are more flexible and apply to trade by various modes of transportation, including road, rail, air, and multimodal transportation. For example, terms such as FCA, CPT, and CIP can meet the needs of diversified modes of transportation in modern international trade.

Incoterms for all modes of transportation

1. EXW (Ex Works)

The seller delivers the goods to the place designated by the buyer at the buyer’s responsibility and expense.

2. FCA (Freight to Carrier)

The seller is responsible for delivering the goods to the buyer’s designated carrier or location.

3. DAP (Delivered At Place)

The seller bears the transportation cost and risk and delivers the goods to the place designated by the buyer but is not responsible for customs clearance.

4. DDP (Delivered Duty Paid)

The seller is responsible for all costs and liabilities, including customs clearance and duties at the destination.

Incoterms for all modes of transportation

1. EXW (Ex Works)

The seller delivers the goods to the place designated by the buyer at the buyer’s responsibility and expense.

2. FCA (Freight Carrier)

The seller is responsible for delivering the goods to the buyer’s designated carrier or location.

3. DAP (Delivered At Place)

The seller bears the transportation cost and risk and delivers the goods to the place designated by the buyer but is not responsible for customs clearance.

4. DDP (Delivered Duty Paid)

The seller is responsible for all costs and liabilities, including customs clearance and duties at the destination.

Advantages of Incoterms

Reduce misunderstanding: standardized rules clarify the responsibilities and risk allocation between buyers and sellers, avoiding transaction disputes.

Adaptation to international transportation: Provide uniform language and operational standards for cross-border transportation.

Enhance efficiency: reduce contract negotiation time and quickly determine the transaction terms.

Reduce transaction costs: Optimize transportation arrangements, clarify insurance and tariff allocation, and help enterprises control costs.

Incoterms for Sea and Inland Waterway Transportation

FAS (Free Alongside Ship at Port of Shipment)

The seller delivers the goods to the ship’s side at the named port of shipment, and the buyer is responsible for them.

FOB (Free On Board at Port of Shipment)

The seller is responsible for loading the goods onto the vessel designated by the buyer, and the risk is transferred to the buyer from the loading time.

CFR (Cost plus Freight)

The seller is responsible for freight to the destination port, but the risk passes to the buyer upon loading.

CIF (Cost plus insurance plus freight)

On top of CFR, the seller also insures the goods.

What are the most common Incoterms?

FOB (Free On Board at Port of Shipment)

The buyer bears the main transportation costs and risks, which are suitable for ocean transportation of large quantities of goods.

CIF (Cost plus insurance plus freight)

The seller is responsible for the main transportation costs and insurance, but the risk is still transferred after the ship is loaded.

EXW (Ex Works)

The seller’s responsibility is minimal, and it is suitable for the buyer to arrange transportation by himself.

DDP (Delivered Duty Paid)

Seller assumes all costs and responsibilities, suitable for one-stop service needs.

DAP (Delivered at Place of Destination)

The seller delivers the goods to the buyer’s designated place but is not responsible for customs clearance.

incoterms charts

Incoterms are essential in international goods transactions, providing a clear framework of rules for buyers and sellers to ensure smooth transactions. Understanding and skillful use of these terms reduces risks in international transactions, effectively improves logistics efficiency, and gives enterprises advantages in globalized competition.

Leatest Post

Anti-Dumping Duties

What is an anti-dumping duty? An anti-dumping duty is a trade protection measure designed to prevent foreign companies from dumping

Read More »
Scroll to Top