Hopefully you have read our blog titled “Shipping Terms in Your Commerce Contracts.” This blog will provide a brief summary of some of the terms defined in Incoterms 2010. Remember, these are summaries of the terms and you should confer with legal counsel before using an Incoterm in your transaction.
Below are Incoterms that apply to all modes of transport:
Ex Works (EXW). The Seller agrees to have the goods at an agreed point (usually the seller’s facility) and provides the Buyer notice to allow the Buyer to take delivery of the goods. The Seller’s only responsibility is to prepare the goods for pick up by the Buyer’s carrier; Buyer assumes the risk of loss of the goods, freight charges, export and import responsibilities and delivery to buyer’s facility. EXW is typically not an ideal option for most importers unless you have a freight forwarder and broker in place and have negotiated preferential shipping rates.
Free Carrier (FCA). The buyer and seller can name a location on the seller’s side (for example, “FCA Seller’s Facility at [address]”). If the parties name the seller’s facility, the seller is responsible for loading the goods onto the initial carrier and the buyer is responsible for transport, freight charges and risk of loss thereafter as well as export and import responsibilities.
Free Alongside Ship (FAS). This term is followed by a named port of shipment and is only applicable for water transport (”FAS Boston.”). The seller is responsible for the cost of transporting and delivering goods to the export point, but the responsibility shifts to the buyer once the goods are unloaded at the export point..
Free on Board (FOB). This term is followed by the named port of shipment, for example FOB New York, and applicable only for waterway transport The goods are place on board the vessel by the seller at a port of shipment at seller’s expense. Seller has responsibility until the goods are loaded on the transport vessel, then all responsibility shifts to the buyer.
Cost and Freight (CFR). This term is followed by the name of the port of destination and applies only to waterway transport. CFR requires the seller to pay the costs and freight necessary to bring the goods to the named destination. Buyer assumes responsibility for loading the goods on the truck at the place of import, transport to the destination and import responsibility.
Cost, Insurance, and Freight (CIF). CIF is similar to CFR (applicable only to waterway transport) with the additional requirement that the seller purchases insurance against the risk of loss or damage to goods.
Carriage Paid To (CPT). The buyer and seller name a location on the buyer’s side to which the freight is prepaid by seller. The wording would be something like “CPT Buyer’s Facility at [address].” The import responsibility is buyer’s only obligation, while the seller is responsible for transport, freight charges, risk of loss and exporting obligations.
Carriage and Insurance Paid (CIP). The parties name the place on the buyer’s side to which the freight is prepaid by seller (“CIP Buyer’s Facility at [address]”).. Seller carries all of the responsibility, including providing insurance against loss of damage, and import responsibility and unloading from the final carrier are buyer’s only obligation.
Delivered at Terminal (DAT). The buyer and seller identify a terminal, or a named point within the terminal, where appropriate, on the buyer’s side to which the goods are delivered. Seller carries all of the responsibility, except import responsibility falls on the buyer as well as obligations to unload at the terminal.
Delivered At Place (DAP). The parties name a stipulated destination on the buyer’s side where the goods are to be delivered. Seller carries all of the responsibility, except import responsibility falls on the buyer as well as the obligation to unload once it reaches the designated destination
Delivered Duty Paid (DDP). The parties name a Buyer’s location to which the goods are delivered (e.g. “DDP Buyer’s Facility at [address]”). All responsibility falls on the seller, except for obligations of unloading once the goods reach the Buyer’s location.
As you can tell, Incoterms can be confusing. The above is only a summary of the terms and there are many other factors to consider.
. I’ve created a graph identifying the buyer’s and seller’s obligations within the 11 Incoterms and will be happy to email it to you if you send me an email to [email protected]
If you need assistance understanding shipping terms or drafting an effective contract, contact Leslie S. Marell to schedule an appointment.