In the context of international shipment, Incoterms 2010 (also referred to as International Commercial Terms) are important in allotting duties of buyers and sellers. Published and developed by the International Chamber of Commerce (ICC), these terms are quite clear in determining who bears the costs, insurance, risk, and transportation of goods. The contracts tend to apply these widely and are used in relation to international sale of goods.

This is a detailed examination of some of the most popular Incoterms in global shipping, which are also cited by AIT Worldwide Logistics and Maersk sources.

Commonly Used Incoterms® in Shipping and Their Definitions

1. EXW – Ex Works (Named Place of Delivery)

Risk of Seller: Low
Buyer’s Responsibility: Maximum
Within EXW, a seller offers goods at his facility (factory, warehouses, etc.), and the rest of the costs and risks are transferred to a buyer after this stage. It is common to refer to this term when the customer regards to have full control of the shipping process. The seller is not expected to pack the products into a container or to export it.

2. FCA – Free Carrier (Named Place of Delivery)

Seller’s Responsibility: Moderate
Buyer Responsibility: Starts at hand over to carrier
FCA implies that the seller would transport the goods to a carrier or any other individual that the buyer appoints at a specified location. The buyer will be exposed to the risk after he has delivered the goods to the carrier. This is flexible, as this can be applicable in all transport means.

3. FOB – Free On Board (Name of the Port of Loading)

Liability of Seller: Until Can Be packed on ship
Buyer Responsibility: After vessel
FOB is considered to be one of the most classical terms regarding the shipping business, especially in terms of sea transportation. The seller takes all the things until the goods are loaded on the ship at the mentioned port. When they are on board the buyer takes the risk.

4. CIF – Cost, Insurance and Freight (Indicated Port of Destination)

Seller Obligation: Cost, shipment, and Insurance
Buyer Responsibility: Unloading and import
In CIF, the seller defrays cost, insurance, and freight to transport goods to the destination port. But the risk shifts to the buyer when the goods are already loaded to the ship. This is mainly applied in the transport of the sea and the inland waterways.

5. DDP – Delivered Duty Paid (Named Place of Destination)

Seller Responsibility: Up to the buyer’s location
Buyer’s Responsibility: Slight
Under DDP the seller bears all the expenses as well as risks associated with transporting the goods to the place of destination of the buyer, such as duties, taxes, and custom clearance expenses. It is the best obligation a seller should have and it gives the buyer a hassle-free delivery.

6. CPT – Carriage Paid To (Designated Place of Destination)

Shipping Cost: The responsibility of Seller
Buyer Liability: Handover risk
CPT: This is whereby the seller covers the cost of the carriage to the stated destination point, yet the risk is now passed on to the buyer after delivering the consignment to the first carrier. The buyer may also seek extra coverings not included in the CPT which is not a requirement to insurance.

7. CIP – Carriage and Insurance Paid To (Named Place of Destination)

Seller: Responsibility of shipping and insurance
Loss to Handover: Buyer Responsibility
CIP is equivalent to CPT, with the following exception; the seller is a source of an insurance cover as well. When the goods are handed over to the carrier the risk passes to the buyer but the seller is required to insure delivery at the destination.

8. DAP – Delivered at Place (Name of Place of Destination)

Seller Responsibility: Until the place of destination
Buyer Responsibility: Import duties and unloading
In DAP the seller risks and costs of delivering the goods to a given place. It is the buyer who is only concerned with import clearance and unloading. This concept is balanced in roles.

What are Incoterms® About?

Strictly speaking, each Incoterm has an impact upon pricing, documentation, regulatory requirements, and duties, involved in a shipment. Being aware of them lowers the number of conflicts and misunderstandings. It is important that all stakeholders, that is; exporters, importers, freight forwarders, and insurers, become knowledgeable of the particular duties and obligations associated with each and every Incoterm.

These terminologies are constantly changed in accordance with world trade practices. The one that is currently in use is the Incoterms 2020 version and it is important to indicate the version used in your contracts to avert confusion.

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