Terms of Trade
Learning the Language of Incoterms® 2020 Rules
“Incoterms” is a trademark of the International Chamber of Commerce (ICC). Incoterms® rules are frequently used worldwide in international contracts, illustrating responsibilities between buyers and sellers with regards to costs, risks, responsibilities for cargo insurance and regulatory compliance.
What you need to know
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Incoterms® rules serve to standardise the process of shipping and receiving merchandise. In addition, they determine the cost allocation of international commercial transactions and establish agreed responsibilities for exporters and importers.
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The main objective of Incoterms® rules is to define criteria for the distribution of obligations, costs and the assignment of risk between parties involved in international transactions.
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In general, the Incoterm® is a mandatory field in the customs declaration, therefore important to be clearly indicated in the customs invoice.
Incoterms® 2020 rules are classified into two categories according to the mode of transport.
Incoterms® 2020 rules are classified into two categories according to the mode of transport.
- The Incoterms® Chart of Responsibility provides an overview of the exporter’s and importer’s obligations within each category.
- Use of Incoterms® trade terms is not a legal requirement, however using them is always recommended to simplify transactions, reduce misunderstandings with those you do business with.
- You can read more about global Incoterms® rules and trade terms by visiting the International Chamber of Commerce website, which includes an FAQ and an explanation of Incoterms® rules.
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EXW
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Ex Works
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Means that the seller delivers the goods to the buyer when it places the goods at the disposal of the buyer at a named place (like a factory or warehouse), and that named place may or may not be the seller’s premises. For delivery to occur, the seller does not need to load the goods on any collecting vehicle, nor does it need to clear the goods for export, where such clearance is applicable. |
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FCA
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Free Carrier
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Means that the seller delivers the goods to the buyer in one or other of two ways:
Whichever of the two is chosen as the place of delivery, that place identifies where risk transfers to the buyer and the time from which costs are for the buyer’s account. |
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CPT
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Carriage Paid To
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Means that the seller delivers the goods – and transfers the risk - to the buyer by handing them over to the carrier contracted by the seller or by procuring the goods so delivered. The seller may do so by giving the carrier physical possession of the goods in the manner and at the place appropriate to the means of transport used. Once the goods have been delivered to the buyer in this way, the seller does not guarantee that the goods will reach the place of destination in sound condition, in the stated quantity or indeed at all. This is because risk transfers from seller to buyer when the goods are delivered to the buyer by handing them over to the carrier; the seller must nonetheless contract for the carriage of the goods from delivery to the agreed destination.
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CIP
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Carriage and Insurance Paid To
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Means that the seller delivers the goods – and transfers the risk - to the buyer by handing them over to the carrier contracted by the seller or by procuring the goods so delivered. The seller may do so by giving the carrier physical possession of the goods in the manner and at the place appropriate to the means of transport used. Once the goods have been delivered to the buyer in this way, the seller does not guarantee that the goods will reach the place of destination in sound condition, in the stated quantity or indeed at all. This is because risk transfers from seller to buyer when the goods are delivered to the buyer by handing them over to the carrier; the seller must nonetheless contract for the carriage of the goods from delivery to the agreed destination.
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DPU
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Delivered at Place Unloaded
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Means that the seller delivers the goods – and transfers risk - to the buyer when the goods, once unloaded from the arriving means of transport, are placed at the disposal of the buyer at a named place of destination or at the agreed point within that place, if any such point is agreed. The seller bears all risks involved in bringing the goods to and unloading them at the named place of destination. In this Incoterms rule, therefore, the delivery and arrival at destination are the same. DPU is the only Incoterms rule that requires the seller to unload goods at destination. The seller should therefore ensure that it is in a position to organise unloading at the named place. Should the parties intend the seller not to bear the risk and cost of unloading, the DPU rule should be avoided and DAP should be used instead.
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DAP
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Delivered at Place
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Means that the seller delivers the goods – and transfers risk - to the buyer 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 or at the agreed point within that place, if any such point is agreed. The seller bears all risks involved in bringing the goods to the named place of destination or to the agreed point within that place. In this Incoterms rule, therefore, delivery and arrival at destination are the same.
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DDP
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Delivered Duty Paid
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Means that the seller delivers the goods to the buyer when the goods are placed at the disposal of the buyer, cleared for import, on the arriving means of transport, ready for unloading, at the named place of destination or at the agreed point within that place, if any such point is agreed. The seller bears all risks involved in bringing the goods to the named place of destination or to the agreed point within that place. In this Incoterms rule, therefore, delivery and arrival at destination are the same.
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FAS
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Free Alongside Ship
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Means that the seller delivers the goods to the buyer when the goods are placed alongside the ship (e.g. on a quay or a barge) nominated by the buyer at the named port of shipment or when the seller procures goods already so delivered. The risk of loss of or damage to the goods transfers when the goods are alongside the ship, and the buyer bears all costs from that moment onward. |
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FOB
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Free on Board
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Means that the seller delivers the goods to the buyer on board the vessel nominated by the buyer at the named port of shipment or procures the goods already so delivered. The risk of loss of or damage to the goods transfers when the goods are on board the vessel, and the buyer bears all costs from that moment onwards.
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CFR
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Cost and Freight
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Means that the seller delivers the goods to the buyer on board the vessel or procures the goods already so delivered. The risk of loss of or damage to the goods transfers when the goods are on board the vessel, such that the seller is taken to have performed its obligation to deliver the goods whether or not the goods actually arrive at their destination in sound condition, in the stated quantity or, indeed, at all. In CFR, the seller owes no obligation to the buyer to purchase insurance cover: the buyer would be well advised therefore to purchase some cover for itself.
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CIF
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Cost, Insurance, Freight
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Means that the seller delivers the goods to the buyer on board the vessel or procures the goods already so delivered. The risk of loss of or damage to the goods transfers when the goods are on board the vessel, such that the seller is taken to have performed its obligation to deliver the goods whether or not the goods actually arrive at their destination in sound condition, in the stated quantity or, indeed, at all.
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Disclaimer
Disclaimer
While we have made every attempt to ensure that the information contained herein has been obtained, produced and processed from sources believed to be reliable, no warranty, express or implied, is made regarding the accuracy, adequacy, completeness, legality, reliability or usefulness of such information.
All information contained herein is provided on an “as is” basis. In no event will DHL Express, its related partnerships or corporations under the DHL Group, or the partners, agents or employees thereof be liable to you or anyone else for any decision made or action taken in reliance on the information contained herein or for any consequential, special or similar damages, even if advised of the possibility of such damages.
