In order to unify international trade ICC offered to adhere to the Incoterms delivery rules. These commercial designations include a number of terms.
The three-letter sales designations contracts clearly describe the objectives, risks and transporting goods’ costs.
Some nuances before you get the Incoterms 2010 current version:
- In India import duties for goods are calculated based on CIF.
- In South Africa FOB taxes are levied.
Taking into account these features, foreign suppliers use only such terms. In case the chosen transport type does not correspond to the term, this is additionally agreed with the importer company.
EXW – Ex Works (indicating the delivery place)
This means the seller is not responsible for the goods. All costs and risks during loading/unloading and transportation are borne by the buyer.
In this case, the seller can take the loading and goods’ delivery. This should be spelled out in the contract. But financing and risks are still borne by the buyer.
Another nuance: neither the seller nor the buyer is obliged to enter into a carriage contract. The buyer has the right to resell the goods to the final consumer. Products will need to be taken from the manufacturer’s warehouse.
Most often the buyer organizes the freight collection from the specified warehouse and is undergoing customs clearance. Also, the buyer fills out all export documentation. The seller is obliged to provide upon request:
- Technical conditions;
- Payment documents.
FCA – Free Carrier (indicating the delivery place)
The seller is responsible for clearing the goods for export. Also, the seller is responsible for delivering the goods to the specified location:
- Own warehouse (responsible for loading/unloading at the seller).
- The carrier chosen by the buyer (the seller’s responsibility ends on goods’ arrival at the destination).
- The third part called the buyer.
CPT – Carriage Paid To (destination)
The term is used to deliver without the maritime transport participation. Seller pays customs clearance and shipping to destination. The goods are considered to be delivered when the carrier or the buyer accepted it. This delivery mode does not imply insurance.
CIP – Shipping and Insurance paid (named destination place)
The term is similar to the previous one with the insurance exception. The seller is obliged to insure the goods value for 110%. The payment amount is calculated in the same currency as the contract. This delivery type can be used for any transport type.
DAT – supplied in the terminal (the terminal name at the port or destination)
The seller delivers and unloads goods in the specified terminal. All risks and expenses are also assumed by the shipper. After unloading at the port, airport or domestic cargo terminal, responsibility is transferred to the buyer.
Customs clearance, taxes, import duties paid by the buyer. But fees for delay in the terminal are charged to the seller.
DAP – delivered to place (destination name)
The seller must undergo the goods an export clearance, then deliver the goods to the destination. Import clearance, taxes and duties paid by the buyer already. Simple at the terminal reimbursed by the seller. Responsibility for the goods passes to the buyer at the discharge point. Unloading also takes on the consignee.
DDP – Paid Duty (destination name)
The seller is responsible for the goods before their arrival in the buyer’s country. The shipper pays carrier rates, customs clearance, taxes. The buyer accepts the goods and all risks only in the final unloading place specified in the contract.
The main problem with this term use is customs clearance. Often the seller has to hire an independent agent (the country’s resident). This may incur additional costs or delays in transit.
The following terms are specifically designed for maritime transport:
FAS – Free Alongside Ship (indicating the port)
The seller delivers the goods to the specified port. Further transportation by sea and responsibility for the goods transferred to the buyer. The seller is obliged to make an export clearance. The term is suitable for inland water transport and non-container transport.
FOB – free on board (named port)
The seller is responsible for the goods until they are loaded on the ship. Also, the shipper provides export documents. The buyer bears the import cost, insurance, delivery to the final destination.
CFR – Cost and Freight (named port)
The seller pays shipping to the buyer’s port (without insurance). In this case, responsibility for the goods passes to the buyer already during the goods loading on board the vessel.
CIF – Cost, Insurance and Freight (named port)
A term almost similar to CFR. It additionally obliges the seller to pay insurance in the contract value’s 110% amount.
For a more detailed explanation, contact NH Logistics specialists via email or phone.