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Incoterms 2010 Guide

‘Incoterms’ has become a stock term in the international freight world. In fact it is a word that is copyrighted
by the International Chamber of Commerce (ICC). Following some years of discussion and drafting within
the ICC, they issued the first International Commercial Terms (Inco terms) in 1936. There have been 5
revisions since then, up to the latest – Incoterms 2010.
What is meant by Incoterms is a set of rules governing the distinct types of transportation around the World.
It codifies what is meant by each of the (currently) 11 identified and generally accepted types of freight
transaction that can be used between sender and recipient. It helps them to understand who owns the
goods at each stage, who is responsible in each case for the actual task of shipping, who pays for the
various cost elements, and who bears the associated risks (i.e. who pays in the event of damage or loss, at
a given point).
The United Nations Commission on International Trade Law (UNICTRAL) recognises these terms as being
the global standard for transportation; and they are available in 31 languages through ICC.
It should be noted that the parties to a shipping transaction may agree between themselves to use a
previous version, most likely the immediate predecessor, Incoterms 2000. The vast majority of trade,
however, is being done using Incoterms 2010.

What is the ICC?


Based in Paris, ICC was founded in 1919. In the chaos that followed WW1, a group of industrialists and
financiers were determined to try to bring some order into world trade and to establish some rules and
agreements that would make it easier to do business across borders and foster open trading. Its member
companies now come from over 120 countries.
ICC’s biggest achievements include a code of documentary credits practice for banks, a standard of
advertising practice, and of course Incoterms.

Incoterms 2010
This latest version was launched in September 2010 but actually came into being on 1st January 2011. This
sometimes leads to confusion, with people referring to Incoterms 2011; and you may hear references to
Incoterms 2012 or Incoterms 2013. They are not, however, updated annually and the correct reference is
currently ‘Incoterms 2010’.
As we shall see, the Incoterms are described by 3-letter acronyms that aim to make them well-known and
understood anywhere, regardless of language.
This latest edition contains 11 terms. The first 7 are applied to any form of transportation: the final 4 are
applicable only to sea or waterway freight.
It is important to understand the concept of ‘delivery’ as it is understood in the freight industry. It does not
always mean the physical arrival of the goods at their destination. It actually means the point at which the
seller completes his contractual obligation (so in the case of Ex Works, that is when the buyer loads a lorry
with the goods at the seller’s plant).
It may also help to note the significance of the first letter in the terms:
C terms require the seller to pay for shipping.
D terms mean that the seller or shipper’s responsibility ceases at a specified point, and they deal with who
will pay pier, docking and clearance charges.
E terms mean that when the goods are ready to leave the seller’s premises, his responsibility ceases.
F terms mean that the primary cost of shipping is not met by the seller.

Section A – Any mode of transport


1.EXW Incoterms – Ex Works (named place of delivery)
This simple arrangement places the onus on the buyer to carry out the whole shipping process. The seller
just makes the goods available at his factory or warehouse at the agreed date: if he physically loads them it
is at the other party’s risk, unless specific wording is added to the contract to vary this term.
The buyer is responsible for loading, transportation, clearance and unloading.
‘Ex Works’ is also the typical basis of making initial quotations when the actual shipping costs at a given time
are not known.
The buyer pays all transportation costs and also bears the risks for bringing the goods to their final
destination.

2.FCA Incoterms – Free Carrier (named place of delivery)


The seller hands over the goods, cleared for export, to the first carrier with whom he has made the
arrangements (even if that carrier has been chosen by the buyer). The buyer normally pays for carriage to
the port of import, and risk passes to him when the goods are handed over to the first carrier, even though
‘delivery’ may not take place until the destination. The buyer also pays for insurance.
3.CPT Incoterms – Carriage Paid To (named place of destination)
The seller pays for carriage. The risk passes to the buyer when the goods are handed to the first carrier at
the place of Importation. The seller also has to pay for cargo insurance, in the name of the buyer, when
goods are in transit.
4.CIP Incoterms – Carriage and Insurance Paid to (named place of destination)
This is commonly used in road/rail or road/sea container shipments and is the multimodal equivalent of CIF.
The seller pays for carriage and insurance to the named destination point, but risk passes when the goods
are handed over to the freight forwarder, who in practice supplies the insurance element.
5.DAT Incoterms – Delivered at Terminal (named terminal at port or place of destination)
In this system (new in Incoterms 2010) the seller pays for carriage to the arrival terminal, (excluding import
clearance). Up to the point that goods are unloaded at the terminal, the risk remains with the seller.
6.DAP Incoterms – Delivered at Place (named place of destination)
Also new in Incoterms 2010, this is identical to DAT, except that the seller remains responsible for cost and
risk (exc. import clearance) right up to the point that the goods are ready for unloading by buyer at his
chosen destination.
7.DDP Incoterms – Delivered Duty Paid (named place of destination)
This is the polar opposite to EXW: here the seller assumes all costs, risks and obligations, including import
duties, taxes, clearance fees etc., right up to the destination point, where the buyer is then responsible for
unloading the shipment.
(You may also come across the unofficial phrase “Free In Store” – FIS – for this term).

Section B – Sea and inland waterway transport only


8.FAS Incoterms – Free Alongside Ship (named port of shipment)
This is revised in Incoterms 2010, where now the seller or, more typically, his shipper/freight forwarder, must
clear the goods for export.
Note that this is not a multimodal term, but is used for heavy and bulk cargoes.
The seller’s forwarder puts the goods alongside the ship. It that point delivery is made: and thereafter the
buyer’s forwarder is responsible for transport and insurance, at the buyer’s risk and cost.
9.FOB Incoterms – Free on Board (named port of shipment)
Be wary of the misleading nature of this common phrase and how it is often misused. It is to be used only for
exclusively water transportation. Do not use it for road/rail/sea multimodal container transportation – use
FCA instead.
In FOB, the seller clears the goods for export and loads the goods on the vessel and at the port that have
been nominated by the buyer.
New for Incoterms 2010 is that cost and risk are divided when the goods are actually on board: but delivery
occurs when the goods are on board ship.
10.CFR Incoterms – Cost and Freight (named port of destination)
Under this arrangement (previously known as C&F) the seller must pay the costs and freight to get the
goods to their destination port, at which point delivery is achieved (but it is not the seller’s job to clear them
through customs).
Actual risk passes to the buyer once the goods are loaded on the ship. Note that insurance for the goods is
the responsibility of the buyer.
11.CIF Incoterms – Cost, Insurance and Freight (named port of destination)
CIF is a very common format and it is identical to CFR: the only difference is that the seller also pays to
insure the merchandise.
Loadin Carriage
Unloadin Loadin Carriage
Export- Carriag Unloadin g (Sea Import
g g on to place Impor
Incoter Customs e to g of truck charge Freight/Ai Insuranc customs
charges truck in of t
m 2010 declaratio port of in port of s in r Freight) e clearanc
in port of port of destinatio taxes
n export export port of to port of e
import import n
export import
EXW Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer
FCA Seller Seller Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer
FAS Seller Seller Seller Buyer Buyer Buyer Buyer Buyer Buyer Buyer
FOB Seller Seller Seller Seller Buyer Buyer Buyer Buyer Buyer Buyer
CFR Seller Seller Seller Seller Seller Seller Buyer Buyer Buyer Buyer
CIF Seller Seller Seller Seller Seller Seller Buyer Buyer Seller Buyer Buyer
CPT Seller Seller Seller Seller Seller Seller Seller Seller Buyer Buyer
CIP Seller Seller Seller Seller Seller Seller Seller Seller Seller Buyer Buyer
DAT Seller Seller Seller Seller Seller Seller Seller Seller Buyer Buyer
DAP Seller Seller Seller Seller Seller Seller Seller Seller Buyer Buyer
DDP Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller

Old Incoterms 2000 types that are not in Incoterms 2010


As mentioned earlier, the parties may choose to use older terms, and the following that are no longer
specified by the ICC may still be encountered.
DAF – Delivered at Frontier (named place of delivery)
For rail and road shipments. Seller pays for transport to the country frontier. Buyer arranges for customs
clearance and pays for transport from frontier to his site. Risk passes at the frontier.
DES – Delivered Ex Ship (named port of delivery)
You may come across this with bulk commodities where seller owns or charters their own vessel. Unlike
CFR and CIF, seller bears not just cost, but risk and title until arrival of the vessel at the delivery port. Buyer
pays to unload plus customs duties, taxes, etc.
DEQ – Delivered Ex Quay (named port of delivery)
The same as DES, except risk passes only when goods are unloaded at the destination.
DDU – Delivered Duty Unpaid (named place of destination)
Seller delivers the goods to the ultimate destination in the contract. The goods are not cleared for import or
unloaded. The buyer is responsible for all costs and risks beyond this point. Any variation must be explicit in
the contract.

What is the legal status of Incoterms?


It is important to note the limitations of Incoterms. They do not replace the many and varied legal systems
that apply in the world’s countries and trading blocs: and it is these often infuriating legal minefields that
freight forwarders encounter daily and in so doing, fully justify their fees.
Incoterms are designed to codify basic concepts of risk, the allocation of costs, the point at which delivery
takes place, and the responsibility for insurance. This has been hugely beneficial to world trade: it allows
insurers to operate effectively at a global level and for all the countries which adhere to the Incoterms rules
(that is, most of them) it oils the wheels (and keels) of trade.
What International Commercial Terms do not cover are the issues like who covers the goods before and
after the delivery process; who pays VAT or other sales taxes; the precise nature of the contract between
buyer and seller (although ICC does have model contracts and clauses, these are not legally binding); or
when things go wrong, how alleged breaches of contract are settled. The sales contract will state which
country’s legal system will apply in that event.
International legal harmonisation on trade law issues is something that UNICTRAL has been working on for
many years, with some success, but much remains to be done.
Other moves that will help international trade have come from the Rotterdam Rules, endorsed by 22
countries accounting for 25% of world trade – they allow for multi-modal door-to-door shipments to have
built-in liabilities and insurance issues contained within individual contracts. Another potential step forward
towards contractual uniformity comes from the 59 countries (including France, China and the United States
but not yet the UK) that are signatories to the U.N. Convention on Contract for the International Sale of
Goods (“CISG”).
Incoterms In Plain English: A Freight Shipping Guide
Despite being such an integral part of our everyday lives, most people don’t know much about freight, much
less the jargon associated with it. That is why we designed this guide to provide comprehensive information
about incoterms, clearly explaining each one in a way that anyone can understand.

Here’s what you need to know:


1. What are Incoterms?
2. At What Point You Should Consider Incoterms?
3. Main Differences Specific to a Country
4. When to Challenge Advice
5. What Incoterms Don’t Cover
6. Define Named Place in the Sales Contract
7. How incoterms impact your shipping cost
8. How Letters of Credit Limit Choice of Incoterm
9. Individual Incoterms

What are Incoterms?


Freight incoterms (International Commercial Terms) are the standard contract term used in sales contracts
with importing/exporting to define responsibility and liability for shipment of the goods. In plain English –
how far along the process will the supplier ensure that the goods are moved, and at what point does the
buyer take over the shipment process.

FOB (Free On Board), EXW (Ex Works) and FCA (Free Carrier) are the most familiar incoterms but there’s
much about these and the other options to learn. Because they are legal terms, written from a legal
perspective, incoterms can be confusing or easily misunderstood. And making the wrong choice might turn
your shipment into an expensive nightmare.

At What Point You Should Consider Incoterms?


Buyers should consider incoterms before the contract of sale is negotiated, or risk being stung by the
supplier on the deal, and/or having unnecessary complications to the shipment.

Main Differences Specific to a Country


The above advice covers most countries in most circumstances. For instance, customs procedures are much
more relaxed at porous borders, like within the EU. The three other exceptions likely to affect shipments are:
the US is the only country that requires a Customs Bond, importing into the UK requires a Deferment
Account, and exporting from India includes a withholding tax.

When to Challenge Advice


Some freight forwarders prefer only using a favored set of incoterms because they ‘seem to work’. Therefore
don’t be surprised if some forwarders push back on your selection of incoterm, despite it being the most
appropriate incoterm for your shipment.

What Incoterms Don’t Cover


Incoterms do not cover property rights, possible force majeure situations and breach of contract. Include of
these within the contract of sale. Similarly, all incoterms except the C terms do not assign responsibility for
arranging insurance. Cargo insurance is, therefore, a separate cost for buyers.

Define Named Place in the Sales Contract


When the incoterm is written in the sales contract, the named place should immediately follow the three
letter incoterm abbreviation, e.g. “FCA Shenzen Yantian CFS”. Be precise when defining the location,
especially with larger cities that may have several terminals, and with larger terminals that may have several
drop-off points. You can use this global port finder to find specific port codes.

How incoterms impact your shipping cost


You can use our freight rate calculator to help you decide how different incoterms will impact your freight
cost. For example, when shipping EXW, you’ll be responsible for the added cost of getting your goods from
your supplier to the seaport or airport. Simply choose container, box, or pallet shipping, enter your
dimensions and weight, and you’ll get an instant estimate of freight shipping costs.

How Letters of Credit Limit Choice of Incoterm


If the sale is being completed with a letter of credit or documentary credit, the chain that releases funds
begins with the seller providing several documents to the bank, including the bill of lading/air waybill. Letters
of credit are used where there is limited trust between the seller and the buyer. That rules out EXW, because
the supplier will be paid before pickup. F terms require trust because if the buyer cancels the international
transit, the supplier won’t have a bill of lading to present to the bank. D terms require trust because the
seller is bearing all of the transport costs. That leaves the four C terms as the best options to use with a letter
of credit.

How Letters of Credit Limit Choice of Incoterm


If the sale is being completed with a letter of credit or documentary credit, the chain that releases funds
begins with the seller providing several documents to the bank, including the bill of lading/air waybill. Letters
of credit are used where there is limited trust between the seller and the buyer. That rules out EXW, because
the supplier will be paid before pickup. F terms require trust because if the buyer cancels the international
transit, the supplier won’t have a bill of lading to present to the bank. D terms require trust because the
seller is bearing all of the transport costs. That leaves the four C terms as the best options to use with a letter
of credit.

Individual Incoterms
EXW | FCA | FAS | FOB | CPT | CIP | CFR | CIF | DPU | DAP | DDP
What is Ex Works (EXW) Shipping Incoterm?

EXW In Plain English


For EXW (Ex Works) shipping, the buyer arranges the full shipment, from the supplier’s warehouse to the
cargo’s ultimate destination.

Where Is The Named Place For Handing Over Responsibility From The Seller To The Buyer?
The buyer is liable and responsible for almost every step. The seller is only responsible for the Bill of Lading
or Air Waybill, and ensuring that the goods are available for pickup at the named place, usually their factory,
at a time agreed with the forwarder.

What Does The ICC Say?


Recommended for containerized freight.

Is This A Good Choice?


This is probably not a convenient arrangement, as the buyer is usually in a much poorer position than the
seller for arranging tasks in the export country. Those tasks include loading the truck; arranging for
specialized equipment for loading if required; documentation (the seller is only obliged to help get an export
license, Certificate of Origin etc. – and is not even obliged to provide packing lists or fumigation certificates);
and managing export clearance. Consider FCA instead.

EXW Tips And Tricks

 If the seller is going to help load, make sure to include this elsewhere in the sales contract.
 This shouldn’t be a problem if importing from China, but when selecting a forwarder, check that they are
able to arrange export customs clearance.
 The buyer isn’t actually obliged to arrange a contract of carriage. This means that the buyer may sell the
goods on to a customer, who will then arrange collection.
 Exporters should hand over a courier receipt or FCR to the buyer’s forwarder, rather than handing over
the Air Waybill or Bill of Lading.
 Exporters won’t have direct evidence of export, should they otherwise be able to claim a rebate from
domestic sales tax.

What is Free Carrier (FCA) Shipping Incoterm?


FCA In Plain English
For FCA (Free Carrier) shipping, the seller arranges most or all of the export country stages (e.g.
customs, trucking within the export country). The buyer arranges all other stages to the cargo’s
ultimate destination.

Where Is The Named Place For Handing Over Responsibility From The Seller To The Buyer?
The seller is liable and responsible for all tasks in their country up until the goods are delivered to the carrier
at the named place, usually the terminal or a warehouse (e.g. consolidation centre). Unless the named place
is the terminal, the buyer will be liable and responsible for some tasks in the export country.

What Does The ICC Say?


Recommended for containerized freight.

Is This A Good Choice?


FCA overcomes the disadvantages of EXW, where the buyer is in a worse position than the seller for
arranging local transport and customs.

FCA Tips And Tricks

 If the named place is a forwarder’s warehouse or some other terminal that is not the seaport or
airport, the seller remains liable and responsible for loading the truck at their premises, with the
carrier responsible for unloading the truck at the named place. The buyer is therefore liable and
responsible for some tasks in the export country (transportation and terminal charges).
 The named place can also be the supplier’s factory, making it similar to EXW, excepting the supplier is
responsible for loading the truck. The buyer is therefore liable and responsible for some tasks in the
export country (transportation and terminal charges).
 Irrespective of where the named place is, the seller is still responsible for all export and documentation
tasks. There’s one exception, which is relevant only for letter of credit payments: the buyer can now
instruct the carrier to add the word “aboard” onto the Bill of Lading.

What is Free Alongside Ship (FAS) Shipping Incoterm?


FAS In Plain English
For FAS (Free Alongside Ship) shipping, the seller arranges all export country stages. The buyer arranges all
other stages to the cargo’s ultimate destination. Not recommended.

Where Is The Named Place For Handing Over Responsibility From The Seller To The Buyer?
The seller is liable and responsible for all the steps in their country, up until the goods are alongside the ship,
or the terminal warehouse in the case of air freight. The buyer is responsible for loading.

What Does The ICC Say?


Not recommended for containerized freight. Designed for bulk and break bulk cargo.
Is This A Good Choice?
There is no obvious reason why the buyer should only want to be liable and responsible for one task in the
export country – loading containerized freight. Consider FOB instead, which is exactly the same as FAS, but
has the additional benefit of the seller being liable and responsible for loading the ship.

Your Guide To Free On Board (FOB) Shipping: Meaning, Incoterms & Pricing
International trade is complicated.

And while no two countries have exactly the same laws, when it comes to freight there are many precepts
that are standardized worldwide.

This means that no matter where you ship from, you will encounter the same regulations. One of the most
prominent examples of this standardization is the International Commercial Term, or incoterm.

Simply put, an incoterm is the standard contract used to define responsibility and liability for the shipment of
goods. It plainly lays out how far along into the process the supplier will ensure that your goods are moved
and at what point the buyer takes over the shipment process.

It also has implications for your total freight costs. Of the 11 different incoterms that are currently used in
international freight, Free on Board (FOB) is the one that you will encounter most frequently.

This guide cuts through the legal jargon and explains everything you need to know about this common
incoterm in plain English.

1. What Does FOB Shipping Mean?


2. FOB Price Calculation: How Do I Get an FOB Shipping Price?
3. What is the Difference Between FOB Shipping Point and FOB Destination?
4. FOB Shipping Point: Who Pays the Freight Costs?
5. FOB Costs: What is the Difference Between FOB and other sea shipping incoterms?
6. What is the Difference Between FOB and FAS?
7. What is the Difference Between FOB and CFR?
8. What is the Difference Between FOB and CIF?

What Does FOB Shipping Mean?


First, let’s define what FOB (free on board) means by breaking down it down word-by-word.
The term ‘free’ refers to the supplier’s obligation to deliver goods to a specific location, later to be
transferred to a carrier.

In other words, the supplier is “free” of responsibility. ‘On board’ simply means that the goods are on the
ship.

As such, FOB shipping means that the supplier retains ownership and responsibility for the goods until they
are loaded ‘on board’ a shipping vessel. Once on the ship, all liability transfers to the buyer.

Expert's Note
The FOB incoterm is only applied to shipments being sent by sea or waterway.

The further clarify, let’s track the FOB shipping process:

1. You purchase goods from a supplier in China and agree to FOB shipping terms. The next three steps of

the process are carried out at the supplier’s expense.

2. Your goods are packaged and loaded onto a truck (or another form of transportation) at the supplier’s

warehouse (or another facility).

3. The truck brings the goods to the port.

4. The goods are loaded on board the shipping vessel.

5. Once aboard, the rest of the journey from China is now both your liability and your expense. Anything that

happens from this point is on you.

The concept is illustrated below:

There are situations where you may be responsible for covering costs before your goods are on board.

When you are shipping loose cargo (ie, not a full container), for example, your goods must go through
a Container Freight Station (CFS) to be consolidated into a container.

Some suppliers do not cover the cost of consolidation.


FOB Price Calculation: How Do I Get an FOB Shipping Price?
You can get an FOB price estimate using Freightos’ International Freight Rate Calculator.

Just enter the dimensions and weight of your goods and specify the port of shipment, and you’ll get your
FOB price calculation instantly.

If you are sending a full container load (FCL), enter the information under the Containers tab.

What is the Difference Between FOB Shipping Point and FOB Destination?
The qualifiers of FOB shipping point and destination are sometimes used to reduce or extend the
responsibility of the supplier in an FOB shipping agreement.

With FOB shipping point, ownership of goods is transferred to the buyer once they leave the supplier’s
shipping point.

From there, the title for the goods transfers from the supplier to the buyer immediately and if anything
happens to the goods at any leg of the journey to the buyer from there, the buyer assumes all responsibility.

With FOB destination, ownership of goods is transferred to the buyer at the buyer’s loading dock.

Upon delivery of the goods to the destination, the title for the goods transfers from the supplier to the
buyer.

If anything happens to the goods on any leg of the journey to the buyer, the supplier assumes all
responsibility.

FOB Shipping Point: Who Pays the Freight Costs?


When the terms are FOB shipping point, the supplier relinquishes all of his responsibility for the goods at his
shipping point and the buyer is obligated to cover the freight costs required for getting them to the desired
location.

To further clarify, let’s assume that Claire’s Comb Company in the US purchases a container of The Wonder
Comb from a supplier based in China.

An FOB shipping point agreement is signed and the container is handed off to the freight carrier at the
shipping point.

If sending the container to the US costs $1000, Claire’s Comb Company is responsible for paying that sum in
full in order to get the goods.

FOB Costs: What is the Difference Between FOB and other sea shipping incoterms?
There are four incoterms that are applied exclusively to ocean shipments: FOB, FAS, CFR, and CIF.

Understanding the differences between each is as simple as knowing how much responsibility the buyer and
supplier assume under each agreement.

What is the Difference Between FOB and FAS?


Free Alongside Ship (FAS) is a barebones ocean freight shipping option. It requires the supplier to pay for
the delivery of your goods up until the named port of shipment, but not for getting the goods aboard the
ship.

The buyer takes responsibility for the shipment once it is placed alongside the shipping vessel.

Unlike FOB shipping, the supplier is not required to ensure the safe movement from port to ship.

What is the Difference Between FOB and CFR?


Cost and Freight (CFR) puts the costs associated with transporting your goods to the destination port on
the supplier.

This includes any fees associated with export, in addition to the cost of sending your freight to the port of
destination.

Once the delivery is unloaded in the receiving country, responsibility is transferred to you.

CFR includes neither insurance nor the costs associated with getting the delivery to your final destination.
Also excluded are customs duties.

What is the Difference Between FOB and CIF?


Cost, Insurance, Freight (CIF) puts the liability of payment for – you guessed it – cost, insurance, and
freight on the supplier.

This means that your shipment is in the proverbial hands of the supplier through the process of transporting
them to a port and loading them aboard a ship. They also cover insurance costs.

The buyer still pays additional fees like customs clearance, however.

Depending on the agreement with your supplier, your goods may be considered delivered at any point
between the port of destination and your final delivery address.

CIF is a more expensive contract option than FOB, as is demands more effort and expense on the part of the
supplier.

What is Carriage Paid To (CPT) Shipping Incoterm?

1. CPT In Plain English


2. Where Is The Named Place For Handing Over Responsibility From The Seller To The Buyer?
3. What Does The ICC Say?
4. Is This A Good Choice?
5. CPT Tips And Tricks
6. CPT Cost Calculator

CPT In Plain English


CPT (Carriage Paid To) is a tricky incoterm. Read the details carefully. Only recommended if using a Letter of
Credit.

Where Is The Named Place For Handing Over Responsibility From The Seller To The Buyer?
The seller is responsible and liable for all the steps in their country, or as far as the buyer’s forwarder’s
warehouse. The seller is also responsible for booking main carriage to a terminal in the buyer’s country, or
even further to the buyer’s warehouse. Either way, the seller is not liable after the goods arrive at the
terminal or warehouse in their own country.

What Does The ICC Say?


Recommended for containerized freight.

Is This A Good Choice?


Importers who don’t have a representative at the port should be wary of using this term unless they are sure
that the carrier’s rates include terminal handling charges. If not, your seller’s forwarder will use a 3rd party
agent to manage import clearance, duties, and terminal charges. Many importers get caught with inflated
charges and dubious fees that they are effectively unable to challenge.

CPT Tips And Tricks

 By contrast, this incoterm is often an excellent choice for larger importers, if they have an agent
responsible for goods (clearing and delivery) once they reach the terminal at the import country.
 If there is more than one carriage in the export country, e.g. via a forwarder’s warehouse for consolidation,
the seller is not liable or responsible for the middle man (second carriage), unless that is made clear in the
sales contract.
 Risk (liability) and responsibility (for tasks and payment) are handed over at different points for C terms.
Risk is transferred in the export country when the carrier receives the shipment (at the named place of
delivery), even though the buyer has booked and paid for the main carriage.
 When the incoterm is mentioned in a contract of sale, the named place immediately follows, e.g. EXW
(address of seller’s factory). For those incoterms where risk and responsibility are split, use the named
place of destination (responsibility). Be sure to specify the named place of delivery (liability) elsewhere in
the sales contract.
 The buyer should arrange insurance cover from where liability is transferred (the named place of delivery),
i.e. the terminal in the export country.
One of the four C terms should be selected when the sales contract includes a letter of credit.

CPT Cost Calculator


You can use our freight rate calculator to help you decide how different incoterms will impact your freight
cost. For example, when shipping EXW, you’ll be responsible for the added cost of getting your goods from
your supplier to the seaport or airport. Simply choose container, box, or pallet shipping, enter your
dimensions and weight, and you’ll get an instant estimate of freight shipping costs.

What is Carriage and Insurance Paid To (CIP) Shipping Incoterm?

CIP In Plain English


CIP (Carriage And Insurance Paid To) is a tricky incoterm. Read the details carefully. Only recommended if
using a Letter of Credit.

Where Is The Named Place For Handing Over Responsibility From The Seller To The Buyer?
This incoterm works exactly like CPT, excepting the seller is also responsible for arranging main carriage
insurance.

What Does The ICC Say?


Recommended for containerized freight.

Is This A Good Choice?


Refer to CPT.

CIP Tips And Tricks

 Refer to CPT, obviously excepting the tip on the buyer arranging insurance.
 The seller need only arrange minimum insurance cover, to the invoice value of the goods. If the buyer
considers that this level of cover is not sufficient, an agreed level of cover can be included elsewhere in
the contract of sale.
 Although the seller is responsible for insurance, the risk transfers to the buyer before the main carriage.
 The seller is not obliged to arrange insurance for pre-carriage in the export country or carriage in the
import country unless this is specified elsewhere in the sales contract.

What is Cost and Freight (CFR) Shipping Incoterm?

CFR In Plain English


CFR (Cost And Freight) is a tricky incoterm. Read the details carefully. Not recommended.
Where Is The Named Place For Handing Over Responsibility From The Seller To The Buyer?
The seller is liable and responsible for all the steps in their country up to the point the goods are loaded on
board the vessel and is also responsible – but not liable – for the main carriage.

What Does The ICC Say?


Not recommended for containerized freight. Designed for bulk and break bulk cargo.

Is This A Good Choice?


As for FOB, this incoterm is suitable for FCL, but not for LCL and Air Freight (refer FOB).

Also, importers who don’t have a representative at the port should be wary using this term, unless they are
sure that the carrier’s rates include terminal handling charges. If not, your seller’s forwarder will use a 3rd
party agent to manage import clearance, duties, and terminal charges. Many importers get caught with
inflated charges and dubious fees that they are effectively unable to challenge.

CFR Tips And Tricks


Refer to CPT.

What is Cost, Insurance and Freight (CIF) Shipping Incoterm?

CIF In Plain English


CIF (Cost, Insurance, And Freight) is a tricky incoterm. Read the details carefully. Not recommended.

Where Is The Named Place For Handing Over Responsibility From The Seller To The Buyer?
This incoterm works exactly like CPT, excepting the seller is also responsible for arranging main carriage
insurance.

What Does The ICC Say?


Not recommended for containerized freight. Designed for bulk and break bulk cargo.

Is This A Good Choice?


Refer to CFR.

CFR Tips And Tricks

 Refer to CPT, obviously excepting the tip on the buyer arranging insurance.
 The seller need only arrange minimum insurance cover, to the invoice value of the goods. If the buyer
considers that this level of cover is not sufficient, an agreed level of cover can be included elsewhere in
the contract of sale.
 Although the seller is responsible for insurance, the risk transfers to the buyer before the main carriage.
 The seller is not obliged to arrange insurance for pre-carriage in the export country or carriage in the
import country unless this is specified elsewhere in the sales contract.
What is Delivered At Place Unloaded (DPU) Shipping Incoterm?
Part of the Comprehensive Incoterms Guide

Prior to the release of the ICC Incoterms 2020 update, this incoterm was known as DAT. The substance of the
incoterm has remained the same.

1. DPU In Plain English


2. Where Is The Named Place For Handing Over Responsibility From The Seller To The Buyer?
3. What Does The ICC Say?
4. Is This A Good Choice?
5. DPU Tips And Tricks
6. How much does it cost to ship DPU?

DPU In Plain English


For DPU (Delivered at Place Unloaded) shipping, the seller arranges all export country charges and
international transit. The buyer arranges the rest.

This incoterm can lead to problems as it involves two forwarders at a critical point.

Where Is The Named Place For Handing Over Responsibility From The Seller To The Buyer?
The seller continues responsibility and risk into the import country, up until the shipment is unloaded. This
can occur at a number of locations, including the port, inland terminal, or forwarder’s warehouse.

What Does The ICC Say?


Recommended for containerized freight.

Is This A Good Choice?


This rule favors the seller where the seller is stronger, being liable and responsible for all tasks in the export
country; and favors the buyer where the buyer is stronger, being liable and responsible for all tasks in the
import country. The seller is also liable and responsible for the main freight. Also consider DAP with a
terminal as the named place, where the buyer pays for unloading.

DPU Tips And Tricks

 The seller pays for unloading. The buyer is responsible for all charges after unloading, except (in theory)
any charges caused by delay, including demurrage charges at the terminal, which is generally the seller’s
responsibility.
 That exception can get contentious. The seller has good grounds to refuse to pay if the buyer held up
import customs clearance. But, maybe that was because the seller submitted incorrectly in the first place.
Maybe that was the Customs broker’s error. Consider ways to avoid this type of dispute when negotiating
the contract, stage, e.g. the seller couriers some documents to the buyer before pickup; liability for
demurrage and other costs takes into account the above scenario, all information on documents to be
submitted to Customs must be double-checked. Basically, the buyer, seller, and carrier need to work
closely. Or instead, consider CPT (delivery to buyer’s warehouse).
 Ensure that the seller can undertake all the necessary formalities in the buyer’s country, e.g. paying GST or
VAT.
 Damages are more likely to occur between the buyer’s premises and the import country terminal than the
final leg to the buyer’s warehouse. However, this can be difficult to prove. Consider DAP instead.
 If the named place is a clearance depot, or for more porous borders where Customs does pre-clearance at
the border, the shipment may be delivered to the named place uncleared. That is, payment to Customs is
still required.

How much does it cost to ship DPU?


You can use our freight rate calculator to help you decide how different incoterms will impact your freight
cost. For example, when shipping EXW, you’ll be responsible for the added cost of getting your goods from
your supplier to the seaport or airport. Simply choose container, box, or pallet shipping, enter your
dimensions and weight, and you’ll get an instant estimate of freight shipping costs.

What is Delivered At Place (DAP) Shipping Incoterm?


1. DAP In Plain English
2. Where Is The Named Place For Handing Over Responsibility From The Seller To The Buyer?
3. What Does The ICC Say?
4. Is This A Good Choice?
5. DAP Tips And Tricks
6. DAP Cost Calculator

DAP In Plain English


For DAP (Delivered At Place) shipping, the seller arranges the entire shipment, except import customs.

Where Is The Named Place For Handing Over Responsibility From The Seller To The Buyer?
The seller continues responsibility and risk into the import country, usually to the buyer’s preferred
warehouse (their own, FBA warehouse, the forwarder’s warehouse, etc). However, as for FCA, the named
place may be also be the terminal.

What Does The ICC Say?


Recommended for containerized freight.
Is This A Good Choice?
This is probably not a convenient arrangement, as the seller is usually in a much poorer position than the
buyer for arranging tasks in the import country.

DAP Tips And Tricks

 All tips and tricks for DAT also apply for DAP, excepting the first – responsible for unloading.
 For DAT the seller is responsible for unloading. For DAP the buyer is responsible for unloading.
 If the terminal is selected as the named place, DAP is exactly the same as DAT, excepting the seller pays
for unloading.

DAP Cost Calculator


You can use our freight rate calculator to help you decide how different incoterms will impact your freight
cost. For example, when shipping EXW, you’ll be responsible for the added cost of getting your goods from
your supplier to the seaport or airport. Simply choose container, box, or pallet shipping, enter your
dimensions and weight, and you’ll get an instant estimate of freight shipping costs.

What is Delivered Duty Paid (DDP) Shipping Incoterm?

1. DDP In Plain English


2. Where Is The Named Place For Handing Over Responsibility From The Seller To The Buyer?
3. What Does The ICC Say?
4. Is This A Good Choice?
5. DDP Tips And Tricks
6. DDP Cost Calculator
DDP In Plain English
For DDP (Delivered Duty Paid) shipping, the seller arranges the entire shipment, including import customs.

Where Is The Named Place For Handing Over Responsibility From The Seller To The Buyer?
The seller is liable and responsible for the entire shipment. The buyer is only responsible for unloading the
goods, including import clearance/payments. The named place of delivery is usually the buyer’s choice of
warehouse.

What Does The ICC Say?


Recommended for containerized freight.

Is This A Good Choice?


This is probably not a convenient arrangement, as the seller is usually in a much poorer position than the
buyer for arranging tasks in the import country. This can lead to several problems (refer tips and tricks). Less
experienced importers should probably avoid this incoterm, and consider DAP instead.

DDP Tips And Tricks

 Some countries, including the US, do not permit forwarders to complete customs clearance. Therefore,
the supplier must be registered as an importer, or else they will not be able to complete import clearance.
 Suppliers should also be experienced acting as an importer. Import clearance is complicated, and if the
process is not followed to the letter, the shipment is likely to be held up in Customs.
 Therefore, the seller should insist on a copy of the entry documentation from the clearance agent to be
provided soon after submission, to check for errors. In some countries, Customs accepts timely
corrections.
 Domestics sales tax can only be paid by locally-registered businesses. If the seller isn’t registered, the
buyer will probably become liable for sales tax. There is a workaround by qualifying the rule, e.g.
Delivered Duty Paid (Sales Tax unpaid).
 DDP does not specifically require the seller to undertake import clearance. The buyer and seller may agree
that the buyer manages this task instead.
 If the buyer offers to clear the goods for the seller, they should insist on using their own clearance agent.
Otherwise, they risk losing control of the shipment’s whereabouts. They could end up being responsible
for unnecessary costs, especially demurrage and storage. This can be overcome by specifying elsewhere in
the sales contract that the buyer is not liable for any additional costs caused by clearance agent error, and
is not liable for any costs beyond a short period (2-3 days) after carrier release.
 A sales quotation from the supplier based on this incoterm is effectively the landed cost and can be used
to decide whether to source domestically or import.

DDP Cost Calculator


You can use our freight rate calculator to help you decide how different incoterms will impact your freight
cost. For example, when shipping EXW, you’ll be responsible for the added cost of getting your goods from
your supplier to the seaport or airport. Simply choose container, box, or pallet shipping, enter your
dimensions and weight, and you’ll get an instant estimate of freight shipping costs.
Incoterms 2020 (new) with infographic

Gerhard Hänel11.09.2019

Table of contents

1. Quick overview
2. What are Incoterms?
3. Validity of the Incoterms
4. Important changes of Incoterms 2010 to Incoterms 2020
5. Important changes of Incoterms 2000 to Incoterms 2010
6. List of Incoterms 2020 and Incoterms 2010
6.1 EXW - Ex Works
6.2 FCA - Free Carrier
6.3 CPT - Carriage Paid To
6.4 CIP - Carriage And Insurance Paid To
6.5 DAP - Delivered At Place
6.6 DAT - Delivered At Terminal
6.7 DPU - Delivered Named Place Unloaded
6.8 DDP - Delivered Duty Paid
6.9 FAS - Free Alongside Ship
6.10 FOB - Free On Board
6.11 CFR - Cost And Freight
6.12 CIF - Cost, Insurance And Freight

Quick overview

What are Incoterms?

In order to avoid misunderstandings between buyer and seller, the contractual rights and obligations of each
contracting party should be determined as precisely as possible when concluding a sales contract. Otherwise,
misunderstandings, disputes or even judicial conflicts between the parties will occur more frequently,
especially when cross-border deliveries of goods are involved.

The International Chamber of Commerce (ICC) dealt with these circumstances back in 1936 and
formulated International Commercial Terms (Incoterms). The Incoterms are recognised worldwide and
regulate the rights and obligations of buyers and sellers in international trade, thereby standardising global
purchase transactions. The Incoterms have been repeatedly revised since they were first published in 1936.
In order to avoid any misunderstandings between the contracting parties, it makes sense to specify which
version of the Incoterms will be referred to in the sales contract. On 01.01.2011 the seventh revision of the
Incoterms was published. The Incoterms 2010 are valid until 31.12.2019 and will be replaced by a newer
version. The Incoterms 2020 were published on 10.09.2019 and are valid from 01 January 2020.
If buyer and seller agree on the use of the Incoterms, many important contractual conditions have already
been defined. Specifically, aspects such as import, transit and export, the conclusion of insurance and
transport contracts, the delivery action and place of delivery, the transfer of risk as well as information
obligations are defined.

Validity of Incoterms

The Incoterms are only valid, if they are expressly included in a contract. They are not legal regulations, which
is why the contractual partners are free to make individual adjustments to the proposed clauses. At this point
it should be added that the Incoterms cannot replace a classic sales contract. They do not contain detailed
information on, for example, terms of payment or at time of the transfer of ownership, nor do they take into
account product liability, the handling of defects and the legal consequences of breach of contract. The parties
must therefore make additional agreements despite the agreement on the Incoterms. By determining, for
example, the place of delivery or the place of performance, the Incoterms have influence precisely when
agreements are missing in the sales contract.

Important changes from Incoterms 2010 to Incoterms 2020

 The transport of goods can now also be carried out using own vehicles
 DAT was renamed to DPU and can now be unloaded at any agreed location
 Insurance for CIP has been extended to clause ICC A (Institute Cargo Clauses)
 FCA can include the forwarding of bills of lading to the seller by arrangement
 Costs and safety requirements have been specified more precisely for each clause

Important changes from Incoterms 2000 to Incoterms 2010

 DAF, DES, DEQ and DDU were replaced with DAT (Delivered At Terminal) and DAP (Delivered At
Place)
 Enhancement of Risk Transfer for FOB, CFR and CIF
 Additional explanations in the form of application notes for the individual clauses
 Communication in electronic form is equivalent to communication in written form
 Also applicable to domestic supplies

List of Incoterms 2020 and Incoterms 2010

Below you can see the official list of the Incoterms 2020 and Incoterms 2010 by the ICC. The first part concerns
all modes of transport, while the second part is only relevant for maritime and inland waterway
transport. DAT exists only in Incoterms 2010 and will be replaced by DPU in Incoterms 2020.

EXW - Ex Works

Incoterms 2020 + Incoterms 2010: EXW - Ex Works

EXW stipulates that the place of delivery is the seller's. Costs and risks are thus transferred to the
buyer as soon as the goods have been made available to the seller at the agreed time or at another
agreed place (e.g. factory, warehouse, etc.). The seller has thus fulfilled his contractual obligation as soon
as he has packed the goods and marked them accordingly. The transport costs, the procurement of the
necessary documents and the associated risks are the sole responsibility of the buyer.

FCA - Free Carrier

Incoterms 2020 + Incoterms 2010: FCA - Free Carrier

FCA's costs and risks are transferred to the buyer when the goods are handed over from the seller to
the responsible carrier of the main transport. Depending on the agreement, the seller must also load the
goods. The seller has fulfilled his contractual obligation as soon as he has made the goods ready for
export and brought them to the agreed carrier or place. The buyer is responsible for the transit and import,
the costs of the main transport and the associated risks.

https://www.tradefinanceglobal.com/freight-forwarding/incoterms/fca-free-carrier/

The FCA clause in Incoterms 2020 includes the possibility for the buyer and seller to make an
agreement so that the buyer instructs the carrier to send the bill of lading to the seller.

FCA (Free Carrier) Named Place of Delivery Incoterms® 2020

Despite being recommended in place of FOB for cross-ocean container shipments this rule in practice is largely
unworkable for them. This is because in such shipments the buyer wants to only take on the risk of damage or
loss of the goods when they have actually been exported. They don’t want to be faced with any possibilities of
having to deal with any problems whatsoever in the exporting country.
The 2020 version introduced a new obligation on the buyer, if agreed, to instruct its carrier to issue an on board
bill of lading but while it is well-intentioned it is not a well-thought out provision and will fail in its execution. It
still leaves delivery being when the seller hands over the goods to the buyer’s carrier. The seller has no
obligation to actually put the goods on board, and if anything was to happen to the goods between delivery and
going on board, while at the buyer’s risk, the reality in such trade is that not only would the seller not be given
an board bill of lading but the buyer would not consider the goods exported and refuse payment. This new
provision was added mainly to deal with the seller’s needs for letters of credit but an unintended consequence
would be that usually the seller would end up being named as shipper on that bill of lading, imposing on them
liabilities that they neither knew about or accepted. It is also the only provision in the Incoterms® 2020 rules
which requires a party to instruct a carrier yet gives no direct remedy to the other party should the carrier fail to
act accordingly.

FCA Seller and Buyer Obligations


FCA A1 / B1 General Obligations

A1 (General Obligations)
In each of the eleven rules the seller must provide the goods and their commercial invoice as required by the
contract of sale and any other evidence of conformity such as an analysis certificate or weighbridge
document etc that might be relevant and specified in the contract.

Each of the rules also provides that any document can be in paper or electronic form as agreed to in the
contract, or if the contract makes no mention of this then as is customary. The rules do not define what
“electronic form” is, it can be anything from a pdf file to blockchain or some format yet to be developed in
the future.

B1 (General obligations)
In each of the rules the buyer must pay the price for the goods as stated in the contract of sale.

The rules do not refer to when the payment is to be made (before shipment, immediately after shipment,
thirty days after shipment, half now half later, or whatever) or how it is to be paid (prepayment, against an
email of copy documents, on presentation of documents to a bank under a letter of credit, or other
arrangement). These matters should be specified in the contract.

FCA A2 / B2: Delivery

A2 (Delivery)

The seller delivers in one of two ways:


1) If the named place is the seller’s premises then when the goods have been loaded on the means of transport
provided by the buyer. This includes of course the buyer’s carrier but allows the buyer to collect on its own
vehicle such as in a domestic sale. The word “loaded” here would usually mean safely placed on the vehicle, but
for example if pallets or crates are loaded onto a truck then any tying down or lashing will be the responsibility
of the vehicle’s driver under safety and traffic rules. If the goods are loaded into a container on the back of the
vehicle it would reasonably be expected that the seller would lash and secure the goods. As in EXW the seller
would need to inform the buyer of any specific locations such as its own warehouse, contract manufacturer or a
particular loading dock. Any restrictions at the site need to be communicated too. If for example the loading
dock needs to be accessed through a carpark it might be that a forty-foot container on a trailer can not be
brought close to that dock.
2) If the named place is not the seller’s premises then when the seller places the goods at the disposal of the
buyer or its carrier on the seller’s vehicle delivering the goods to that place but not unloaded. Clearly the seller
cannot be expected to provide the means to unload the goods into say a carrier’s terminal nor would they be
allowed to for safety, security and insurance reasons.
This delivery must be made on:
1) the agreed date or
2) at the time nominated by the buyer within the agreed period, or
3) failing these, at the end of the agreed period. Why at the end? Because before that the buyer could still inform
the seller of his desired time within the agreed period.

B2 (Delivery)

The buyer’s obligation is to take delivery when the goods have been delivered as described in A2.
Note that this rule does not discuss the means of transport at all, it merely mentions the carrier regardless of
how the carrier will arrange transport of the goods.

FCA A3 / B3: Transfer Of Risk


A3 (Transfer of risk)

In all the rules the seller bears all risks of loss or damage to the goods until they have been delivered in
accordance with A2 described above. The exception is loss or damage in circumstances described in B3 below,
which varies dependent on the buyer’s role in B2

B3 (Transfer of risk)

The buyer bears all risks of loss or damage to the goods once the seller has delivered them as described in A2.
Additionally, if the buyer fails to have its carrier or another person give the required notice under B2, or that
person fails to take the goods from the seller, then the buyer bears all risks either from the agreed date or time,
or if no agreed date or time, then at the end of the agreed period.
For example, if the contract states the delivery must occur in June so the seller has the goods ready at their
premises to place on a truck provided by the buyer’s carrier, and that carrier informs the seller that he will
collect the goods on the 20th day of June but fails to do so, then buyer bears the risk of loss or damage to the
goods from the end of the contract period being 30th June.

FCA A4 / B4: Carriage


A4 (Carriage)
In this rule the seller has no obligation to the buyer for arranging carriage of the goods.
The seller however does have an obligation to provide the buyer with any information in its possession,
including any transport-related security requirements, and requested by the buyer at its risk and request.
The seller’s responsibility for any transport-related security requirements is only up to delivery, so if the seller
trucks the goods to the carrier’s premises then transport-related security requirements for that leg only are the
seller’s.
In some instances the seller and buyer can agree for the seller to contract for carriage, possibly because it can
obtain more favourable rates than the buyer could, but such carriage is at the buyer’s risk and cost. While the
rule states that the contract for carriage is to be “on the usual terms” it is most likely that the two parties will
agree in their contract exactly what those terms are.

B4 (Carriage)

The buyer must arrange for the carriage of the goods, whether by the buyer itself or a contracted carrier, at its
own cost from the named place of delivery. This allows for the buyer itself to take delivery of the goods such as
might occur in a domestic transaction. The exception is where, as stated in A4, the contract for carriage is
arranged by the seller.
Note that the contract of carriage needs to be specific as to where it commences. Remember that in A2 there are
two places the delivery can occur, either at the seller’s premises loaded onto the collecting vehicle, or not
unloaded from the seller’s vehicle at another place which is typically the carrier’s premises.

FCA A5 / B5: Insurance

A5 (Insurance)
The seller does not have the risk beyond the delivery point so it has no obligation to the buyer to arrange a
contract of insurance. However, if the buyer requests, at its risk and cost, the seller must provide the buyer
with information in its possession that the buyer needs to arrange its insurance. If there is any information
which the buyer requests that is not already known to the seller, logically the seller can, and probably would,
choose to assist.

Nevertheless, and this is not covered by the Incoterms® 2020 rules, a wise seller would investigate taking
out marine insurance on a contingency basis. If the goods are lost or damaged in transit, and the buyer
therefore refuses to pay for them, in essence breaching the contract, the seller will want to have a fall-back
of being able to claim on its own marine insurance.

B5 (Insurance)
Despite having the risk of loss or damage to the goods from the delivery point, the buyer does not have an
obligation to the seller to insure the goods. Whether the buyer chooses to insure the goods or bear the risk
themselves is entirely their choice.

FCA A6 / B6: Delivery / Transport Document

A6 (Delivery/ Transport document)


The seller, at its own cost, must provide the buyer with the usual proof evidencing that the goods have been
delivered to the buyer or another person, most usually of course its carrier, in accordance with A2. What form
that proof takes is a matter for the parties to agree in their contract of sale. It could be as simple as the buyer’s
signature on a copy of the invoice through to a forwarder’s cargo receipt or anything else agreed.
If the buyer requests, the seller must assist the buyer, at the buyer’s risk and cost, in obtaining a transport
document.
Where the buyer has instructed its carrier to issue a transport document to the seller under B6, for example a
bill of lading or air waybill, and it is in negotiable form such as a bill of lading consigned to order and in multiple
originals, the seller is obliged to present a full set of those originals to the buyer. This will usually be along with
other shipping documents presented to the seller’s bank under a letter of credit issued by the buyer’s bank
B6 (Delivery / Transport document)
The buyer must accept the proof provided by the seller that goods have been delivered as described in A2.
When the parties have agreed in their contract that the seller is to be given a transport document stating that the
goods were loaded, such as an “on board” bill of lading, the buyer must instruct its carrier accordingly at the
buyer’s cost and risk.

FCA A7 / B7: Export / Import clearance


A7 (Export / Import clearance)
This rule, like all the multimodal rules, is suitable for both domestic and international transactions.
Where applicable, the seller must at its own risk and expense carry out all export clearance formalities required
by the country of export, such as licences or permits; security clearance for export; pre-shipment inspection; and
any other authorisations or approvals.
The seller has no obligation to arrange any transit/import clearances. However if the buyer requests, at its own
risk and cost, the seller must assist in obtaining any documents and/or information which relate to formalities
required by the country of transit or import such as permits or licences; security clearance for transit/import;
pre-shipment inspection required by the transit/import authorities; and any other official authorisations or
approvals.

B7 (Export / Import clearance)


Where applicable, the buyer must assist the seller at the seller’s request, risk and cost, in obtaining any
documents and/or information needed for all export-related formalities required by the country of export.
Where applicable, the buyer must carry out and pay for all formalities required by any country of transit and the
country of import. These include licences and permits required for transit; import licences and permits required
for import; import clearance; security clearance for transit and import; pre-shipment inspection; and any other
official authorisations and approvals. They are the buyer’s responsibility because they occur after delivery by
the seller.
At first glance it might seem strange that both seller and buyer have responsibility for pre-shipment inspections.
To clarify, the seller is responsible if it is a requirement of the country of export, and the buyer is responsible if it
is a requirement of the country of transit/import.
FCA A8 / B8: Checking / Packaging / Marking

A8 (Checking / Packaging / Marking)


In all rules the seller must pay the costs of any checking operations which are necessary for delivering the
goods, such as checking quality, measuring the goods and/or packaging, weighing, counting the goods
and/or packaging.

The seller must also package the goods, at its own cost, unless it is usual for the trade of the goods that they
are sold unpackaged, such as in the case of bulk goods. The seller must also take into account the transport
of the goods and package them appropriately, unless the parties have agreed in their contract that the
goods be packaged and/or marked in a specific manner.

B8(Checking / Packaging / Marking)


In all rules there is no obligation from the buyer to the seller as regards packaging and marking. There can in
practice however be agreed exceptions, such as when the buyer provides the seller with labels, logos, or
similar.

FCA A9 / B9: Allocation of Costs


A9 (Allocation of costs)
The seller must pay all costs until the goods have been delivered under A2, except any costs the buyer must pay
as stated in B9.
The seller has to pay any costs involved in providing the usual proof that the goods have been delivered, so if the
contract between the parties states that proof as being a bill of lading or an air waybill then the carrier’s
document fee is for the seller.
The seller pays any costs, export duties and taxes, where applicable, related to export clearance.
If the buyer is requested by the seller to provide information or documents to assist the seller in their export
formalities, then the seller must pay the buyer for these costs.

B9 (Allocation of costs)

The buyer must pay the seller all costs relating to the goods from when they have been delivered, other than
those payable by the seller.
If the seller has been requested by the buyer to provide assistance in obtaining information or documents
needed for the buyer to effect carriage, import formalities, insurance and the transport document, then the
buyer must reimburse the seller’s costs.
Where applicable, the buyer pays any duties, taxes and other costs for transit or import clearance.
Additionally, and provided the seller has advised that the goods have been clearly identified as the goods under
the contract, the buyer pays any additional costs incurred if the buyer fails to nominate who is to take the goods
from the seller or that person fails to do so.
FCA A10 / B10: Notices
A10 (Notices)

Even though the buyer arranges its carrier or another person to take delivery of the goods, the seller must give
the buyer sufficient notice that either the goods have been delivered or that the carrier or another person has
failed to take delivery within the time agreed.
B10 (Notices)
The buyer must notify the seller of a number of things so that the seller can deliver and carry out any export
formalities. These are contact details and location of the carrier or another person who the seller is to deliver to;
the selected time, if any, in the agreed delivery period, such as when a container terminal is accepting cargo for a
particular vessel, or when an airline requires cargo for a specific flight; the mode of transport and any transport-
related security requirements.

Diagram: FCA – obligations from the seller and buyer, and where the transfer of risk between each party is transferred. Source: J Montezuma,
Creative Commons BY-SA CC 4.0

Free Carrier (FCA): Advantages and Disadvantages


The first version of this rule appeared in Incoterms® 1980 to take into account container and roll on-roll off transport by sea as well as
transport by air, road and rail. It absorbed the previous FOR/FOT (Free on Rail/Free on Truck, “truck” referring to a railway wagon not
a road transport vehicle) appearing in the 1953 version to take into account the development of the rail freight network in Europe post
World War Two, and FOB Airport which had originally appeared in the 1976 version to cater for the then new era of larger more
powerful aircraft being able to carry cargo in addition to the passengers’ baggage. For some strange reason, in the Incoterms® 1990
version FCA’s delivery article was expanded to detail specific delivery procedures for rail transport, road transport (not mentioned in
any previous versions), inland waterway, sea transport, air transport, unnamed transport (!) and multimodal transport. Sensibly
Incoterms® 2000 revised this again to allow the current two options of delivery: loaded at the seller’s premises; or not unloaded
elsewhere, typically at the carrier’s premises.
While initially seeming similar to EXW, FCA is in fact the more practical rule to use both in domestic and in international cross-border
trades where the seller wants to minimise its effort and costs.
The seller must load the goods onto the buyer’s means of transport. This means that in most cases the buyer’s truck or its carrier’s
truck backs up to the seller’s loading dock and the seller’s staff and equipment complete the loading. Depending on local rules and
regulations, it would usually then be the truck driver’s responsibility to ensure that the load is secured on his truck, but this occurs
after the seller has loaded the goods.
FCA is available for both domestic and international transactions.
If the transaction is an international trade then the seller will need to complete any export formalities required by its
country’s authorities. This usually will mean that the buyer must inform the seller of the means of transport from the seller’s
country, whether by road, rail, air or sea. The seller will usually need to know from the buyer the name and contact details of
its carrier, the freight booking information including reference number/s, and any relevant data such as truck registration,
railcar number, the flight details or the vessel’s details so that it can correctly declare both the date of export and the means
of export to its authorities. The seller can outsource this task to the buyer’s carrier if they agree, at the seller’s cost.
Should the buyer fail to advise the seller about the carrier’s details, and fail to advise the booking details either via their
carrier or themselves, the buyer will have no recourse on the seller and likely will have breached the contract. Similarly, if
the buyer or its carrier fail to collect the goods at the agreed time and place, the buyer likely will have breached the contract.
The seller will of course build into its selling price the estimated costs of loading the goods and carrying out the export formalities, plus
no doubt a positive margin of error in case they cost more than initially anticipated, a margin to take into account its administrative
costs and quite likely a profit margin which after all it is entitled to do on any costs which are an input when determining its selling
price. The costs of all these and its original ex works price are hidden from the buyer, simply being bundled into the one FCA price.
The seller is comforted by the knowledge that once it has delivered the goods, either at its own premises or those of the
buyer’s nominated person or carrier, its risk for loss or damage of the goods has finished. If the truck used by the buyer’s carrier
to collect the goods from the seller has an accident at the first corner after leaving the seller’s premises and the goods are damaged, or
even if that truck has an electrical fault causing it to burst into flames at the seller’s loading dock immediately after loading has been
completed, and damaging or destroying those goods, nevertheless the seller has delivered and is entitled to be paid for the goods.
In an export transaction using FCA the seller usually need not add VAT/GST to its sale, though it might require
some form of evidence of export from the buyer to justify this action to its country’s tax authorities.
For the first time, Incoterms® 2020 introduces the requirement that if the seller requires it the buyer
must instruct its carrier to issue the seller with a transport document that the goods have been loaded.
While this addition is mentioned in the Explanatory Notes for FCA as specifically regarding issue of a bill
of lading typically for letter of credit purposes, in B6 it mentions “a transport document stating that the
goods have been loaded (such as a bill of lading with an on board notation)” which does not preclude the
seller and buyer agreeing in their contract that a copy of the bill of lading, copy of the air waybill marked
“original for shipper”, a copy of a road transport or rail document is to be provided to the seller for other
purposes such as reporting the transaction as an export for taxation purposes. The shipper in such a
document should usually still be shown as the buyer, not the seller as the seller is not a party to the
contract of carriage and does not want any of the liabilities of the shipper, but the document ideally will
evidence in some way that the goods were sourced from the seller.
What happens if the buyer refuses payment as a result of a dispute, or the documents under an L/C are
not compliant and the market price has collapsed, or the buyer becomes bankrupt during transit? This is
a matter outside of the Incoterms® 2020 rules but a prudent seller would investigate obtaining
contingency insurance for the marine risks because the risk will still be theirs.
The advantages to the buyer are several. It allows the buyer control of the carriage of the goods, possibly
consolidating them from multiple sales into economical transport units such as a full truck load or a full
container load (FCL). It allows the buyer control over its transport costs by negotiating rates with its own carrier
of choice and therefore no need to pay the seller a profit margin on its freight costs. It also means that the buyer
through its carrier (hopefully) has full knowledge of where its goods are at any time
The disadvantages that the buyer might feel are outweighed by the advantages include the risk of loss or damage
to the goods commencing at the earliest point in the seller’s country, but a prudent buyer would maintain an
open marine insurance policy under such as the Institute Cargo Clauses (A) or (Air) with its warehouse to
warehouse coverage. Another disadvantage might be seen as the need to pay inland costs in the seller’s country,
but any good forwarder should be able to use its local office or agent in the seller’s country to accurately advise
on these.
Another concern for the buyer could be that without the above on board bill of lading, it would not have
any evidence of the date of export. This might be important if the buyer’s country converts the transaction’s
value into local currency for value for duty using the exchange rate on the date of export, ie, on board for a
container shipment.
An interesting provision that has been in the Incoterms® rules ever since the 1990 version has been that the
seller must arrange for shipment at the buyer’s cost and risk on the “usual terms” if it is so agreed in the
contract. Sellers should be wary of doing this, and it will depend on the mode of transport and customary
procedures in the relevant countries as to whether this is practical, desirable or could have unfortunate legal
consequences for the seller. The contract should lay out very specifically what is required of the seller and
limit their liability if they are to be declared as the shipper or consignor. This provision seems a little at
odds with how FCA is supposed to work and presumably was added when the rules were written for a Europe-
centred trade world where goods can be trucked by the seller at the buyer’s cost and risk especially within a
customs zone. Whether it has a place now in the wider world of cross-border international trade so dependent
on sea transport is a good question but nevertheless the prevailing thought was to leave it in the FCA rule as “it
can’t hurt.”
If the buyer requires extra documents such as a certificate of origin, the seller must assist the buyer, at the
buyer’s request, risk and cost, to obtain it.
If the parties want payment to be by LC(letter of credit) the banks again will have problems. While the FCA
Incoterms® 2020 rule now provides for the seller to be given a transport document by the buyer’s carrier, if
agreed in the contract, typically LCs include a latest shipment date. It is not the seller’s responsibility to do
anything beyond the delivery point, so for example in a container shipment the seller could deliver on
the last day of the shipment period meaning the container would not be loaded on board for several
days, and sometimes in peak seasons or bad weather, possibly not for two or three weeks after that. The
solution to this is to include in the contract that the LC must specify a place of receipt (SWIFT MT700 tag
44A) and a place of delivery (tag 44B). Typically banks like to also show a port or airport of loading (tag
44E) and a discharge port or destination airport. The contract should also specify these so that if the
buyer arranges transport from or to other ports then they will possibly be in breach of the contract. The
contract should drill down to the fine detail such as local port or airport names which are likely to
appear on the transport document, such as “BMT” for Bangkok Modern Terminal instead of just
“Bangkok”, or “Jan Smuts Airport” instead of just “Johannesburg airport”, or broaden the scope with
“any” such as “any port in Bangkok” or “any airport in Johannesburg.”
As well the seller has no control over when the container is loaded on board or the date of the flight, so the LC
should state a latest delivery date (tag 44C) or shipment period (tag 44D) with at least 21 days added to
the agreed delivery date or last day of the agreed period to allow for delays outside the seller’s control
or responsibility.
It might be tempting for the carrier to name the seller as the shipper on the transport document as mentioned
above, but the seller should be aware that the LC rules (UCP600 article 14k) allow that the shipper or consignor
on any document need not be the beneficiary (seller). The shipper or consignor in the case of a transport
document under FCA should be the buyer, which then introduces a further problem for a sea shipment if the LC
requires the bill of lading be consigned to order and blank endorsed – the seller is not the shipper so cannot
endorse the bill of lading, so if the LC calls for a negotiable bill of lading then there is no choice for the
seller/beneficiary to be shown as shipper whether it wants to be shown as a merchant on the bill of lading or
not.
An FCA transaction does not easily lend itself to payment by LC, though it is possible with intelligent thought by
the seller and buyer and most importantly by the buyer’s issuing bank who will find themselves well out of their
comfort zone and outside of the typical attitude of “we’ve always done it this way.”

CPT - Carriage Paid To

Incoterms 2020 + Incoterms 2010: CPT - Carriage Paid To


CPT stipulates that the risks of the consignment remain with the seller until he has taken the goods
to the carrier designated by him. The costs are not transferred until the goods have arrived at their
destination. The seller must therefore have concluded a contract of carriage to the agreed place of
destination and bear its costs. In addition, the seller is responsible for export and transit. The buyer
is responsible for the import.

CIP - Carriage And Insurance Paid To*

Incoterms 2020 + Incoterms 2010: CIP - Carriage And Insurance Paid To

CIP corresponds to CPT, but the seller must also take over transport insurance for the transport from the time
of acceptance by the first carrier to the place of destination and bear its costs.

In the Incoterms 2020 the necessary insurance for deliveries has increased from clause ICC C to ICC A.
Further information on the clauses can be found here.

DAP - Delivered At Place

Incoterms 2020 + Incoterms 2010: DAP - Delivered At Place

With DAP, the seller has already fulfilled his obligation to perform, if he has cleared the goods for export and
transit and makes them available on the arriving means of transport without having to unload the goods
himself. If the goods are available on the means of transport ready for unloading, costs and risks are already
with the buyer. The buyer is responsible for the import.

DAT - Delivered At Terminal

Incoterms 2010: DAT - Delivered At Terminal

If the DAT clause is agreed, the seller undertakes to deliver the goods to a specific terminal (including a port
quay, warehouse, container depot, etc.). The seller has therefore fulfilled his contractual obligation when he
has prepared the goods for export and transit and unloaded them from the arriving means of transport at the
agreed destination. As soon as the seller has made the goods available to the buyer for collection, the costs
and risks are transferred to the buyer. The buyer is responsible for the import.

This clause is only valid within Incoterms 2010 and will be replaced by the DPU clause in Incoterms 2020.
DPU - Delivered Named Place Unloaded

Incoterms 2020: DPU - Delivered Named Place Unloaded

The DAT clause from Incoterms 2010 will be replaced by the DPU clause within Incoterms 2020. In contrast
to the DAT clause, it is possible within the DPU clause to agree on any place and not just a specific
terminal. The DAT and DPU clauses are otherwise identical in content.

DDP - Delivered Duty Paid

Incoterms 2020 + Incoterms 2010: DDP - Delivered Duty Paid

According to DDP, the seller clears the goods for export, transit and import and makes them available to the
buyer on the arriving means of transport ready for unloading at the place of destination. He bears the costs
and risks until the goods are ready for unloading.

FAS - Free Alongside Ship**

Incoterms 2020 + Incoterms 2010: FAS - Free Alongside Ship

With FAS, the seller takes over the export and transport of the goods to the long side of the transport
ship at the agreed port of shipment. The main transport costs and the transit and import are the
responsibility of the buyer. If the goods are on the long side of the ship, both costs and risks are transferred
to the buyer.
FOB - Free On Board**

Incoterms 2020 + Incoterms 2010: FOB - Free On Board

FOB extends FAS by the transport of goods on board the ship.

CFR - Cost And Freight**

Incoterms 2020 + Incoterms 2010: CFR - Cost And Freight

CFR corresponds to FOB, with the difference that with FOB the buyer pays for the ship transport and with
CFR the seller. The risks are therefore transferred to the buyer after the goods have been loaded on board
the ship, but the costs are not transferred until the seller has had the goods transported to the port of
destination.

CIF - Cost, Insurance And Freight*/**

Incoterms 2020 + Incoterms 2010: CIF - Cost, Insurance And Freight

CIF corresponds to CFR, but the seller must also take over sea transport insurance for carriage by sea.