Incoterms, international trade terms, are rules established by the International Chamber of Commerce (ICC) that define the responsibilities and obligations of both the seller and the buyer in international trade transactions. These rules are used to determine the scope of costs, risks and liabilities related to the transportation and delivery of goods.
Through Incoterms, all tasks and actions derived from international trade are much easier and smoother. Especially those related to logistics, making clear the responsibilities of each party.
In this article, we will explore the different types of Incoterms and how to choose the most appropriate one for each case. If you want to know more about Incoterms you have more information at:
- INCOTERMS 2020. What they are and what they are used for.
Classification of Incoterms
Incoterms are grouped into four main categories, depending on the location and degree of responsibility assumed by the seller and the buyer. These categories are:
Incoterms Group E
Group E includes the following Incoterms:
EXW (Ex-Works)
In these terms, the seller’s liability is minimal, since he makes the goods available to the buyer at his own premises or at an agreed place. The buyer assumes all risks and costs from that point on.
Incoterms Group F
Group F includes FAS (Free Alongside Ship), FOB (Free On Board) and FCA (Free Carrier) Incoterms.
Under these terms, the seller’s liability extends to the named point of delivery, which is usually a port or airport. The buyer assumes the risks and costs from that point on.
FCA (Free Carrier)
Under this Incoterm, the seller fulfills his responsibility by delivering the goods to the named carrier or other person indicated by the buyer at the agreed place, either in the country of origin itself or at an agreed point at the border.
From that moment on, the buyer assumes the costs and risks, including those related to the main transportation, loading and customs export formalities.
FAS (Free Alongside Ship)
In this Incoterm, the seller is responsible for delivering the goods alongside the vessel at the named port of shipment. From that moment on, the buyer assumes all costs and risks, including those related to shipping, loading and customs export formalities.
FOB (Free On Board)
Under this Incoterm, the seller must deliver the goods on board the vessel at the named port of shipment. From that moment on, the responsibility and risks are transferred to the buyer, who is responsible for all costs and formalities related to shipping, loading and customs export formalities.
Most important differences of the Group F Incoterms
It is important to note that the key difference between FAS and FOB lies in the place of delivery of the goods. While in FAS the delivery is made alongside the vessel at the port of shipment, in FOB the delivery is made on board the vessel at the same port. In addition, the buyer assumes responsibility for ocean transportation from the time of delivery in FOB, whereas in FAS the buyer is responsible for the costs and risks from the time of loading on the vessel.
The key difference between FCA and the other Group F Incoterms is the place of delivery of the goods. While FAS and FOB refer to delivery at the port of shipment, FCA can be used at any agreed location, providing greater flexibility in terms of transportation. In addition, in FCA, the seller is not obliged to clear the goods for export, unlike FAS and FOB. This means that the buyer is responsible for the customs export formalities.
Incoterms Group C
Group C includes the terms CFR (Cost and Freight), CIF (Cost, Insurance and Freight), CIP (Carriage and Insurance Paid To) and CPT (Carriage Paid To).
Under these rules, the seller bears the transportation costs and risks up to the agreed place of delivery. Once the goods have been cleared for export and loaded onto the means of transport designated by the buyer, the buyer bears the costs and assumes full responsibility for the goods, as well as for the import customs formalities.
CIF (Cost, Insurance and Freight)
The seller is responsible for covering the cost, insurance and freight necessary to bring the goods to the agreed port of destination. From that point on, the buyer assumes the risks and additional costs.
CIP (Carriage and Insurance Paid To)
The seller is responsible for covering the cost, insurance and transportation of the goods to the agreed place of destination. Thereafter, the buyer assumes the risks and additional costs.
CPT (Carriage Paid To)
The seller is responsible for covering the cost and transportation of the goods to the agreed place of destination. From that point on, the buyer assumes the risks and additional costs.
CFR (Cost and Freight)
The seller is responsible for the cost and freight necessary to bring the goods to the agreed port of destination. From that point on, the buyer assumes the risks and additional costs.
Main differences of Group D Incoterms
As you can see, the main differences are in the insurance coverage. While CIF and CIP include insurance, CPT and CFR do not. In addition, CIP implies a higher level of responsibility for the seller, since it is responsible for insurance and transportation to the agreed destination, while CIF only covers insurance to the port of destination.
It is important to take these differences into account when choosing the appropriate Incoterm for each case, as they may affect the costs and risks associated with the transaction.
Incoterms Group D
Within Group D of Incoterms® 2020, we find the following terms: DAP (Delivered at Place), DPU (Delivered at Place Unloaded) and DDP (Delivered Duty Paid).
These terms share the characteristic that the seller assumes responsibility for the costs and risks of transportation until delivery of the goods at the agreed place of destination.
DAP (Delivered at Place)
Under this rule, the seller is responsible for delivering the goods to the agreed place of destination, whether it is a port, airport, warehouse or other specific location. The seller is responsible for the costs and risks associated with transporting the goods to that location. Once delivered, the buyer assumes the additional costs and risks, including customs import formalities.
DPU (Delivered at Place Unloaded)
In this term, the seller is responsible for transporting the goods to the agreed place of destination and unloading them from the means of transport used. The destination can be a port, airport, warehouse or other agreed location. Once the goods have been unloaded, the buyer assumes the additional costs and risks, including customs import formalities.
DDP (Delivered Duty Paid)
Under this rule, the seller assumes maximum liability. The seller is responsible for delivering the goods to the agreed place of destination, assuming all costs and risks, including customs duties and taxes, both for export and import. The buyer has no obligation to play any role in the customs process.
Most used Incoterms according to transport
As you have seen there are a number of Incoterms that both buyer and seller can agree on for their international shipping processes. Let’s see a table with the Incoterms used according to the means of transport:
| Incoterms | Air freight | Ground Transportation | Maritime Transportation |
|---|---|---|---|
| EXW | X | X | X |
| FCA | X | X | X |
| FAS | X | ||
| FOB | X | ||
| CFR | X | ||
| VAT ID | X | ||
| CPT | X | X | X |
| CIP | X | X | X |
| DAP | X | ||
| DES | X | ||
| DEQ | X | ||
| DPU | X | X | X |
| DDP | X | X | X |
Incoterms in Ocean Freight
The Incoterms applicable in maritime transport are: EXW, FCA, FAS, FOB, FOB, CFR, CIF, CPT, CIP, DES, DEQ, DDU and DDP. These terms set out the responsibilities and obligations of the seller and the buyer in relation to delivery, carriage and risks during the carriage of goods by sea. Each Incoterm defines the specific obligations of each party in terms of delivery of the goods, costs, insurance and customs formalities.
Incoterms in Air Freight Forwarding
The Incoterms applicable in the air transport of goods are: EXW, FCA, CPT, CIP, DDU and DDP. These terms define the responsibilities and obligations of the seller and the buyer in relation to delivery, carriage and risks during air transport.
Inland Transportation Incoterms
The Incoterms applicable in land transport are: EXW, FCA, CPT, CIP, CIP, DAF, DDU and DDP. These terms set out the responsibilities and obligations of the seller and the buyer in relation to delivery, carriage and risks during inland transportation, whether by road or rail.
Advice on international logistics
At Across Logistics we take care of a detailed analysis of your needs and the characteristics of your operation, advising you on the most appropriate Incoterms for your specific case. Our goal is to provide you with a reliable and efficient service at every stage of the logistics process.
In addition to choosing the right Incoterm, we also offer comprehensive logistics services, such as transport management, customs services, warehousing and distribution logistics, etc.
We take care of all the details, ensuring that your goods move smoothly and securely throughout the supply chain.
