SvenskaIncoterms are an international agreement that outlines who pays for what during transport.
Sellers and buyers agree on delivery terms when they enter into a contract, so it is mainly something that concerns sellers and buyers. The delivery term must be included on the commercial invoice that accompanies the shipment during transport, as it is also important for customs clearance and the calculation of customs duties and VAT.
How to choose the right Incoterm
Incoterms® 2020 allocate cost, risk and responsibility between seller and buyer. Start with three questions: Who books the main carriage? When does risk transfer? Who handles export and import clearance? Incoterms do not determine ownership, payment terms or remedies for breach of contract.
- FCA is suitable when the buyer wants control of the main carriage. The seller clears the goods for export and delivers them at the named place.
- DAP is suitable when the seller arranges transport to a named place while the buyer handles import clearance, duties and taxes.
- DDP is suitable when the seller takes responsibility through import and delivery. Use DDP only when the seller can act as importer and handle local taxes.
- CFR or CIF is suitable when the seller pays for ocean transport to the destination port. Risk transfers when the goods are loaded on board. CIF includes the prescribed insurance cover.
- FCA or FOB is suitable when the buyer wants control of the ocean transport. FOB is only for sea and inland waterway transport. FCA is often clearer for containerised cargo.
Incoterms for any mode and for sea transport
EXW, FCA, CPT, CIP, DAP, DPU and DDP may be used for any mode of transport. FAS, FOB, CFR and CIF are only for sea and inland waterway transport. Always state the rule together with the exact named place and version, for example: FCA Jönköping, Incoterms® 2020.
Three common mistakes to avoid
- Stating an Incoterm without a named place.
- Assuming that the party paying for freight always carries the risk throughout the shipment.
- Choosing DDP when no party can act as importer in the destination country.
The right delivery term for an international shipment depends on your flow of goods, market and desired level of control. Contact TKL Logistics to review transport setup, cost responsibility and customs handling before booking.
Clauses Regardless of Transport Mode
EXW – Ex Works
EX WORKS (EXW) means that the seller delivers the goods to the buyer when it places the goods at the disposal of the buyer at a named place (like a factory or warehouse), and that named place may or may not be the seller’s premises. For delivery to occur, the seller does not need to load the goods on any collecting vehicle, nor does it need to clear the goods for export, where such clearance is applicable.
FCA – Free Carrier
FREE CARRIER (FCA) means that the seller delivers the goods to the buyer in one or other of two ways:
- First, when the named place is the seller’s premises, the goods are delivered when they are loaded on the means of transport arranged by the buyer.
- Second, when the named place is another place, the goods are delivered when, having been loaded on the seller’s means of transport, they reach the named other place and are ready for unloading from that seller’s means of transport and at the disposal of the carrier or of another person nominated by the buyer.
Whichever of the two is chosen as the place of delivery, that place identifies where risk transfers to the buyer and the time from which costs are for the buyer’s account.
CPT – Carriage Paid To
CARRIAGE PAID TO (CPT) means that the seller delivers the goods – and transfers the risk – to the buyer by handing them over to the carrier contracted by the seller or by procuring the goods so delivered. The seller may do so by giving the carrier physical possession of the goods in the manner and at the place appropriate to the means of transport used. Once the goods have been delivered to the buyer in this way, the seller does not guarantee that the goods will reach the place of destination in sound condition, in the stated quantity or indeed at all. This is because risk transfers from seller to buyer when the goods are delivered to the buyer by handing them over to the carrier; the seller must nonetheless contract for the carriage of the goods from delivery to the agreed destination.
CIP – Carriage and Insurance Paid To
CARRIAGE AND INSURANCE PAID TO (CIP) means that the seller delivers the goods – and transfers the risk – to the buyer by handing them over to the carrier contracted by the seller or by procuring the goods so delivered. The seller may do so by giving the carrier physical possession of the goods in the manner and at the place appropriate to the means of transport used. Once the goods have been delivered to the buyer in this way, the seller does not guarantee that the goods will reach the place of destination in sound condition, in the stated quantity or indeed at all. This is because risk transfers from seller to buyer when the goods are delivered to the buyer by handing them over to the carrier; the seller must nonetheless contract for the carriage of the goods from delivery to the agreed destination.
DAP – Delivered At Place
DELIVERED AT PLACE (DAP) means that the seller delivers the goods – and transfers risk – to the buyer when the goods are placed at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination or at the agreed point within that place, if any such point is agreed. The seller bears all risks involved in bringing the goods to the named place of destination or to the agreed point within that place. In this Incoterms rule, therefore, delivery and arrival at destination are the same.
DPU – Delivered at Place Unloaded
DELIVERED AT PLACE UNLOADED (DPU) means that the seller delivers the goods – and transfers risk – to the buyer when the goods, once unloaded from the arriving means of transport, are placed at the disposal of the buyer at a named place of destination or at the agreed point within that place, if any such point is agreed. The seller bears all risks involved in bringing the goods to and unloading them at the named place of destination. In this Incoterms rule, therefore, the delivery and arrival at destination are the same. DPU is the only Incoterms rule that requires the seller to unload goods at destination. The seller should therefore ensure that it is in a position to organise unloading at the named place. Should the parties intend the seller not to bear the risk and cost of unloading, the DPU rule should be avoided and DAP should be used instead.
DDP – Delivered Duty Paid
DELIVERED DUTY PAID (DDP) means that the seller delivers the goods to the buyer when the goods are placed at the disposal of the buyer, cleared for import, on the arriving means of transport, ready for unloading, at the named place of destination or at the agreed point within that place, if any such point is agreed. The seller bears all risks involved in bringing the goods to the named place of destination or to the agreed point within that place. In this Incoterms rule, therefore, delivery and arrival at destination are the same.
Clauses for Sea Transport
FAS – Free Alongside Ship
FREE ALONGSIDE SHIP (FAS) means that the seller delivers the goods to the buyer when the goods are placed alongside the ship (e.g. on a quay or a barge) nominated by the buyer at the named port of shipment or when the seller procures goods already so delivered. The risk of loss of or damage to the goods transfers when the goods are alongside the ship, and the buyer bears all costs from that moment onward.
FOB – Free On Board
FREE ON BOARD (FOB) means that the seller delivers the goods to the buyer on board the vessel nominated by the buyer at the named port of shipment or procures the goods already so delivered. The risk of loss of or damage to the goods transfers when the goods are on board the vessel, and the buyer bears all costs from that moment onwards.
CFR – Cost and Freight
COST AND FREIGHT (CFR) means that the seller delivers the goods to the buyer on board the vessel or procures the goods already so delivered. The risk of loss of or damage to the goods transfers when the goods are on board the vessel, such that the seller is taken to have performed its obligation to deliver the goods whether or not the goods actually arrive at their destination in sound condition, in the stated quantity or, indeed, at all. In CFR, the seller owes no obligation to the buyer to purchase insurance cover: the buyer would be well-advised therefore to purchase some cover for itself.
CIF – Cost, Insurance and Freight
COST INSURANCE AND FREIGHT (CIF) means that the seller delivers the goods to the buyer on board the vessel or procures the goods already so delivered. The risk of loss of or damage to the goods transfers when the goods are on board the vessel, such that the seller is taken to have performed its obligation to deliver the goods whether or not the goods actually arrive at their destination in sound condition, in the stated quantity or, indeed, at all.
Would you like to know more? Please feel free to contact us!
Contact UsIncoterms 2020 & (2010), https://www.if.se/foretag/forsakringar/transportforsakring/incoterms-2020