- [Narrator] Understanding Incoterms®
is a vital part of International Trade.
When exporting products internationally
you must agree to sell your goods based on 11 Incoterms®.
Incoterms® is short for International Commercial Terms,
which are published by the International Chamber of Commerce
and relate to International Commercial Law.
They are accepted by governments and legal authorities
around the world.
The International Chamber of Commerce have published
the latest version of Incoterms®, Incoterms® 2020
which have come into effect on the 1st of January 2020.
Put simply, Incoterms® are the selling terms
that the buyer and seller of goods both agree to
for the International sale and supply of goods.
Incoterms® clearly states which tasks, costs and risks
are associated with the buyer
and which are associated with the seller.
The Incoterm® states when the seller's costs and risks
are transferred onto the buyer.
This chart displays Incoterms® 2020
in an easy to understand format.
Note this chart should be used as a guide only,
for a full and complete description,
you should refer to the full version of Incoterms®
published by the ICC.
The blue section displays the different types
of Incoterms® beginning from left to right.
The green section shows the groups,
Any Mode or modes of transport,
and Sea and Inland Waterway Transport.
The yellow section shows the Freight Collect Terms
and the Freight Prepaid Terms.
Starting from the left side is the exporter
or the seller of the goods,
beginning at the seller's location or warehouse.
As you move along to the right,
the products leave the warehouse,
get loaded on board a vessel or aircraft
at the port of loading, get shipped through
to the port of destination,
pass through customs at the arriving country,
and then get delivered further through
to the buyer's location.
Along the way there are set Incoterms®
to establish which risks and costs are agreed
to be paid by the seller and which are
to be transferred to the buyer.
The left side of the chart displays
the different obligations and charges,
and displays which are covered by the seller,
and which are covered by the buyer.
So starting from the left is the first Incoterm® EXW,
which means Ex-Works, or Ex-Warehouse.
If the buyer and seller agree
to sell goods on Ex-Works terms,
then then seller's obligations are simple.
The seller will only cover the cost of the goods
and the export packaging Ex warehouse.
So the seller will manufacture the goods
and have them packaged and ready
for collection from their warehouse.
From then on all additional costs and risks
involved in transport away from the warehouse
is covered by the buyer.
Moving further along the supply chain,
there are FCA, FAS and FOB Incoterms®.
Under FCA, Free-To-Carrier the seller
will cover export duties, taxes and customs clearance
to get the products prepared for export.
Under FAS, Free-Alongside-Ship,
the seller will cover the origin terminal
port handling charges.
Then it moves onto FOB, Free-On-Board.
FOB is generally the most popular Incoterm®
that is used for containerized trade.
When FOB terms are agreed upon,
the seller's obligation is to supply the goods
and also to pay for all of the additional charges
involved to get the goods actually
loaded on board the vessel for export.
That means the seller will cover
all previously mentioned charges
and pay for the loading charges
to get the goods loaded on board the vessel for export.
As soon as the goods are loaded on board,
all further associated costs and risks are transferred
onto the buyer.
The buyer will pay for the international freight
and all charges thereafter.
If the seller agrees to pay
for the cost of freight and carriage,
then they can choose to sell the goods
on CFR, CIF, CPT or CIP Incoterms®.
Note that CFR and CIF are similar Incoterms®
that cover Sea and inland waterway transport.
If the seller agrees to cover the cost of insurance
during international sea freight,
then they can sell on the CIF Incoterm®.
CPT and CIP are similar Incoterms®
that relate to any mode or modes of transport,
where the seller will agree to pay
for the destination terminal/port handling charges.
If the seller agrees to cover the cost of insurance
during transport, they can sell goods
under the CIP Incoterm®.
Moving further along, DAP, DPU and DDP
are Incoterms® involved with getting goods delivered,
unloaded and customs cleared at the country of destination.
Under DAP, Delivered-At-Place,
the seller will cover the costs of delivery to destination.
If DPU, Delivered-at-Place-Unloaded is agreed,
then the seller will also pay for the unloading costs
at the destination.
Finally, if DDP, Delivered-Duty-Paid is agreed
then the seller will also pay
for the import duties, taxes & customs clearance
at the country of destination.
If you have any detailed questions
relating to Incoterms® you should refer
to your freight forwarder,
the International Chamber of Commerce
or other professional advice.
Before products can be shipped internationally,
the buyer and seller must agree
on the Incoterm® that the goods are sold under.
The Incoterm® must be cleared stated in sales contracts
and counter-signed by both parties
to avoid any misunderstandings.
Should any disputes arise
then the details included in the documentation
will be referred to.
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