What is Incoterms?

Incoterms (also known as trade terms or terms of shipment) clarifies the tasks, responsibilities, risks, and costs involved in the delivery of goods in domestic and international trade.

If you’re in the business world, you might be intimidated by a lot of trade terms, especially if you’re new to them. Between FOB, DDP and DAP, as well as FCL, you may feel that you are either suffering from information overload or drowning in an alphabet soup. But the good news is that you don’t need to swallow a dictionary to understand terms. Here’s a neat guide to some of the 13 more common Incoterms you need to know.

(1) Ex works (EXW)

The term “ex works (… Named place)” refers to “ex works (… Designated place)”.

It means that the seller is responsible for delivering the prepared goods to the buyer at its location, i.e. workshop, factory, warehouse, etc., but is usually not responsible for loading the goods on the vehicle prepared by the buyer or handling the customs clearance of the goods. The buyer shall bear all costs and risks of transporting the goods from the seller’s location to the expected destination.

(2) Free carrier (FCA)

The term “free carrier (… Named place)” refers to “delivery of goods to the carrier (… Designated place)”.

It refers to that the Seller shall be responsible for delivering the goods it handed over to the carrier designated by the buyer for custody at the designated place after handling customs clearance. According to commercial practice, when the seller is required to cooperate with the carrier by signing a contract, the seller can do so at the buyer’s risk and expense. This term applies to any mode of transportation.

(3) Free Alongside Ship (FAS)

This term is “Free Alongside Ship (… Named port of shipment)”, that is, “Free Alongside Ship (… Named port of shipment)”.

It refers to that the seller delivers the goods to the side of the ship on the wharf or barge at the designated loading port. From then on, the buyer must bear all the costs and risks of loss or damage to the goods. In addition, the buyer must go through export customs clearance procedures. This term is applicable to sea or inland waterway transportation.

(4) Free on board (FOB)

This term is “free on board (… Named port of shipment)”, that is, “free on board (… Named port of shipment)”.

It means that the seller delivers the goods after passing the ship’s rail at the designated port of shipment. After the goods pass the ship’s rail, the buyer must bear all the expenses, risks, loss or damage of the goods, and also require the seller to handle the export customs clearance procedures of the goods. This term is applicable to sea or inland waterway transportation.

(5) Cost and freight (CFR or C&F)

This term is “cost and freight (… Named port of shipment)”, that is, “cost and freight (… Named port of destination)”.

It means that the seller must pay the expenses and freight required to transport the goods to the designated port of destination. However, after the goods are delivered to the deck of the ship, the risk, loss or damage of the goods and the additional expenses caused by the accident will be transferred by the seller to the buyer after the goods cross the ship rail of the designated port. In addition, the seller is required to handle the export customs clearance procedures of the goods. This term is applicable to sea or inland waterway transportation.

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• Cost, insurance and freight (CIF)

This term is “cost, insurance and freight (… Named port of shipment)”, that is, “cost, insurance and freight (… Designated port of destination)”.

It means that in addition to the same obligations as the term “cost and freight”, the seller must also handle the marine insurance for the loss or damage of the goods and pay the insurance premium by the buyer during the transportation. This term is applicable to sea or inland waterway transportation.

(7) Freight paid to (CPT)

This term is “carriage paid to: (… Named place of destination)”, that is, “freight paid to (… Designated destination)”.

This technical term refers to the freight paid by the seller to transport the goods to the designated destination. The risk of loss of or damage to the goods and any additional expenses arising from the events after the delivery of the goods to the carrier shall be transferred from the seller to the buyer from the time when the goods have been delivered to the care of the carrier. In addition, the seller must go through the customs clearance procedures for the export of goods. This term applies to all modes of transport, including multimodal transport.

(8) Freight and insurance paid to (CIP)

This term is “carriage and insurance paid to (… Named place of destination)”, that is, “freight and insurance paid to (… Designated destination)”.

It means that the seller, in addition to the same obligation as the term “freight paid to (… Designated destination)”, must also handle marine insurance and pay the insurance premium for the risk of loss of or damage to the goods that should be borne by the buyer during the transportation. This term applies to any mode of transportation.

(9) Border delivery (DAF)

This term is “delivered at frontier (… Named place)”, that is, “border delivery (… Designated place)”.

It means that the seller undertakes the following obligations to transport the prepared goods to the designated place on the border, handle the export customs clearance procedures of the goods, and deliver the goods before the customs territory of the adjacent country. This term is mainly applicable to the goods transported by rail or road, and can also be used in other modes of transportation.

(10) Free on board at port of destination (DES)

This term is “Delivered Ex Ship (… Named port of destination)”, that is, “Delivered Ex Ship (… Named port of destination)”.

It means that the seller performs the following obligations to deliver the prepared goods to the buyer without going through the import customs clearance formalities on the ship deck at the designated port of destination, so the seller must bear all the costs and risks including the transportation of the goods to the designated port of destination. This term is only applicable to sea or inland waterway transportation.

(11) Delivery at the port of destination (DEQ)

This term is: “Delivered Ex Quay (duty paid) (… Named port of destination)”, that is, “delivered at the port of destination (duty paid) (… Designated port of destination)”.

This term refers to the seller performing the following obligations to deliver the goods prepared to the buyer after import customs clearance at the wharf at the designated port of destination, and the seller must bear all risks and expenses, including customs fees, taxes and other expenses incurred in delivery. This term is applicable to sea or inland waterway transportation.

(12) Delivered duty unpaid (DDU)

This term is “delivered duty unpaid (… Named place of destination)”.

It means that the seller delivers the goods prepared at the place designated by the importing country, and must bear all the costs and risks of transporting the goods to the designated place (excluding tariffs, taxes and other official fees payable at the time of import), as well as the costs and risks of handling customs procedures. The buyer shall bear the additional costs and risks arising from the failure to handle the import customs clearance of the goods in time. This term is applicable to various modes of transportation.

(13) Delivery after tax (DDP)

This term is “Delivered Duty Paid (… Named place ofdestination)”, that is, “Delivered Duty Paid (… Designated destination)”. It means that the seller delivers the prepared goods at the designated place in the importing country, bears all the costs and risks of transporting the goods to the designated place, and handles the import customs clearance. This term can be applied to various modes of transportation.

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