EXW - Ex Works

The most basic Incoterm rule is Ex Works - commonly referred to simply as EXW. While it's the most basic rule, it's arguably the most important rule for a buyer to understand when they see it on a quote.

Ex Works puts very little obligation on a seller beyond simply providing the goods that were purchased at the location that was agreed upon. The agreed upon delivery location might be the buyer's factory or warehouse, but it's probably not.

It's most common for Ex Works to be used in situations where the buyer is actually in charge of the shipment rather than the seller. In other words, the buyer will be sending transportation to the seller's warehouse to pickup and transport the goods. It's important to understand in this situation that the buyer becomes responsible for loading the goods, transporting them, and then unloading them at the destination - generally their own warehouse.

To be clear, Ex Works could mean that the seller is delivering the goods to the buyer. If that's what you, the buyer, need and the seller is offering EXW, it will be important for you to clarify with them exactly how delivery will take place.

FCA - Free Carrier

In an FCA transaction, the seller is in charge of loading and transporting the goods to a specific place. The "specific place" part of an FCA transaction is really important since it determines how the goods will actually be transported.

If the specific place is the buyer's location, then the seller is responsible for actually transporting the goods to the buyer. The seller is not responsible for unloading the goods - they are simply liable for getting them there.

FCA is commonly used when a shipping carrier is involved. The buyer is in charge of paying for shipping. The seller is in charge of taking the goods from their own warehouse and getting them loaded onto the carrier's method of transportation. This differs from Ex Works in the fact that the seller is now responsible for the actual loading of the shipment. The seller is no longer liable for the shipment once it's in the hands of the carrier.

CPT - Carriage Paid To

CPT, or Carriage Paid To, designates that the seller is responsible for arranging and paying for the transportation of the goods to a named place of destination. However, the risk of loss or damage to the goods transfers to the buyer once the goods are handed over to the first carrier. Essentially, the seller pays for the transportation, but the buyer bears the risk.

This Incoterm is commonly used when the seller has access to better freight and shipping rates. While very similar to FCA, the critical distinction is that under CPT, the seller assumes the costs of transportation to the destination. In international shipments, the buyer is responsible for import clearance, unloading, and damage.

CIP - Carriage and Insurance Paid To

CIP is exactly the same as CPT with one major distinction - the seller is required to obtain insurance for the shipment. Under CIP, the seller has the same obligations as under CPT, but with the added responsibility of insuring the cargo against the buyer's risk of loss or damage during transport.

This Incoterm is commonly used when the seller has access to better freight and shipping rates but the buyer would like for the shipment to be insured. Again, all other parts of CIP are exactly the same as CPT.

DAP - Delivered At Place

DAP, or Delivered At Place, signifies a significant shift in responsibility from the buyer to the seller compared to the previous Incoterms we've discussed. Under DAP, the seller is responsible for arranging transportation and delivering the goods, ready for unloading, at the destination. This means the seller bears all the costs and risks involved in bringing the goods to the specified location.

Unlike CPT and CIP, where the risk transfers when the goods are handed over to the first carrier, under DAP, the risk remains with the seller until the goods are made available to the buyer at the agreed-upon destination, ready for unloading. This destination is typically the buyer's warehouse or another specified location but can be any pre-agreed upon location.

The seller is responsible for all transportation costs, export clearance, and any loss or damage to the goods until they reach the named place. The buyer, on the other hand, is responsible for import clearance and, significantly, for unloading the goods from the arriving means of transport at the named place of destination. The seller's responsibilities are considered done once the goods have been transported to the destination and made available to the buyer for unloading.

DPU - Delivered at Place Unloaded

DPU, or Delivered at Place Unloaded, is a relatively new Incoterm, introduced in Incoterms 2020 as a replacement for the previous DAT (Delivered at Terminal) rule. It represents a further increase in the seller's responsibilities compared to DAP. Under DPU, the seller is responsible for arranging carriage, delivering the goods to the named place of destination, and unloading them.

This is the only Incoterm that requires the seller to unload the goods at the destination. The named place can be any location, not just a terminal, making DPU a more flexible option than its predecessor, DAT. However, it's crucial that the chosen location is suitable for the seller to perform the unloading operation. This could be the buyer’s warehouse, but it could also be some other type of facility.

The seller bears all costs and risks involved in bringing the goods to the named place and unloading them. Once the goods are unloaded, the risk transfers to the buyer. The seller is responsible for export clearance, while the buyer handles import clearance and any subsequent transportation or storage.

DDP - Delivered Duty Paid

DDP, or Delivered Duty Paid, represents the maximum obligation for the seller and the minimum obligation for the buyer among all Incoterms. Under DDP, the seller is responsible for delivering the goods to the named place of destination in the buyer's country, cleared for import, and ready for unloading. This means the seller bears all costs and risks involved in bringing the goods to the destination, including transportation, export clearance, import clearance, and payment of any applicable duties and taxes.

Essentially, the seller handles the entire process from origin to destination, making it a "door-to-door" service. The only thing they will not do is handle the unloading at the destination, but pretty much everything else is taken care of by the seller once the goods have been provided. The buyer's responsibility is minimal, limited to unloading the goods from the arriving means of transport, although even these responsibilities can be contractually assigned to the seller.

This Incoterm can be particularly advantageous for buyers who lack experience or resources to handle import procedures in the seller's country. However, it can also be challenging for sellers, as they need to navigate possibly unfamiliar customs regulations and tax requirements in the buyer's country. It would be possible to have the seller handle unloading, but this detail must be ironed out beforehand. Since it's not an expressed requirement of DDP, clarification will be required.

FAS - Free Alongside Ship

FAS, or Free Alongside Ship, is an Incoterm specifically designed for sea and inland waterway transport. Under FAS, the seller is responsible for delivering the goods alongside the vessel nominated by the buyer at the named port of shipment. This means the seller must place the goods within reach of the ship's lifting equipment.

The risk of loss or damage to the goods transfers from the seller to the buyer when the goods are alongside the ship. From that point onward, the buyer bears all costs and risks, including loading the goods onto the vessel, ocean freight, insurance, unloading at the destination port, and any further transportation.

The seller is responsible for export clearance, while the buyer is responsible for loading the goods, any applicable fees, ocean freight, and import clearance at the destination country. FAS is typically used for bulk cargo or non-containerized goods where it's practical for the seller to deliver alongside the vessel.

FOB - Free On Board

FOB, or Free On Board, is another Incoterm specific to sea and inland waterway transport, and it's one of the most commonly used Incoterms, particularly in international trade. Under FOB, the seller is responsible for delivering the goods on board the method of transportation chosen by the buyer at the named port of shipment. This is a key difference between FOB and FAS. The risk transfer point occurs once the seller has loaded the shipment.

The risk of loss or damage to the goods transfers from the seller to the buyer when the goods pass the ship's rail. Once the goods are on board, the buyer assumes all costs and risks, including ocean freight, insurance, unloading at the destination port, and any further transportation.

The seller is responsible for export clearance, loading the goods onto the vessel, and ensuring it is on board the ship. The buyer is responsible for arranging and paying for the ocean freight, marine insurance, and all import clearance and costs at the destination.

At times, you'll also see the term FOB Point used outside the context of a water-based transportation. Usage of the term in that context simply refers to the place where the shipment will be delivered.

CFR - Cost and Freight

CFR, or Cost and Freight, is another Incoterm used exclusively for sea and inland waterway transport. Under CFR, the seller is responsible for arranging and paying for the carriage of the goods by sea to the named port of destination. However, the risk of loss or damage to the goods transfers to the buyer when the goods pass the ship's rail at the port of shipment, just like in FOB.

Essentially, the seller pays for the ocean freight to the destination port, but the buyer bears the risk during the sea voyage. The seller is also responsible for export clearance. The buyer is responsible for arranging and paying for marine insurance, unloading the goods at the destination port, import clearance, and any further transportation from the port to their final destination, if that's part of the arrangement.

CFR is similar to CPT, but CFR is specifically for sea transport, while CPT can be used for any mode of transport. It's important to note that although the seller pays for the freight, they are not responsible for any loss or damage to the goods once they are on board the vessel.

CIF - Cost, Insurance, and Freight

CIF, or Cost, Insurance, and Freight, is very similar to CFR, but with one crucial addition: the seller is also responsible for obtaining and paying for marine insurance to cover the buyer's risk of loss or damage to the goods during the carriage. Like CFR, CIF is used exclusively for sea and inland waterway transport.

Under CIF, the seller has the same obligations as under CFR, plus the responsibility to contract for insurance coverage against the buyer's risk during the sea voyage. The insurance should cover, at a minimum, the price provided in the contract plus 10% and should be in the currency of the contract.

The risk of loss or damage still transfers to the buyer when the goods pass the ship's rail at the port of shipment, the same point as FOB and CFR risk tranfer. However, the seller's obligation to provide insurance gives the buyer added protection during the journey.