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Incoterms

Ex Works (named place of delivery)

EXW is the Incoterm that represents the minimum obligations, costs and risks for the seller as he delivers the goods at his own premises (factory or warehouse) in his country. Not even the seller is responsible for loading the goods onto the first carrier (usually truck) that sends the buyer to pick them up. It is the only Incoterm in which the seller does not clear the goods for export, when such clearance is applicable.

On the contrary, with EXW, the seller offers the lowest service of all Incoterms and represents a loss of competitiveness in comparison with other companies that assume part of international logistics.

This term is suitable for exporting firms with little international experience and who make groupage operations (boxes, pallets) in which the buyer sends a truck to collect the goods at the seller's premises. When sending full containers, it is better to use FCA as usually the seller makes the loading of the container on the truck sent by the buyer to the seller's premises.

It is not advisable to use EXW regularly because when the seller delivers the goods in its own country, normally it is preferable to use FCA.

Free Carrier (named place of delivery)

FCA is a very flexible Incoterm because it allows the delivery of the goods, both on the premises of the seller and at various points such as transports centers, ports, airports, container terminals, etc., which are located in the country of the seller. Therefore, when using this Incoterm, it is very important to specify clearly the place of delivery.

FCA can be used for any type of cargo (general cargo, full load, groupage) and with different means of payment (open account, bank transfer, letter of credit, etc.).

In the Incoterm FCA, the seller must complete and bear the costs of export clearance and, therefore, is responsible for obtaining the necessary documents for it. The import clearance formalities are performed by the buyer.

When the goods are transported in containers and the place of delivery is the port of shipment, Incoterms 2010 rules advised to use FCA instead of FOB, because the containers are delivered regularly in the port's container terminal and not loaded onto the ship.

FCA is one of the most used Incoterms in international trade and will probably replace EXW for the majority of sales where the seller delivers the goods in its own country and do not want to manage international logistics.

Free Alongside Ship (named place of delivery)

Incoterm FAS is used only for sea transport. The seller delivers the goods placing them alongside the ship named by the buyer at the agreed port of shipment. The export clearance is done by the seller.

This Incoterm is only used for certain commodities and materials that are not packed and cannot be individualized, such as grain, timber, minerals, steel products, etc.; delivery is done in those ports that have specialized terminals for this type of products. If the goods are carried in containers, Incoterm FCA should be used as containers are delivered at port terminals and not alongside ships.

The export clearance must be done by the seller. Usually, it is necessary to clear the goods before placing them alongside the ship.

When using FAS, the buyer is responsible for loading the goods on the ship. For this reason, the buyer must know very well the practices in the port of shipment because in the case of problems arise there.

Free On Board (named place of delivery)

FOB is the oldest Incoterm and together with CIF the most widely used with sea transport. The seller delivers the goods by placing them on board the ship named by the buyer in the port of shipment. The terminal costs and export clearance are borne by the seller.

This Incoterm should be used preferably with bulk, heavy loads and general cargo. Also, in the case of complex goods (e.g. machinery) whose loading on board the ship may involve some risk so it is better that the seller assumes this risk till the loading has been completed and the goods delivered.

When the goods are transported in containers and the place of delivery is the port of shipment, Incoterms 2010 rules advised to use FCA instead of FOB, because the containers are delivered regularly in the port's container terminal and not loaded on board the ship.

Although FOB has traditionally been one of the most commonly used Incoterms the evolution of sea transport and the importance of logistics as a sales strategy have diminished the use of this Incoterm that is being gradually replaced by other terms like CFR or CIF.

Carriage Paid To (named place of delivery)

In Incoterm CPT the delivery of goods occurs when the seller makes them available to the carrier that he has hired to perform international transport, although the seller also manages and assumes the costs of international transport to the place of destination. Therefore, the point where the risk of transport is transferred (when the goods are delivered to the carrier in the seller?s country) is different from the point till the seller bears the costs of transport (named place of destination in the buyer?s country).

In the event that there are several successive carriers, such as multimodal transport or truck-air or truck-ship, the transport risk passes from the seller to the buyer when the goods are delivered to the first carrier in the chain.

In CPT, unlike Incoterm CIP, the seller has no obligation to hire insurance transport to cover the goods from the place of delivery to destination.

In this Incoterm, the seller has to complete the formalities and bear the costs of customs clearance for export, not the import clearance that corresponds to the buyer.

Cost and Freight (named place of delivery)

In Incoterm CFR the seller delivers the goods on board of a ship in the port of shipment, but he also manages and pays the cost of freight to the port of destination. Therefore, the point where the risk of transport is transmitted (port of shipment) is different from the point to which the seller bears the costs of transport (port of destination). The terminal costs and export clearance in the port of shipment are borne by the seller.

The only difference between Incoterms CFR and CIF is that in CFR the seller is not obliged to hire an insurance transport from the port of shipment to the port of destination.

CFR is a sea transport Incoterm used mainly for general cargo and large volumes of goods. When the goods are transported in containers and the place of delivery is the port of destination, Incoterms 2010 rules advised to use CPT instead of CFR, because the containers are usually delivered at the terminals of the ports, that is, before being placed on board of the ships.

Carriage Insurence and Paid to (named place of delivery)

In the Incoterm CIP, the seller delivers the goods in their own country when loading them in the first carrier hire by himself, but the seller also pays for costs of international transport to bring the goods to their destination in the buyer?s country.

The buyer assumes all the risks once the goods have been delivered to the carrier in the country of the seller. If subsequent carriers are used to bring the goods to the place of destination, the risks are transferred from seller to buyer when the goods have been delivered to the first carrier.

Under Incoterm CIP the seller must hire insurance to cover the risk borne by the buyer for loss or damage of goods during international transport. Consequently, the seller contracts for insurance and pays the premium, although the beneficiary of the insurance is the buyer. However, the buyer has to take into account that Incoterm CIP requires the seller only an insurance with minimum coverage (Clause C of the Institute Cargo Clauses). If the buyer wants a larger coverage, he needs to agree with the seller to hire additional insurance.

In this Incoterm, the seller has to complete the formalities and bear the costs of customs clearance for export, not the import clearance that corresponds to the buyer.

Cost, Insurance and Freight (named place of delivery)

CIF has historically been a widely used Incoterm because, in addition to placing the goods at the port of destination in the buyer's country, the CIF value is used in most of the customs to apply tariffs and import taxes, so using this Incoterm facilitates to clear the goods for import.

In Incoterm CIF the seller delivers the goods on board of a ship in the port of shipment, but he also manages and pays the cost of freight to the port of destination. Therefore, the point where the risk of transport is transferred (port of shipment) is different from the point to which the seller bears the costs of transport (port of destination).

The costs of terminal in the port of shipment are borne by the seller. Unlike Incoterm CFR, the seller is obliged to hire insurance transport covering at least the way from the port of shipping to the port of destination. The insurance shall cover the price of the contract plus 10% (i.e., 110%). The beneficiary of this insurance and, therefore, the one that must apply to the insurer for compensation in case of disaster is the buyer.

CIF is used only for sea transport and usually for general cargo of both consumer products and industrial products of high value. If the goods travel in containers Incoterms 2010 rules recommends the use of Incoterm CIP.

Delivered At Terminal(named terminal at port or place of destination)

In Incoterm DAT the seller delivers the goods unloaded at a port terminal or another place of destination in the buyer?s country. The terminal concept is quite broad and includes both terminals of transportation (land, air, sea) and logistics infrastructure (ports, airports, railway stations) or similar facilities as docks, warehouses and free zones.

Due to the different places of delivery that allows this Incoterm is important to clearly mention the specific point that seller and buyer have chosen for delivery so the contract for international transport made by the seller conforms to that choice

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When the seller carries the goods from the delivery terminal to another point in the buyer's country such as buyer?s premises (factory or warehouse) Incoterm DAT should not be used. The Incoterms suitable for that situation are DAP or DDP.

In Incoterm DAT, the seller has to complete the formalities and bear the costs of customs clearance for export, not the import clearance that corresponds to the buyer.

Delivered At Place (named place of destination)

In Incoterm DAP the seller delivers the goods, without unloading, at the place of destination in the buyer's country. The transport risk is transferred from buyer to seller in the same place where the goods are delivered.

The place of delivery may be the buyer's premises or a place nearby, other than a transport terminal, in the country of destination. If delivery occurs at a transport terminal or transport infrastructure (port, airport, etc.) in the country of destination Incoterm DAT should be used.

In this Incoterm the seller has to complete the formalities and bear the costs of customs clearance of export, not the import clearance that corresponds to the buyer. In the event that the seller also clear goods for import Incoterm DDP should be used.

This is a very useful Incoterm for sales between countries of the same economic area (e.g. European Union) in which the seller wants to deliver the goods at buyer?s premises but is not necessary to clear goods for import as there are no customs.

Delivered Duty Paid (named place of destination)

In Incoterm DDP the seller delivers the goods, without unloading, at buyer?s premises or a nearby place in the country of destination. The transport risk is transferred from buyer to seller in the same place where the goods are delivered.

DDP is somewhat the reverse of Incoterm EXW; it represents the greatest obligation for the seller because he assumes all costs and risks of the operation, including import procedures, to deliver the goods at the agreed place in buyer's country. The only cost do not assume by the seller is the unloading of goods at delivery place.

Any import tax and specifically VAT, are paid by the seller, unless the parties agree in the contract of sale that VAT or other taxes are paid by the buyer. In that case a variant of DDP, known as "DDP VAT unpaid", should be used.