Incoterms
Information about Incoterms.
The Incoterms rules are a globally recognised set of standards, used worldwide in international and domestic contracts for the delivery of goods. They are not set by HMRC and are not specific to HMRC or customs valuation. The use of a particular incoterm does not restrict the use of any valuation method, for example goods delivered duty paid can be valued under method 1.
The rules have been developed and maintained by experts and practitioners brought together by the ICC. They have become the standard in international business rules setting. The trade terms help importers avoid costly misunderstandings by clarifying the tasks, costs and risks involved in the delivery of goods from sellers to buyers. The Incoterms rules are recognised by UNCITRAL as the global standard for the interpretation of the most common terms in foreign trade.
It is important to remember the terms are regularly updated, and therefore to ensure outdated Incoterms are not used the most current information should be searched regularly.
In general Incoterms are used in the following way:
Rules for any mode or modes of transport
- EXW - Ex Works
- FCA - Free Carrier
- CPT - Carriage Paid To
- CIP - Carriage and Insurance Paid To
- DAP - Delivered at Place
- DPU - Delivered at Place Unloaded
- DDP - Delivered Duty Paid
Rules for sea and inland waterway transport
- FAS - Free Alongside Ship
- FOB - Free on Board
- CFR - Cost and Freight
- CIF - Cost Insurance and Freight
Ex-Works or Ex-Warehouse (EXW)
Ex works is when the seller places the goods at the disposal of the buyer at the seller’s premises or at another named place (such as, works, factory or warehouse).
The seller does not need to load the goods on any collecting vehicle. Nor does it need to clear them for export, where such clearance is applicable.
Free carrier (FCA)
The seller delivers the goods to the carrier or another person nominated by the buyer at the seller’s premises or another named place.
The parties are well advised to specify as explicitly as possible the point within the named place of delivery, as the risk passes to the buyer at that point.
Free alongside ship (FAS)
The seller delivers when the goods are placed alongside the vessel, for example, on a quay or a barge nominated by the buyer at the named port of shipment.
The risk of loss of or damage to the goods passes when the products are alongside the ship. The buyer bears all costs from that moment onwards.
Free on board (FOB)
The seller delivers the goods 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 passes when the products are on board the vessel. The buyer bears all costs from that moment onwards.
Cost and freight - CFR
The seller delivers the goods on board the vessel or procures the goods already so delivered.
The risk of loss of or damage to the goods passes when the products are on board the vessel.
The seller must contract for and pay the costs and freight necessary to bring the goods to the named port of destination.
Cost, insurance and freight (CIF)
The seller delivers the goods on board the vessel or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the products are on the ship.
The seller must contract for and pay the costs and freight necessary to bring the goods to the named port of destination.
The seller also contracts for insurance cover against the buyer’s risk of loss of or damage to the goods during the carriage.
The buyer should note that under CIF the seller is required to obtain insurance only on minimum cover. Should the buyer wish to have more insurance protection, it will need either to agree as much expressly with the seller or to make its own extra insurance arrangements.
Carriage paid to (CPT)
The seller delivers the goods to the carrier or another person nominated by the seller at an agreed place if any such site is agreed between parties.
The seller must contract for and pay the costs of carriage necessary to bring the goods to the named place of destination.
Carriage and insurance paid to (CIP)
The seller has the same responsibilities as CPT, but they also contract for insurance cover against the buyer’s risk of loss of or damage to the goods during the carriage.
The buyer should note that under CIP the seller is required to obtain insurance only on minimum cover. Should the buyer wish to have more insurance protection, it will need either to agree as much expressly with the seller or to make its own extra insurance arrangements.
Delivered at place (DAP)
The seller delivers 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.
The seller bears all risks involved in bringing the goods to the named place.
Delivered at Place Unloaded (replaces Incoterm® 2010 DAT) (DPU)
DPU replaces the former Incoterm® DAT (Delivered at Terminal). The seller delivers when the goods, once unloaded are placed at the disposal of the buyer at a named place of destination.
The seller bears all risks involved in bringing the goods to, and unloading them at the named place of destination.
Delivered duty paid (DDP)
The seller delivers the goods 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.
The seller bears all the costs and risks involved in bringing the goods to the place of destination. They must clear the products not only for export but also for import, to pay any duty for both export and import and to carry out all customs formalities.