Useful Information
www.structuredfreight.com | April 2017 | USEFUL INFORMATION | 34-35
Incoterms
Incoterms are a set of 11 three letter codes which represent the different ways international shipments may be organized. They are formalized international Terms of Trade regulated by the International Chamber of Commerce. Each code specifies the responsibilities of the exporter and the responsibilities of the importer in an international transaction. This allows sellers and buyers from different cultures and legal systems to agree on who bears the risk, who has to book the freight, who has to organize customs, and governs other aspects of trade.
1. EXW - "EX Works"
The seller is responsible for delivering the goods and a commercial invoice to a named location, as agreed on in the contract of sale.
The buyer is responsible for everything else, including loading the goods, transporting the goods, insuring the goods, getting the goods through customs, and unloading the goods at
the destination.
Notes: Ex Works places the maximum liability on the buyer, and is the best scenario for the seller in terms of risk.
2. FCA - "Free Carrier"
The seller is responsible for delivering the goods to the carrier's location. If the location is controlled by the seller, the seller is also is also responsible for loading the goods onto the carrier's vehicle. The seller must also provide a commercial invoice, as agreed on in the contract of sale.
The buyer is reponsible for transporting, insuring, customs clearance, and unloading the goods at the destination. If the initial loading point is outside of the seller's control, the buyer is also responsible for loading the goods.
Notes: Free carrier applies to any type of cargo, is very flexible in terms of delivery locations and carrier methods, and is best when the goods are transported in containers.
3. FAS - "Free Alongside Ship"
The seller is responsible for delivering the goods to the port and directly next to the carrier vessel. The seller is also responsible for clearing the goods for export, unless the contract of sale specifically states otherwise.
The buyer is responsible for loading the goods onto the vessel and all other transport risks. The buyer is expected to know and follow the protocols of the port.
Notes: This incoterm applies only to seafreight and inland waterways and should only be used for goods not packaged in a container.
4. FOB - "Free On Board"
The seller is responsible for delivering the goods and loads them on board the ship named by the buyer. The seller also typically covers the terminal costs and export clearance.
The buyer assumes the transportation risk after the goods have been delivered on board of the ship.
Notes: This incoterm applies only to seafreight and inland waterways and should only be used for goods not packaged in a container. However, FOB is often used incorrectly for other methods of freight. In the USA, for example, it is commonly used for road freight.
Incoterms can make international trade easier by allocating the cost, risk, and formalities of the shipment correctly. This tool is to provide guidance in choosing the right Incoterm.