Delivery Terms

The Incoterms, international trade terms, are rules established by the international chamber of commerce (ICC) that define the responsibilities and obligations of both, the seller and the buyer, in the international commercial transactions. These rules are used to determine the scope of the costs, risks and responsibilities related with the transport and delivery of the commodity.

Through the Incoterms, it’s much more easier and fluid for all the tasks and actions derivatives of international trade. Above all, those linked with the logistics, letting it clear the responsibilities of each part.

Incoterms Classification

The Incoterms are grouped in four principal categories, according to the ubication and the degree of responsibility assumed by the seller and the buyer. Those categories are:

Incoterms Group E

In side this group we can find the following Incoterms:

EXW (Ex-Works)

The Incoterm EXW, the responsibility of the seller is minimum, since this one puts the commodity available to the buyer in his proper establishment or in a convenient place. The buyer assumes all the risks and costs since this starting point.

Incoterms Group F

The group F includes the Incoterms FAS ( Free Alongside Ship), FOB ( Free On Board) and FCA ( Free Carrier).

In these terms, the seller’s responsibility extends to the designated delivery point of a port. The buyer assumes the risks and costs at this point.

FCA ( Free Carrier )

Under the Incoterm FCA, the seller fulfills his responsibility by delivering the commodity to the designated carrier or to a indicated person by the buyer in the agreed place, whether in the country of origin itself or in a convenient point in the border.

From that moment on, the buyer assumes the costs and the risks, including all related with the principal transport, the charge and the customs export procedures.

FAS (Free Alongside Ship)

In this Incoterm, the seller is responsible for delivering the commodity alongside the vessel at the designated port of shipment. From this moment on, the buyer assumes the costs and risks, including the ones related with the maritime transport, the charge and the customs export procedures.

FOB ( Free On Board )

Under the Incoterm FOB, the seller will have to deliver the commodity on board the vessel at the designated port of shipment. From this moment on, the responsibility and the risks are transferred to the buyer, who will be incharge of all the costs and procedures related with the maritime transport, the charge and the customs export procedures.

TTO ( Tanker Take Over )

FOB transaction procedure – Tanker Take Over. A transaction procedure when the seller sells his resource together with the oil storage,i.e,, assigns the lease of his tanker (oil storage ).

Most important differences between Incoterms of Group F

It’s important to stand out that the key difference between FAS and FOB lies at the place of delivery of the commodity. Meanwhile in the FAS, the delivery takes place alongside the ship at the port of shipment. With FOB, the delivery is made on board the ship in the same port. In addition, the buyer assumes the responsibility of the maritime transport from the moment of delivery the FOB, meanwhile with the FAS, the buyer is responsible of the costs and risks from the loading onto the ship.

The key difference between the FCA and the other Incoterms of Group F is the place of delivery of the commodity. Meanwhile the FAS and FOB refers to the delivery in the shipment port. FCA can be used in any agreed place, that would lead to more flexibility in the transport terms. Adding so, with the FCA, the seller does not have the obligation to despatch the commodity for the export, unlike with the FAS and FOB. This means that the buyer is responsible for the customs export procedures.

Incoterms Group C

Inside the group C we can find the terms CFR ( Cost and Freight ) , CIF ( Cost, Insurance and Freight) , CIP ( Carriage and Insurance Paid to ) and CPT ( Carriage Paid To ).

Under these rules, the seller assumes the costs of the transport and risks up to the accorded place of delivery. Once dispatched the commodity for export and charged in the designated transport by the buyer, this last is incharge of the costs and assumes the full responsibility of the commodity, as well as the customs import procedures.

CIF ( Cost, Insurance and Freight)

In the Incoterm CIF, the seller is responsible for covering the costs, insurance and the charter necessary to take the commodity to the designated port agreed. From this point on, the buyer assumes all additional risks and costs.

CIP ( Carriage and Insurance Paid to )

In the Incoterm CIP, the seller is responsible for covering all the costs, insurance and the transport of the commodity to the agreed place. From this point, the buyer assumes the additional risks and costs.

CPT ( Carriage Paid To )

In the Incoterm CPT, the seller is responsible for covering the costs and the transport of the commodity to the agreed place. From this point, the buyer assumes the additional costs and risks.

CFR ( Cost and Freight )

In the Incoterm CFR, the seller is incharge of the costs and the necessary charter to take the commodity to the agreed place. From this point, the buyer assumes the additional risks and costs.

Principal differences between the Incoterms of Group D

As you can observe, the principal difference is the insurance coverage. CIF and CIP include the insurance, CPT and CFR does not include it. Also, CIP implies a bigger level of responsibility for the seller, since it is in charge of the insurance and the transport to the place agreed. With the CIF it only covers the insurance to the port of destination.

It’s important to keep in mind these differences when choosing the appropriate Incoterm for each case, since they can affect the costs and the risks associated with the transaction.

Incoterms Group D

Inside Group D we can find the following terms: DAP ( Delivered at Place ), DPU ( Delivered at Place Unloaded ) and DDP ( Delivered Duty Paid ).

These terms share the characteristics that the seller assumes the responsibility of the costs and risks of the transport until the delivery of the commodity in the agreed place.

DAP ( Delivered at Place )

Under the term Incoterm DAP, the seller is responsible for the delivery of the commodity to the agreed place, whether it is a port, airport, store or another specific location. The seller is in charge of the costs and risks associated with the transport of the commodity to that place. Once delivered , the buyer assumes the additional costs and risks, including the customs import procedures.

DPU ( Delivered at Place Unloaded )

In this term, the seller is responsible for transporting the commodity to the agreed destination and unloading it from the form of transportation used. The place of destiny can be a port, airport, store or another agreed place. Once the commodity has been downloaded, the buyer assumes all the additional costs and risks, including the customs import procedures.

DDP ( Delivered Duty Paid )

Under this rule, the seller assumes the maximum responsibility. The seller is responsible for delivering the commodity to the agreed destiny, assuming all the costs and risks, including customs duties and taxes, both for export and import. The buyer doesn’t have the obligation to perform any paper in the customs procedure.

Most used Incoterms according to the maritime transport:

Incoterms in the maritime transport

The Incoterms used in maritime transport are: EXW ,FCA ,FOB, CFR, CIF, CPT, CIP, DES, DEQ, DDU and DDP. These terms establish the responsibilities and obligations of the seller and the buyer in relation with the delivery, transport and risks during the commodity maritime transport. Each Incoter defines specific obligations of each party regarding delivery, costs, insurance and customs procedures.

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