In a world of international trade, there are mainly four areas that should be clear from the start, and they are as follow:
- What is being shipped? (e.g. electronics, clothing, food)
- From where to where? (Country of origin and destination)
- How is it being shipped? (By sea, air, or land)
- Who handles what? (seller, buyer, or a third party handles customs, insurance, or transport)
Incoterms stands for International Commercial Terms. They are a set of standardized trade terms published by the International Chamber of Commerce (ICC) to clearly define the responsibilities of buyers and sellers in international (and sometimes domestic) trade.
What Incoterms do: The terms clearify who is responsible for things like: # Transport (from seller to buyer) # Insurance # Customs clearance # Import/export duties # Risk if goods are lost or damaged Incoterms reduce confusion by using the same terms globally. Example (FOB - Free On Board): A buyer is buying furniture from country A and shipping it to country B. With FOB, the seller delivers the goods onto the ship in country A. Once it is on board, the risk and cost shift to the buyer. The buyer pays for the sea freight, insurance, and import duties in country B. Why It Matters: # Prevents misunderstandings between international partners # Helps plan costs and logistics # Used in contracts, invoices, shipping docs Incoterms 2020 11 terms with acronyms & short explanations EXW - Ex Works Seller makes goods available at their premises. Buyer bears all transport & costs. FCA - Free Carrier Seller delivers goods to a carrier chosen by the buyer. Seller handles export formalities. FAS - Free Alongside Ship Seller delivers goods alongside a ship at port. Buyer loads and handles shipping. FOB - Free On Board Seller loads goods on board the ship. Buyer pays for ocean freight & beyond. CFR - Cost and Freight Seller pays for transport to destination port. Buyer handles insurance & import. CIF - Cost, Insurance and Freight Seller pays for transport & insurance to destination port. Buyer handles import. CPT - Carriage Paid To Seller pays to transport goods to destination. Risk passes to buyer once shipped. CIP - Carriage and Insurance Paid To Same as CPT, but seller also pays insurance. DAP - Delivered At Place Seller delivers goods ready for unloading at destination. Buyer pays import duties. DPU - Delivered at Place Unloaded Seller delivers and unloads goods at destination. Buyer clears customs & duties. DDP - Delivered Duty Paid Seller delivers to destination and pays all duties and taxes. Full seller responsibility. Key differences: EXW to FCA: Minimal seller obligation to basic export responsibilities. FOB, FAS, CFR, CIF: Maritime transport only. CPT, CIP, DAP, DPU, DDP: Any mode of transport. DPU is the only Incoterm where the seller is responsible for unloading at destination. DDP is the most seller-responsible term; EXW is the most buyer-responsible.
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