Would like to know what incoterms are and when each of them are used and why. Thanks in advance
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Incoterms, widely-used terms of sale, are a set of 11 internationally recognized rules which define the responsibilities of sellers and buyers. Incoterms specify who is responsible for paying for and managing the shipment, insurance, documentation, customs clearance, and other logistical activities.
EXW – Ex Works (insert place of delivery)
FCA – Free Carrier (Insert named place of delivery)
CPT – Carriage Paid to (insert place of destination)
CIP – Carriage and Insurance Paid To (insert place of destination)
DAP – Delivered at Place (insert named place of destination)
DPU – Delivered at Place Unloaded (insert of place of destination)
DDP – Delivered Duty Paid (Insert place of destination).
FAS – Free Alongside Ship (insert name of port of loading)
FOB – Free on Board (insert named port of loading)
CFR – Cost and Freight (insert named port of destination)
CIF – Cost Insurance and Freight (insert named port of destination)
When a company wants to buy something from another company, they need to decide how to handle that. Someone needs to arrange for the item to leave where the seller is storing it, and get to where the buyer wants it.
Somewhere along that route, the seller’s legal liability ends. That might be when the product is delivered, or it might be as soon as it’s picked up, or it might be somewhere along the way, like when it’s loaded onto a ship.
A bunch of corporations got together to make an International Chamber of Commerce. This ICC assigned a set of acronyms to all of the common ways to handle this. So, for example, if the seller is responsible for the cargo up until it reaches the harbor, that’s an FAS code (free alongside ship). If the seller is also taking on the responsibility of having the cargo loaded onto a ship the buyer paid for, that’s an FOB (free on board). If the seller had to pay for the shipping fee, that’s CFR.
There’s a big list of them, but the idea is just to narrow down extremely specific handoff points and methods into a shorthand list, so you don’t need to write a paragraph for each shipment. The dock manager can just read ‘FOB’ and know that if there’s a problem with the loading, they call the seller, not the buyer.
I work in oil trading. They’re effectively a way of saying when does the oil I’ve bought become mine (title) and how is it getting here (freight) and who’s paying for the freight.
Our most common, as an oil supplier is FOB, free on board. Here we make the oil available on an agreed date, and you have to arrange the ship and have the ship arrive on time. Once the oil is onboard, it’s yours and you can take it where you like.
Next is DAP, delivered at place. Here as a buyer, we agree to buy the oil but you pay for the ship and arrange for it to arrive on the agreed date but you still own the oil. Once the oil is ashore, it’s ours.
Then finally CFR, carriage and freight. Here you buy the oil and it’s yours as soon as it’s on the ship. But we load it when we like, pay for the ship and arrange for it to arrive when you want it
They’re the three most common ones we use for bulk oil. The rest are more for containers or packaged goods
Would like to know what incoterms are and when each of them are used and why. Thanks in advance
In: 0
Incoterms, widely-used terms of sale, are a set of 11 internationally recognized rules which define the responsibilities of sellers and buyers. Incoterms specify who is responsible for paying for and managing the shipment, insurance, documentation, customs clearance, and other logistical activities.
EXW – Ex Works (insert place of delivery)
FCA – Free Carrier (Insert named place of delivery)
CPT – Carriage Paid to (insert place of destination)
CIP – Carriage and Insurance Paid To (insert place of destination)
DAP – Delivered at Place (insert named place of destination)
DPU – Delivered at Place Unloaded (insert of place of destination)
DDP – Delivered Duty Paid (Insert place of destination).
FAS – Free Alongside Ship (insert name of port of loading)
FOB – Free on Board (insert named port of loading)
CFR – Cost and Freight (insert named port of destination)
CIF – Cost Insurance and Freight (insert named port of destination)
When a company wants to buy something from another company, they need to decide how to handle that. Someone needs to arrange for the item to leave where the seller is storing it, and get to where the buyer wants it.
Somewhere along that route, the seller’s legal liability ends. That might be when the product is delivered, or it might be as soon as it’s picked up, or it might be somewhere along the way, like when it’s loaded onto a ship.
A bunch of corporations got together to make an International Chamber of Commerce. This ICC assigned a set of acronyms to all of the common ways to handle this. So, for example, if the seller is responsible for the cargo up until it reaches the harbor, that’s an FAS code (free alongside ship). If the seller is also taking on the responsibility of having the cargo loaded onto a ship the buyer paid for, that’s an FOB (free on board). If the seller had to pay for the shipping fee, that’s CFR.
There’s a big list of them, but the idea is just to narrow down extremely specific handoff points and methods into a shorthand list, so you don’t need to write a paragraph for each shipment. The dock manager can just read ‘FOB’ and know that if there’s a problem with the loading, they call the seller, not the buyer.
I work in oil trading. They’re effectively a way of saying when does the oil I’ve bought become mine (title) and how is it getting here (freight) and who’s paying for the freight.
Our most common, as an oil supplier is FOB, free on board. Here we make the oil available on an agreed date, and you have to arrange the ship and have the ship arrive on time. Once the oil is onboard, it’s yours and you can take it where you like.
Next is DAP, delivered at place. Here as a buyer, we agree to buy the oil but you pay for the ship and arrange for it to arrive on the agreed date but you still own the oil. Once the oil is ashore, it’s ours.
Then finally CFR, carriage and freight. Here you buy the oil and it’s yours as soon as it’s on the ship. But we load it when we like, pay for the ship and arrange for it to arrive when you want it
They’re the three most common ones we use for bulk oil. The rest are more for containers or packaged goods
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