Incoterms cover a wide range of responsibilities and obligations for a seller and buyer in an international sales contract.
The implementation of incoterms properly as part of sales contract provides clarity for both parties, gives certainty over costs, and reduces the risk of disputes and disagreements with clients or suppliers. Using the incoterms without understanding the implications of the choice can lead to unexpected costs, delays, or unhappy clients.
The importance of understanding these rules – from both seller’s perspective, should not be underestimated. Without a clear knowledge of the features, obligations, and responsibilities for each of the 11 terms within incoterms 2020, traders may fail to choose the most suitable incoterm, for their transaction.
ExWorksThe seller has delivered when they place or deliver suitably packaged goods at the disposal of the buyer at an agreed-upon place (i.e. the works, factory, warehouse, etc.). The goods are not cleared for export. The seller is not required to load the goods onto a collecting vehicle, and it is at the buyer’s expense. EXW is the only Incoterm where the goods are not required to be cleared for export, although the seller has the duty to assist the buyer (at the buyer’s expense) with any needed documentation and export approvals. From collection, the buyer is responsible for all risks, costs and clearances.
The seller fulfils their obligation to deliver when the goods are handed, suitably packaged and cleared for export to the carrier, selected by the buyer, or the buyer at a place named by the buyer. Responsibility for the goods passes from seller to buyer at this named place.
The named place may be the seller’s premises. While the seller is responsible for loading the goods, they have no responsibility for unloading them if the goods are delivered to a named place that is not the seller’s premises.
The costs and risks of this freight contract fall on the buyer. The buyer must be informed of delivery arrangements by the seller in time for the buyer to arrange insurance.
The seller delivers the goods, packaged suitably and cleared for export, by placing them beside the vessel at the agreed upon port of shipment. At this point, responsibility for the goods passes from the seller to the buyer. The buyer maintains responsibility for loading the goods and any further costs. The buyer is responsible for the cost and risk associated with the freight contract.
Free On Board
The seller delivers the goods, suitably packaged and cleared for export, once they are safely loaded on the ship at the agreed upon shipping port. At this point, responsibility for the goods transfers to the buyer. The seller may procure a freight contract at the buyer’s request or, if the buyer has failed to procure one by the date of a scheduled delivery, the seller may procure one on their own initiative. The buyer is responsible for the cost and risk of this freight contract.
Cost & Freight
Cost, Insurance & Freight
Carriage Paid to Place
The seller delivers the goods to a carrier nominated by the seller, at a destination jointly agreed upon by the seller and buyer. The seller is responsible for paying the freight charges to transport the goods to the named location. Responsibility for the goods being transported transfers from the seller to the buyer the moment the goods are delivered to the carrier. The seller’s only responsibility is to arrange freight to the destination. They are not responsible for ensuring the goods shipment as it is being transported.
Carriage & Insurance Paid to Place
The seller delivers the goods to a carrier at an agreed location. The seller is responsible for paying the freight and insurance charges, which are required to transport the goods to the selected destination. The risk of damage or loss of the transported goods transfers from the seller to the buyer the moment the carrier receives the goods. The seller is only obliged to procure the minimum level of insurance coverage.
Delivered at Place Unloaded
Delivered at Place
Delivered Duty Paid
The seller delivers the goods to the buyer, cleared for import and ready for unloading, at the agreed location or destination. The seller maintains responsibility for all the costs and risks involved in delivering the goods to the location. Import duty may involve customs formalities, the payment of these formalities, customs duties and taxes. DDP holds the maximum obligation for the seller and delivery is not complete until the goods have been unloaded at the destination.