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Practical Guide To Incoterms

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Practical Guide To Incoterms

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Practical Guide to INCOTERMS

OLEGARIO LLAMAZARES

Practical Guide to

INCOTERMS
Place of delivery
Transfer of risks
Documents and customs
Allocation of logistics costs
Transport insurance
Methods of payment

PRACTICAL GUIDE TO INCOTERMS

No part of this publication may be reproduced, stored in a retrieval system or transmitted
in any forms or any means, electronic, mechanical, photocopying, recording or otherwise,
without the prior written permission of the publisher.
Copyright Global Marketing Strategies S.L., 2012
Ayala, 83, 28006, Madrid
Tel.: +34 91-5782667
Fax.: +34 91-5759009
www.globalnegotiator.com
[email protected]
ISBN: 978-84-92570-83-6
Composition and design: Rubn Snchez

INDEX

WHAT ARE INCOTERMS RULES?.................................................................................... 6

Classification of Incoterms 2010.................................................................................... 8
Main changes in Incoterms 2010................................................................................... 9
Aspects of foreign trade that Incoterms do not regulate......................................... 13
Variants of Incoterms................................................................................................... 14
WHAT ARE INCOTERMS USED FOR?........................................................................... 15
The place of delivery . ................................................................................................. 16
Documents and customs procedures.......................................................................... 19
Transfer of risks in transport....................................................................................... 21
Allocation of logistics costs ........................................................................................ 22
OBLIGATIONS OF THE SELLER AND THE BUYER......................................................... 27
EXW Ex Works............................................................................................................. 28
FCA Free Carrier......................................................................................................... 35
FAS Free Alongside Ship........................................................................................... 42
FOB Free On Board ................................................................................................... 49
CPT Carriage Paid To................................................................................................. 56
CFR Cost and Freight ................................................................................................ 63
CIP

Carriage and Insurance Paid to......................................................................... 70

CIF

Cost, Insurance and Freight............................................................................... 78

DAT Delivered At Terminal........................................................................................ 86

DAP Delivered At Place ............................................................................................. 93
DDP Delivered Duty Paid......................................................................................... 100
TEN KEYS FOR THE PROFESSIONAL USE OF INCOTERMS........................................ 107

WHAT ARE
INCOTERMS
RULES?

WHAT ARE INCOTERMS RULES?

What are Incoterms rules?

Incoterms (INternational COmmerce TERMS) rules are a total of eleven terms published by the International Chamber of Commerce (ICC) based in Paris, which define
the conditions of supply of goods in international sales transactions. The first edition
was published in 1936 and subsequently have been making continuous revisions and
updates (usually every ten years) to the one currently in force (Incoterms 2010).
The Incoterms 2010 rules are contained in Publication No. 715 of the International
Chamber of Commerce in bilingual English-French edition. A copy of this publication can be acquired, in both hard copy and e-book format, on the website www.
iccbooks.com.
The writing of Incoterms rules is carried out by a group of experts belonging to different professions and activities, but most of them come from the legal field. The description of each Incoterm includes a guidance note which provide guidelines for better
use. The following sets out the obligations of each of the parties (seller and buyer) in
ten sections that include, among others: delivery, transport and insurance contracts,
transfer of risks, allocation of logistics costs, inspection of goods, notices, etc.
Incoterms are private law rules and are not supported by the laws of any country or
by a supranational organization. They are rules set by businesses (exporters and importers) within the International Chamber of Commerce in order to regulate some
aspects of foreign trade operations.
Incoterms do not have the force of law and therefore is not obliged to use them in
international trade operations; their use will be conditioned on the acceptance of the
parties (seller and buyer) in the sale contract. The strength of the Incoterms is that
are widely known and used by different actors in foreign trade (exporters, importers,
carriers, freight forwarders, customs brokers, banks and insurance companies, etc.).
That is very useful for sellers and buyers to agree on terms of delivery of the goods
and that the agreement conforms to rules that are universally known.
Incoterms can be classified according to three criteria that all have to do with transport: mode of transport used, payment for the main (international) transport and
transfer of risks in transport. In the classification of Incoterms 2010, the prevailing
approach is the mode of transport used.

WHAT ARE INCOTERMS RULES?

Classification of Incoterms 2010

Mode of transport used (Incoterms for any mode of transport and sea
Incoterms)

The first criterion is the mode of transport used. In the version of Incoterms 2010,
there are seven Incoterms that can be used with any mode of transport (surface, air or
sea) or multiple modes (multimodal). On the contrary, there are four Incoterms that
can only be used with sea transport and inland waterways (canals, rivers, lakes).

Incoterms for any mode of transport and multimodal transport: EXW, FCA,
CPT, CIP, DAT, DAP and DDP.

Incoterms, uniquely for sea and inland waterways transport: FAS, FOB, CFR
and CIF.

Payment for the main transport (seller or buyer)

The second criterion of classification is the payment of main transport which is the
international transport between the country of origin and the country of destination.
The Incoterms distinguish between those terms in which the main transport payment
is made by the buyer (importer) and those where it is made by the seller (exporter).

Incoterms in which the main transport is paid by the buyer (importer): EXW,
FCA, FAS and FOB.

Incoterms in which the main transport is paid by the seller (exporter): CPT,
CFR, CIP, CIF, DAT, DAP and DDP.

Transfer of risks in transporting the goods (at origin or destination)

Finally, we should distinguish between those Incoterms in which the obligation to

deliver the goods by the seller and, therefore, the transfer of risks in transport occurs
in the country of origin, while in others Incoterms the obligation of delivery occurs
in the country of destination.

Incoterms with transfer of risks in the country of origin: EXW, FCA, FAS,
FOB, CPT, CFR, CIP and CIP.

Incoterms with transfer of risks in the country of destination: DAT, DAP

and DDP.

In the case of Incoterms in C (CPT, CFR, CIP and CIF) should be noted that, although the seller will be paying international transport to the country of destination,

WHAT ARE INCOTERMS RULES?

the risks of transport are transferred in the country of origin when the goods are loaded
on the means of transport. Hence in the Incoterms CIF and CIP, which incorporate
a compulsory insurance transport, it is the seller who hires and pays the insurance,
although, the beneficiary of insurance is the buyer who bears the risks of transport.
Classification of Incoterms 2010

Acronyms

Incoterm

Mode of
transport

Payment
of main
transport

Transfer
of risks in
transport

EXW

Ex Works

Any mode

Buyer

Origin

FCA

Free Carrier

Any mode

Buyer

Origin

CPT

Carriage Paid To

Any mode

Seller

Origin

CIP

Carriage and Insurance Paid To

Any mode

Seller

Origin

DAT

Delivered At Terminal

Any mode

Seller

Destination

DAP

Delivered At Place

Any mode

Seller

Destination

DDP

Delivered Duty Paid

Any mode

Seller

Destination

FAS

Free Alongside Ship

Sea

Buyer

Origin

FOB

Free On Board

Sea

Buyer

Origin

CFR

Cost and Freight

Sea

Seller

Origin

CIF

Cost, Insurance and Freight

Sea

Seller

Origin

Main changes in Incoterms 2010

The Incoterms 2010 have made some significant changes in relation to the previous
version of Incoterms 2000. These changes include both the elimination and creation
of new terms, modification of certain uses in the existing terms and adapting the rules
to the operational logistics, Internet communications and security procedures that
have been implemented at the borders of countries.

WHAT ARE INCOTERMS RULES?

Below, we offer a brief description of the major changes. The effects of such changes on
foreign trade operations are discussed in detail in the sections devoted to each Incoterm.
Reduction from 13 to 11 terms

In relation to the Incoterms 2000, the 2010 version eliminated four terms: DES (Delivered Ex Ship), DEQ (Delivered Ex Quay), DAF (Delivered At Frontier) and DDU
(Delivered Duty Unpaid). These Incoterms had little use: in the case of DES and DEQ
for certain sales of bulk goods that are delivered to the ports of destination; DAF in
deliveries at frontiers with some difficulty, where is better that the buyer takes over of
import procedures; and in the case of DDU what has actually occurred is a renaming,
because the new DAP Incoterm establishes obligations very similar to DDU. However,
it should be noted that the four Incoterms that have been eliminated can still be used by
exporters and importers since the Incoterms 2010 rules do not repeal Incoterms 2000
rules. Moreover, if a company prefer to use Incoterms 2000, they should refer to this
version in the sale contract, mentioning the expression Incoterms 2000 after the place
of delivery (e.g. DAF USA/Mexico border at Laredo, Texas, USA, Incoterms 2000).
New terms in Incoterms 2010
DAT replaces DES, DEQ y DAF
DAP replaces DDU

Incoterms 2010 created two new Incoterms: DAT (Delivered At Terminal) and DAP
(Delivered At Place). The first replaces the three Incoterms DES, DEQ, and DAF,
when the merchandise is delivered to the destination country in a terminal or transportation infrastructure (port, airport). DAP has a function very similar to DDU, as
noted above.
Priority for Incoterms used with any mode of transport in comparison with
sea Incoterms

The new classification of Incoterms 2010 do not take into account the main criterion
of the distribution of costs between seller and buyer, but the mode of transport used:
Incoterms for any mode of transport against sea Incoterms. The Incoterms 2010 rules
give priority to the Incoterms for any mode of transport because they fit better with
the reality of international logistics.
Goods in containers only for Incoterms for any mode of transport but not
for sea Incoterms.

This is perhaps the most significant change in Incoterms 2010. If the goods are loaded
into a container, the Incoterms 2010 clearly state that sea terms should not be used,

WHAT ARE INCOTERMS RULES?

even if the delivery takes place in a port. The reason is that containers are delivered
to the port terminals, before being placed on board of the ships. When the goods are
transport in containers should not be used FOB, CFR or CIF, but their equivalents
for multimodal transport, which are respectively FCA, CPT and CIP.
This is a big change from the uses and habits that came into force until now. We must
remember that the FOB and CIF Incoterms are the oldest and most widely used in
foreign trade since a large proportion of goods are transported by ship and it is also
common that deliveries be made in ports. Therefore, it is expected that the adaptation of exporters, importers, carriers, freight forwarders, etc., to their modification
of Incoterms 2010 will be slow, and for a time will be common to use FOB, CFR or
CIF even when goods travel in containers. In the event that the seller or buyer use
sea Incoterms with container transport it is advisable to ask about switching to any
mode of transport Incoterm (such as FCA, CPT or CIP) to match what is the right
used according to Incoterms 2010 rules.
Transfer of risks on board in Incoterms FOB, CFR and CIF

In Incoterms 2010, when using the sea terms FOB, CFR and CIF, the transfer of risks
occurs when the goods are placed on board in the port of shipment. However, in
Incoterms 2000, the risk passes when the goods pass the ships rail.
While the version of Incoterms 2010 is not so clear, it is understood that on board
includes only the load (up the goods to the ship). The other two operations required
to place goods in a ship: stowage (place the goods in the ships hold or deck) and
lashing (tying to impede the goods from moving during the journey) are on the account of the buyer. Although Incoterms 2010 do not mention it explicitly, it could
be interpreted that risks of loading is bear by the seller while the risks of stowage and
lashing are bear by the buyer.
Delivery by procuring the goods so delivered for sales that occur during
shipping

In the foreign trade of certain products (bulk, commodities, fuel) sometimes the sale
of goods take place during the journey of the ship, from the shipment port to the destination port, once the goods have been shipped. To cover these situations, Incoterms
2010, only in sea Incoterms FOB, CFR and CIF state that the delivery can be made
on board or by procuring the goods so delivered, i.e. once it has been shipped.
For example, in a sale contract which has established itself as the place of delivery
CIF port Lagos, Nigeria - Incoterms 2010, the buyer can sell the goods to a third
party during the journey between the port of shipment and the port of destination.
Although the buyer has not shipped the merchandise, it fulfills the obligation to
deliver by procuring the goods so delivered to the new buyer.

WHAT ARE INCOTERMS RULES?

Allocation of terminal costs

When using Incoterms in which the seller pays the main transport such as CPT,
CFR, CIP or CIF, the seller includes in the purchase price the cost of transport to
destination including the costs of terminal what is known as THC (Terminal Handling Charges). However, it happens that most of the transport companies carry the
cost of terminal, in particular the discharge of goods on the buyer and, therefore, they
pay twice for the same service. To avoid this duplication, Incoterms 2010 establish that
the terminal costs should be allocated according to the stipulations of the transport
contract. They also state that if the seller bears the costs of discharge at destination
port, according to the stipulations in the transport contract, they shall not be entitled
to demand the buyer the return of the costs unless otherwise agreed.
Transport insurance coverage in CIP and CIF

In Incoterms CIP and CIF in which the seller is obliged to contract a transport insurance of goods from the place of delivery to destination, the Incoterms 2010 refer to
the latest version of the coverage Insurance of Institute Cargo Clause in London. These
covers are the result of the agreement IUA / LMA (Underwriting International Association of London and Lloyds Market Association) which came into force in January
2009. There are three types of coverage: Clause C (minimum), Clause B and Clause
A besides, Clauses of War and Strike can be added within the Clauses. According to
Incoterms 2010, in Incoterms CIP and CIF, the seller is required to hire only minimal
coverage (Clause C). If the buyer wanted a larger coverage, he shall require the seller
to contract it, but its cost will be borne by the buyer. In the rest of the Incoterms,
neither party is obliged to take out transport insurance, but are required to provide
to the other party the necessary information for obtaining the insurance.
Security-related information

Since the attacks of September 11, 2001 various measures to ensure the safe transport of passengers and goods were put in place. Following these practices, Incoterms
2010 version establishes the obligation of the seller to assist the buyer to obtain all
information concerning the safety of the goods or their transportation to their final
destination. However, Incoterms 2010 states that any costs resulting from obtaining
such information will be borne by the buyer.
Validity of electronic messages and documents

Incoterms 2010 granted the same validity to the messages and documents transmitted
electronically to those that are supported on paper, if it is agreed by the parties or is a
common practice. The use of electronic means facilitate the obligation to notify the
parties with different information (place of delivery or receipt, date, name of carrier,
etc.) and the transmission of documents relating to export and import formalities.

WHAT ARE INCOTERMS RULES?

Main changes in Incoterms 2010

International and national use

Although Incoterms are in the peculiarities of foreign trade, the 2010 version refers
to its use also for domestic trade. This new approach regarding the scope has two
justifications: first, there are areas of economic integration (such as the EU) that have
the consideration of domestic market when customs disappeared. On the other
hand, the internal regulations in the U.S. terms of trade known as RAFTD (Revised
American Foreign Trade Definitions), no longer in force, are expected to be replaced
by Incoterms, both in internal operations between U.S. companies and in foreign
trade operations between U.S. companies and companies in other countries.
Aspects of foreign trade that Incoterms do not regulate
Although Incoterms regulate many aspects of foreign trade, there are others on which
they do not have influence. Among them: trade in services, ownership of the goods
or the payment deadline:

Trade in services: Incoterms are only used in international sales of goods (tangible products) and do not apply to trade in services (intangibles) as in this activity
there is no physical delivery, or need for logistics and customs clearance; therefore
Incoterms rules do not apply.

Ownership of the merchandise: the transfer of ownership of goods is governed by the contract of sale and performed normally on payment of the price;
therefore, is not affected by Incoterms rules. The text of Incoterms 2010 never

WHAT ARE INCOTERMS RULES?

used the expression transfer the ownership of the products when defining the
obligations of delivery of the goods by the seller, Incoterms rules use expressions
such as deliver the goods or made available to . The Obligations of the
buyer section explicitly mentions that the buyer must pay the price established
in the sale contract.

Deadline for payment: the payment period is also established in the international
sale contract and may be paid in advance (before delivery), payment in cash (coinciding with the delivery) or payment on credit (after delivery). In this sense,
neither of these three alternative is affected by the Incoterms agreed upon.

In addition to these three aspects, Incoterms do not deal with other issues such as
warranties, grounds for termination of the contract or sue for damages that should
be resolved through the sale contract and according to the law to which the contract
is submitted.
Variants of Incoterms
The practice of foreign trade has meant that sometimes the exporters and importers
add a term or expression to Incoterms in order to clarify the distribution of costs and
risks between the parties. It should be noted that the Incoterms 2010, unlike previous
versions, do not mention any of these variants. However, it remains appropriate in
certain circumstances of international operations to mention three variants that should
eventually be used:

EXW loaded: the loading and therefore the risks of the goods in the first
transport (usually truck) that are paid by the seller. Normally, when using EXW
it is the seller who makes the load on the first transport and therefore, this variant
corresponds more to reality than the rule EXW in which the costs and risks of
loading in the first transport are borne by the buyer.

CIF maximum cover: for the benefit of the buyer, the seller contracts insurance
coverage of international transportation with Clause A of the Institute Cargo
Clauses (ICC), plus a Strike Clause and a War Clause. The cost of this additional
coverage is not very significant in relation to the risks they cover, so in some highrisk countries, it is advisable to hire them.

DDP VAT unpaid or DDP VAT excluded: the seller bears the costs of import
clearance but without accounting for VAT. Incoterms 2010 specifically mentions
this possibility because of difficulties in recovering the amount that the seller has
to pay in concept of VAT on the value of the goods at the destination country.

In any case, when using some variant of Incoterms rules should be clearly specified in
the sale contract how the costs and risks covered by the variant are allocated between
buyer and seller.

What are
Incoterms
USED FOR?

WHAT ARE INCOTERMS USED FOR?

What are Incoterms used for?

Incoterms arise from the need for exporters and importers to agree on a number
of issues related to international operations. Hence, the International Chamber of
Commerce has developed rules that govern the obligations in regard to the delivery
terms in an international sale.
Specifically, the purpose of Incoterms is to define with precision:
Where the goods are delivered.
The documents and customs formalities necessary for export and import procedures.
The transmission risks in transporting the goods.
The allocation of logistics costs between seller and buyer.
The place of delivery
The first function of Incoterms is to define precisely the place of delivery of the goods
and if it comes loaded or ready for discharge from the transport vehicle (truck, plane,
ship, train).
Following the three initials in capital letters of each Incoterm must be included as
accurately as possible:
The specific location where the goods are delivered: address of the seller or buyer,
the center of transportation, logistics platform, terminal, pier, port, airport, etc.
The town (province, state) where the goods are delivered.
The country where the goods are delivered.
It is important to mention the town and the country of delivery as the worlds geography is so vast and is not always easy to locate a town in a country.
According to Incoterms 2010, in the event that a specific location for delivery of the
goods were not designated and there are several possible for example a company
with different locations in a same town the seller may choose the one that suits
him better. After de country, must be included the expression Incoterms 2010 to
reflect that the latest version published by the International Chamber of Commerce
is being used.

WHAT ARE INCOTERMS USED FOR?

When choosing the place of delivery it is necessary to take into account the correct
and most common of each Incoterm, distinguishing between Incoterms for any mode
of transport (including multimodal transport) and those that can only be used with
sea transport.
In EXW, normally the place of delivery is the sellers premises so it is advisable to
include the exact address to which refer to the carrier (usually truck) that sends the
buyer to collect the goods.
In FCA delivery may be in the sellers premises or, more commonly, in a facility or
transport infrastructure such as a transportation hub, logistics platform, airport or
port, always in the sellers country. If it is a multimodal transport in which the goods
travel in containers is advisable to identify the place of delivery as the container terminal at the logistics facility.
For CPT and CIP Incoterms delivery locations are varied, always in the buyers country, once the international voyage has been made. Could be the buyers premises in
the case of a country that does not need to pass customs or a facility or transport
infrastructure. If the goods travel by ship and container, the most common practice
is that the goods will be delivered at the ports container terminal in the country of
destination. In that case, the costs of unloading the goods from de ship, usually are
bear by de seller.
Where Incoterms in D are used, the place of delivery is the buyers country. In the
case of DAT, a terminal of a transportation center, airport, port, and in the case of
DAP and DDP, usually the buyers premises; in DAP without making customs clearance and in DDP with customs clearance performed.
In sea Incoterms the place of delivery is always a port. It can the port of shipment
(FAS and FOB) or the port of destination (CFR and CIF). In the case of FAS the
delivery is on the dock of the port, so if advisable to include the number or name
of the dock. In Incoterms FOB, CFR and CIF delivery is made once the goods are
placed on board of the ship so it is sufficient to name the port of shipment (in FOB)
or destination (CFR or CIF).
In addition to the place of delivery, Incoterms also regulate how to deliver the goods.
There are three alternatives:
Ready for download in the place of delivery (e.g. FCA).
Loaded in the transport medium (e.g. CIP).
Unloading from the transport medium (e.g. DAT).
Full information on the obligations of loading and unloading of goods in Incoterm
is available in the section devoted to each of them.

WHAT ARE INCOTERMS USED FOR?

Examples of correct use of Incoterms 2010

INCOTERMS FOR ANY MODE OF TRANSPORT

EXW Ridge Manufacturing Inc., Chicago, United States, Incoterms 2010

EXW 31 Constitution Hill, Birmingham, Great Britain, Incoterms 2010
FCA Logistics Platform of Lyon, France, Incoterms 2010
FCA Cargo Terminal, Frankfurt-Hahn Airport, Germany, Incoterms 2010
FCA Delta Terminal, Rotterdam Port, Netherlands, Incoterms 2010
CPT Budapest Logistic Center, Hungary, Incoterms 2010
CPT Container Terminal, port of Tampico, Mexico, Incoterms 2010
CPT Delmonte Srl. Warehouse, Milan, Italy, Incoterms 2010
CIP Air Cargo Terminal, Tianjin Airport, China, Incoterms 2010
CIP Container Terminal, Port of Santos, Brazil, Incoterms 2010
CIP Baupart GmbH Factory, Munich, Germany, Incoterms 2010
DAT Logistics Platform Bursa, Turkey, Incoterms 2010
DAT Cargo terminal, Toronto Airport, Canada Incoterms 2010
DAT Container Terminal 5, Hong Kong Port, China, Incoterms 2010
DAP Udalex Doors Factory, Bucharest, Romania, Incoterms 2010
DAP Alsngatan 31, Stockholm, Sweden, Incoterms 2010
DDP Hampton & Stevens Ltd. Warehouse, Sidney, Australia, Incoterms 2010
DDP Adetepe Sitesi 24, Istanbul, Turkey, Incoterms 2010

SEA INCOTERMS
FAS port of Bremen, Germany, Incoterms 2010
FOB port of Miami, United States, Incoterms 2010
CFR port of Saint Petersburg, Russia, Incoterms 2010
CIF port of Madras, India, Incoterms 2010

WHAT ARE INCOTERMS USED FOR?

Documents and customs procedures

The second function of Incoterms is to regulate who (exporter or importer) shall get
the documents that are generated in the trade transaction. In these documents can be
distinguishes the document used to proof the delivery of goods and any other documents necessary for customs clearance.
Documents to proof the delivery of goods

The seller must obtain a document that justify for commercial purposes, legal compliance and payment, the obligation to deliver goods to the buyer is what is called
POD (Proof of Delivery). It is really important to know what kind of document
shall be used to justify the delivery, especially if the means of payment is a letter of
credit and the payment is made upon delivery of the documents required at the issuing of the letter.
There are basically two types of documents to justify delivery:
Delivery receipts of the carrier: are used in Incoterms EXW, FCA, DAT, DAP
and DDP. Must be signed by the buyers carrier (e.g. FCA) or by the buyer
himself (e.g. DDP).
International transport documents: are used in Incoterms FOB, CPT, CIP,
CFR and CIF. The document will depend on the type of transport used:
Land: Consignment note CMR.
Sea: Bill of Lading B/L.
Air: Airway Bill AWB.
Train: Railway Bill of Lading CIM.
Multimodal: Multimodal bill of lading FBL.
Incoterms 2010 establish that the seller is obliged to provide all necessary assistance
to the buyer, upon request and on his behalf, to obtain a transport document proving
the delivery. When this document is negotiable and issued in several originals (e.g. Bill
of Lading B/L) the seller must give the buyer a full set of originals. In Incoterms CIP
and CIF the seller is obliged to obtain a transport insurance for the buyer. Therefore,
to justify the delivery, in addition to providing a transport document, the seller must
also give the buyer a copy of the insurance policy or the certificate of transport.
Documents for customs clearance

Incoterms also regulate which of the parties (seller or buyer) should obtain the documents for customs clearance in the countries of origin and destination. These docu-

WHAT ARE INCOTERMS USED FOR?

ments include: export and import SAD (Single Administrative Document), Declaration of Value, licenses and authorizations, certificates, etc.
The following table shows who is responsible for obtaining such documents for import
and export and import. In EXW the buyer has to make both of them, while in DDP
the seller who is responsible for both. In the rest of Incoterms, export clearance is
done by the seller and import clearance by the buyer.
Customs procedures according to each Incoterm
Mode of
Transport

A
N
Y
M
O
D
E

S
E
A

Incoterm

Export
Clearance

Import
Clearance

EXW

Buyer

FCA

Seller

Buyer

CPT

Seller

Buyer

CIP

Seller

Buyer

DAT

Seller

Buyer

DAP

Seller

Buyer

DDP

Seller

FAS

Seller

Buyer

FOB

Seller

Buyer

CFR

Seller

Buyer

CIF

Seller

Buyer

In any case, regardless of who is responsible for carrying out customs formalities,
the other party must provide full assistance at the risk and cost of the party that
must obtain the documents necessary for customs clearance. Thus, for example in
EXW, the seller must help the buyer to obtain the documents necessary for export
clearance, while in the case of DDP the buyer is obliged to help the seller getting
the documents for import clearance.

WHAT ARE INCOTERMS USED FOR?

Transfer of risks in transport

The third function of Incoterms is to determine where the risk is transferred from
seller to buyer. It must be clarified that his is the risk of transport due to damage, loss,
strikes, war, etc., during the transport of goods, not the commercial or payment risk
that has to do with the transmission of ownership of the goods and payment, issues
not regulated by the Incoterms.
There are two possibilities: transfer the risk in the country of origin (sellers country)
or in the destination country (buyers country):

Transfer of risks in origin: in EXW, Incoterms in F (FCA, FAS and FOB) and
Incoterms C (CPT, CIP, CFR and CIP) the risk are transferred where the seller
delivers the goods to the first carrier in the chain (Incoterms for any mode of transport) or in the port of shipment (sea Incoterms) always in the country of origin.

Transfer of risks at destination: in Incoterms in D (DAT, DAP and DDP),

the risk are transferred when the seller delivers goods at the designated place
normally logistics infrastructure (DAT ) or buyers premises (DAP or DDP) in
the country of destination.
Transfer of risks in transport according to each Incoterm
Mode of
Transport

A
N
Y
M
O
D
E

S
E
A

Incoterm

Transfer of risks

EXW

Origin

FCA

Origin

CPT

Origin

CIP

Origin

DAT

Destination

DAP

Destination

DDP

Destination

FAS

Origin

FOB

Origin

CFR

Origin

CIF

Origin

WHAT ARE INCOTERMS USED FOR?

Allocation of logistics costs

In addition to these functions, the fundamental objective of Incoterms is to define
cost sharing between seller and buyer in an international sale, in particular the rules
on Incoterms 2010 define precisely who bears the costs of each of the logistical operations both in origin and destination.
To understand the distribution of logistics costs it is necessary to take into account
that the rules of Incoterms are made from the sellers point of view. When progress
is made through the classification of Incoterms, costs borne by the seller increase in
relation with those supported bay de buyer. For example, in EXW the seller assumes
only the costs of packaging and checking he goods, while in DDP assume all costs
except unloading the goods at the place of destination.
Costs can be divided into 11 concepts, 5 of them in origin, 2 international and 4 at
destination.
Sequence in allocation costs between seller and buyer
Place

Country of origin

International

Country of
destination

Concept
1. Packaging and checking
2. Loading in sellers premises
3.Transport in country of origin (pre-carriage)
4. Customs clearance (export)
5. Terminal charges in origin
6. Main transport
7. Transport insurance
8. Terminal charges at destination
9. Customs clearance (import)
10. Transport in country of destination (on-carriage)
11. Unloading is buyers premises

Package and checking

In all Incoterms costs of packaging and checking are supported by the seller. Thus,
prior to quote, the seller should ask the buyer if the goods have to take some special
packaging due to weather issues, resistance to certain forms of transport, etc. If that
were the case, the seller must include the additional cost of such packaging in the
price. Package defects are the leading cause of loss in the international trade and are
not covered by transport insurance.

WHAT ARE INCOTERMS USED FOR?

Loading in origin and unloading at destination

The load of the goods in origin and the uploading at destination are concepts that
carriers do not usually listed separately in groupage operations, but only when it comes
to full loads or general cargo.
Typically, the load in origin is made by the seller, though that practice goes against the
Incoterm EXW in which the goods are delivered ready for loading. In groupage, truck
drivers may have some means to load the cargo (boxes, pallet) to the truck but when
it is a full container the driver has no means to upload it to the truck. So if the seller
prefers to do the load on the first carrier is preferred to use FCA rather than EXW.
As for the unloading at destination, is normally made by the buyer in accordance with
Incoterm DDP in which the goods are delivered ready for unloading.
Transport in country of origin and destination

Transport in the country of origin (pre-carriage) includes transportation of goods

from the sellers premises to the place of delivery in the country of origin that can be
a transportation hub, port, airport, etc. Some companies have their own means of
transport (trucks, vans) and do it for themselves, although it is usually to outsource
pre-carriage to a transport company. Although there are not great distances and therefore the cost is not very high, when preparing a quotation in any Incoterm, except
EXW, the seller has to include the costs of pre-carriage in the price and, therefore,
must request a quote to transport companies.
Transport in the country of destination (on-carriage) consists in bringing the goods
from the place where international transport delivers then to the buyers premises. For
doing that, the seller must hire and pay for services of a transport company in the
country of destination and probably will have difficulties to recover indirect taxes on
contract logistics services, having no tax resident in the country.
Terminal charges in countries of origin and destination

The costs of handling the goods, both at origin and destination, will depend on the
transport contract. These costs are called THC (Terminal Handling Charges) and
may be important, especially when using sea transport.
To avoid duplication in the charge of these costs i.e. not charged them to the buyer
and seller simultaneously it is necessary to make a contract of carriage that fits the
Incoterms agreed in the sale contract.
As regards the costs of cargo handling in the country of origin, in the case of FCA
these costs should be incorporated into the price the buyer pays for the freight of

WHAT ARE INCOTERMS USED FOR?

international transport. In the case of FOB are borne by the seller because the goods
are placed on board.
As for the costs of handling at destination, when using Incoterms in C (CPT, CFR,
CIP or CIF) is the seller who pays the freight and, therefore, who should include or
not handling costs at the port of destination.
To determine who bears the costs of handling at origin and destination are different
forms of freight services ranging from FIO (Free In and Out) that does not include
expenses or load or unload, until Liner Terms (Berth to Berth) where the loading/
stowage (at the port of loading) and unstowage/unloading (in the port of destination)
are included in the freight.
Types of freight services
FIO (Free In and Out): freight cost does not include loading or unloading.
FILO (Free In, Out Liner): the loading and stowage are for the account of the goods and the
unloading and unstowage for the account of the carrier. Most appropriate option for FOB.
LIFO (Liner In, Free Out): the loading and unstowage are borne by the carrier and
unloading and unstowage by the account of the goods account. Most appropriate option
for C terms (CPT, CFR, CIP and CIF) when the goods are delivered at destination port
without unloading.
LINER TERMS (Berth to Berth): the loading, stowage, unloading and unstowage are included
in the freight. Most appropriate option for the terms C and DAT when you the seller want
to deliver the goods unloaded at the container terminal at the port of arrival.

Main transport

Main transport is the one that takes place between the place of delivery in the country
of origin and the country of destination and usually is the most important logistical
costs of all governing Incoterms. Therefore, the parties should request quotes and
explore various alternatives with different carriers and freights forwarders to see which
of them is getting more competitive prices.
In Incoterms EXW and F international transport is hired by the buyer, while in
the Incoterms in C and D is hired by the seller. It is usual for parties to request
quotes to their carriers, both in origin (EXW or F) or at destination (C or D)
in order to evaluate the different offers they receive and choose the best suited at that
time and for that particular operation.

WHAT ARE INCOTERMS USED FOR?

Customs clearance (export and import)

Among the costs regulated by Incoterms are the export clearance in the customs of
country of origin and the import clearance at the point of entry in the country that
imports the goods.
Incoterms EXW is the only one in which both, export and import clearances are
made by the buyer. In contrast, DDP is the only Incoterm in which both clearance
are performed by the seller. In the rest of Incoterms, export clearance is carried out
by the seller and import clearance by the buyer.
The cost of these procedures include customs clearance and the payment of taxes on
imports, mainly tariffs. It also includes the payment of VAT.
Tariffs are taxes levied on the value of the goods through customs in the importing
country. Usually they are Ad Valorem, i.e. a percentage of the value of the goods. In
most of the customs laws that value includes the cost of transport to the country of
entry, that is tariffs are applied to Incoterms in C (cost of goods + freight to the
destination country). There are also specific duties that involve the payment of a fee
for each unit (kilos, tons, liters, hectoliters, square footage, etc.) that is imported (i.e.
0.05 per liter or 250 per ton).
Transport insurance of goods

Only in Incoterms CIP an CIF the seller is obliged to purchase insurance for the
buyer to transport the goods from the place of delivery to the destination. In the rest
of the Incoterms neither party is obligated to purchase insurance, although they are
obliged to provide the other party the information to purchase it.
Whether or not required to purchase insurance in the agreed conditions, it is advisable
that the party assuming the risk in the international transport do it. Purchase can be
done through ones own carrier or forwarder, or directly with an insurance company
that offers transport insurance policies. The cost of the policy depends on the type of
transport, goods and, destination country but normally do not exceed a low percentage of the value of goods, about 0,5%.
To confirm that the insurer has contracted the insurance, seller or buyer should apply
for a certificate of insurance including data of the operation such as insure and the
insureds name, goods, insured value, voyage, coverage and premium.

FCA
Any mode

FAS
Only sea

FOB
Only sea

CPT
Any mode

CFR
Only sea

CIP
Any mode

CIF
Only sea

DAT
Any mode

DAP
Any mode

DDP
Any mode

B: Buyer

S: Seller

Packaging
and
checking

EXW
Any mode

INCOTERM
Mode of transport

Loading
sellers
premises

Customs
clearance
export

Terminal
charges
origin

Main
transport

Transport
insurance

Terminal
charges
destination

b: no obligation to obtain an insurance contract, though the risks are bear by de seller

s: no obligation to obtain an insurance contract, though the risks are bear by de seller

Transport
in origin
(precarriage)

Incoterms 2010: Allocation of costs between seller (S) and buyer (B)

Customs
clearance
import

Transport
to
destination
on-carriage

Unloading
Buyers
premises

26
WHAT ARE INCOTERMS USED FOR?

obligations
of the
seller And
the buyer

OBLIGATIONS OF THE SELLER AND THE BUYER

EXW

Ex Works (named place of delivery)

Costs
Risks
Docs.

EXW

HOW TO USE EXW

EXW is the Incoterm that represents the minimum obligations, costs and risks for
the seller, as he delivers the goods at his own premises (factory or warehouse) in his
country. Not even the seller is responsible for loading the goods onto the first carrier
(usually truck) that sends the buyer to pick them up. It is the only Incoterm in which
the seller does not clear the goods for export, when such clearance is applicable.
On the contrary, with EXW, the seller offers the lowest service of all Incoterms and
represents a loss of competitiveness in comparison with other companies that assume
part of international logistics.
This term is suitable for exporting firms with little international experience and who
make groupage operations (boxes, pallets) in which the buyer sends a truck to collect
the goods at the sellers premises. When sending full containers, it is better to use
FCA, as usually the seller makes the loading of the container on the truck sent by the
buyer to the sellers premises.
It is not advisable to use EXW regularly because when the seller delivers the goods in
its own country, normally it is preferable to use FCA.

OBLIGATIONS OF THE SELLER AND THE BUYER

EXW MAIN CHARACTERISTICS

Mode of transport

EXW can be used with any mode of transport (land, sea, air) and specially with
multimodal transport (containers).
Place of delivery and reception of goods

Normally when using this Incoterm, the place of delivery of the goods are the sellers
premises (factory or warehouse). If the seller has several places in different locations
he should specify in which of them will the goods be delivered. If the sales contract
has not established a specific place and there are several possible points of delivery,
the seller can choose the one that suits him better.

EXW

The buyer is required to collect the goods at the agreed place and date, if the seller
has properly notified him in due time.
Loading/unloading of goods

The seller delivers the goods to the buyer at the named place of delivery, but without
being loaded into the first carrier (usually truck). Therefore, the loading on the first
carrier is at the risk of the buyer.
Delivery document

The seller has no obligation to justify the delivery of goods to the buyer with any
type of document, as it is the buyer who sends a transport (usually truck) to collect
the goods at sellers premises.
The delivery document used is a delivery note of the carrier who has been sent by the
buyer to the sellers premises or in the case of multimodal transport, a FCR FIATA
certificate issued by the forwarder, hired for the buyer, with information that has been
previously provided by the seller.
Documents for export/import procedures

The seller has only the obligation to provide the buyer with the commercial documents
accompanying the goods (invoice and packing list). However, the seller should help the
buyer to obtain other documents necessary for the export operation such as licenses,
permits, certificates, etc.; the cost of obtaining these documents is borne by the buyer.
Furthermore, the seller must provide the buyer with any information and help in
obtaining any documents necessary to complete the formalities for import into the

OBLIGATIONS OF THE SELLER AND THE BUYER

country of destination and also those documents relating to security in the transport
of the goods from the delivery place to the final destination. The buyer must pay the
seller for expenses made to obtain such information and documents.
Transport documents (carriage of goods by road CMR, bill of lading B/L, air waybill
AWB, railway bill of lading CIM and FIATA bill of lading FBL) shall be obtained
by the buyer.
If the parties agree or if it was normal practice, the seller can provide the documents
to the buyer using electronic procedures.
Transport contract

EXW

Neither party has the obligation to the other to make a contract of transport. In any
case, transportation, either by their own means or by contract, is done by the buyer
who is the one that bears the costs and risks of transporting the goods from the place
of delivery at the sellers country to the final destination.
Transfer of risks in transport

The risk in transporting the goods is transferred from seller to buyer at the time of
delivery, i.e., before the goods are loaded on the first carrier (usually truck). Therefore, the risk in the operation of loading the goods on the first carrier is assumed
by the buyer.
To transfer the risk, it is necessary that the goods transported can be identified and
individualized as the goods object of the sale contract. Also, the seller must notify
the buyer in a reliable way that he has put the goods at his disposal at the place of
delivery.
Insurance contract

Neither party has the obligation to make a contract of insurance for transporting
the goods. However, it is advisable that the buyer hires insurance transport, at least
to cover the international transport of goods. In this sense, the seller must provide
the buyer with any information necessary to enable him to hire the insurance he
needs.
Inspection of goods in the country of origin

The costs of any mandatory inspection of the goods prior to shipment are paid by
the buyer, even when such inspection is required by regulations or institutions in the
country of the seller.

OBLIGATIONS OF THE SELLER AND THE BUYER

Export and import customs clearance

All procedures, costs and taxes of both, export and import clearance, are borne by
the buyer.
Allocation of costs between seller and buyer

The seller assumes only the cost of packaging, checking and marking of goods, according to usual practices in international trade. He also assumes any specific requirements
on the packaging that have been included in the sale contract.
All other operating and logistics costs are borne by the buyer:
Loading of the goods at the first carrier.
Inland transportation (pre-carriage) to transport center, port, airport, in sellers
country.

EXW

Costs and taxes of export clearance.

Terminal costs (warehousing, handling, loading) in transport center, port, airport,
in sellers country.
Main transport to the country of destination.
Insurance transport (if it is hired).
Terminal costs (unloading, handling, warehousing) in transport center, port or
airport, in buyers country.
Costs and taxes of import clearance.
Inland transportation (on-carriage) from the transport center, port, airport, to
the buyers premises.
Unloading of goods on buyers premises.
Methods of payment

EXW shall be used with no documentary methods of payment such as payment in

advance, cash on delivery, open account or check. Is not suitable for documentary
methods (letter of credit or documentary credit) because the seller does not have a
transport document (CMR, B/L AWB, FBL) that justify the delivery of the goods
at the agreed conditions and therefore be included as documentation of the letter
of credit.

OBLIGATIONS OF THE SELLER AND THE BUYER

Moreover, if the letter of credit requires a transport document to justify delivery and
the buyer does not send a carrier to collect the goods from the sellers premises, the
seller will not be able to make effective the credit because he will not have the required
delivery document.
When using documentary methods of payment (letter of credit or documentary
credit) it is better use Incoterms in F or C.
PRACTICAL ADVICE TO USE EXW
EXW is the first Incoterm out of the eleven and the one that implies fewer obligations
to the seller; he only has to deliver the goods at his own premises and the buyer will
send a carrier to collect them.

EXW

EXW allows the seller to give the lowest price quotation and not assume the costs
and risks in international operations management. In this sense, the seller may quote
prices immediately, without having to make any calculations about the costs of the
export operation: it is like a sale in the local market.
In contrast, EXW means the less service given by the seller and requires the buyer to
assume full logistics management. Sellers commercial offers will lose competitiveness
in relation to those of other providers that includes international logistics management
among the services offered.
In EXW, companies with a certain volume of international business, will not get
certain discounts and preferential rates in hiring of international transport. These
discounts can represent an additional source of income if they are not applied to final
prices, or make the offers more competitive when they are translated to a reduced
final price.
As for loading the goods, in the first mode of transportation (usually truck), it must be
taken into account that according to the EXW the loading shall be done by the buyer.
However, in most cases, the daily experience shows that it is the seller who assumes
the cost and risk of loading because the trucks normally do not have means to upload
the goods. When the buyer is unwilling to assume, either the cost or the risk of the
load on the first carrier, it is better to use other Incoterms, for example, FCA.
EXW is the only Incoterm in which the exporter does not carry out customs formalities for the export of goods. In this sense, the seller does not have any document that
serves to justify the export of goods. Thus, for purposes of taxation (VAT) or other
regulations, the buyer must ask to the customs broker or forwarding agent of the
buyer for a copy of the SAD (Single Administrative Documents, issue n 3) which is
the document that demonstrates that the export clearance has been made; the seller
can also ask for a transport document (CMR, B/L, SWB, AWB, FBL) as evidence
that the goods are exported. If it is an integrated economic area (e.g. the EU) where

OBLIGATIONS OF THE SELLER AND THE BUYER

there is free movement of goods and no customs clearance, to justify the exit of goods
from the national territory for VAT purposes, it will be sufficient with a transport
document or a carriers delivery note signed and sealed by the consignee of the goods
in the destination country.
EXW is useful for the following types of international operations:
First exports of companies that have very short experience and knowledge of
international trade.

International sales between subsidiaries belonging to the same multinational group

in which there is full transparency and confidence in the way of operating.

Sales in an integrated economic area (e.g. the EU), where there is free movement
of goods without customs clearance.

EXW

Groupage operations of small volumes where the buyer sends a carrier to the
sellers premises to collect and load the goods in the truck (pallets, boxes) with
very little costs and risks.
Full load operations (full container or truck) in which there is a single transport
document for the whole journey, and where it is not necessary to carry out customs clearance since the goods are sent to a zone of countries (e.g. the EU) in
which there is a system of free movement of goods. However, in the cases where
the goods are loaded by the seller on a truck sent by the buyer, it is preferable to
use FCA.

OBLIGATIONS OF THE SELLER AND THE BUYER

EXW

KEYS TO EXW

Mode of transport

Any type of transport (land, air, sea), including multimodal

transport (containers).

Delivery place

On the premises (factory or warehouse) of the seller.

Loading/unloading of the
goods

Properly packaged and marked, ready to be loaded into the

first carrier (usually truck).

Delivery document

Delivery note or FIATA FCR certificate if multimodal transport

is used.

Type of cargo

Any type of cargo, except bulk and heavy loads.

Contract of main transport

Buyer.

Contract of insurance

There is no obligation on either party. However, it is

advisable that the buyer purchases insurance because he
assumes the risks.

Transfer of risks in transport

At the time of delivery, before the goods are loaded on the

first carrier in the sellers premises.

Pre-shipment inspection

Buyer.

Export customs clearance

Buyer.

Import customs clearance

Buyer.

Methods of payment

Payment in advance, cash on delivery, open account, bank

transfer, check. It is not suitable for documentary methods
(letter of credit or documentary credit).

OBLIGATIONS OF THE SELLER AND THE BUYER

FCA

Free Carrier (named place of delivery)

Costs
Risks
Documents

EXW
FCA

HOW TO USE FCA

FCA is a very flexible Incoterm because it allows the delivery of the goods, both
on the premises of the seller and at various points such as transports centers, ports,
airports, container terminals, etc., which are located in the country of the seller.
Therefore, when using this Incoterm, it is very important to specify clearly the place
of delivery.
FCA can be used for any type of cargo (general cargo, full load, groupage) and with
different means of payment (open account, bank transfer, letter of credit, etc.).
In the Incoterm FCA, the seller must complete and bear the costs of export clearance
and, therefore, is responsible for obtaining the necessary documents for it. The import
clearance formalities are performed by the buyer.
When the goods are transported in containers and the place of delivery is the port
of shipment, Incoterms 2010 rules advised to use FCA instead of FOB, because the
containers are delivered regularly in the ports container terminal and not loaded into
the ship.
FCA is one of the most used Incoterms in international trade and will probably replace
EXW for the majority of sales where the seller delivers the goods in its own country
and do not want to manage international logistics.

OBLIGATIONS OF THE SELLER AND THE BUYER

FCA MAIN CHARACTERISTICS

Mode of transport

FCA can be used with any mode of transport (land, sea, air) and specially with multimodal transport (containers).
Place of delivery and reception of goods

The seller delivers the goods to the buyer in two possible locations:
The sellers premises (factory or warehouse).
Somewhere (transport center, terminal, port, airport, containers terminal) in the
sellers country.

EXW
FCA

This second alternative is more usual. If the seller has not set a specific place and there
are several possible delivery points, the buyer can choose the most convenient for him.
The buyer is required to collect the goods at the place and date agreed, if the seller
properly notified him in due time.
Loading/unloading of goods

When the goods are delivered on the sellers premises (factory or warehouse), the
seller has to load the goods on the first carrier (usually truck).
If the merchandise is delivered at some other point (transport center, port, airport),
the seller must deliver the goods ready for unloading and delivery to the carrier that
has been designated by the buyer for international transport.
Delivery document

The seller must provide the buyer with a document proving the delivery of the goods
in the agreed conditions. This document is usually the delivery note of goods from
the carrier hired by the seller to the international carrier or freight forwarder hired
by the buyer. The seller must also assist the buyer in order to get the international
transport documents.
When the goods are delivered at sellers premises, the delivery documents is usually a receipt of the carrier sent by the buyer to the sellers premises. In the case of
multimodal transport FIATA FCR, a certificate is issued by the forwarder with the
information that has been previously provided by the seller.

OBLIGATIONS OF THE SELLER AND THE BUYER

Documents for export/import procedures

The seller is obliged to provide the buyer with the commercial documents accompanying the goods (commercial invoice and packing list). He also has to get all the
documents required for export clearance (export SAD, certificates, licenses and authorizations, etc.).
Furthermore, the seller must provide the buyer with any information and help in
obtaining any documents necessary to complete the formalities for import into the
country of destination; and also those documents relating to security in the transport
of the goods from the delivery place to the final destination. The buyer must pay the
seller for expenses made to obtain such information and documents.
Transport documents (carriage of goods by road CMR, bill of lading B/L, air waybill
AWB, railway bill of lading CIM and FIATA bill of lading FBL) shall be obtained
by the buyer.

EXW
FCA

If the parties agree or if it was normal practice, the seller can provide the documents
to the buyer using electronic procedures.
Transport contract

It is the buyer who must hire transportation from the place of delivery (in the sellers
country) to the final destination of the goods. However the buyer can ask the seller
to hire the carriage on usual conditions, at the risk of the buyer. The seller may reject
the request and in this case, he should inform the buyer as soon as possible.
Transfer of risks in transport

The risk in transporting the goods is transferred from seller to buyer at the time of
delivery: there are two possibilities:

If the goods are delivered to the buyer on the sellers premises (factory or warehouse) the
risk is transferred when the goods have been loaded in the first carrier (usually truck).

If the goods are delivered elsewhere (transport center, port, airport) in the country
of the seller, the risk is transferred before the goods are unloaded from the first carrier for delivery to the carrier named by the buyer.

The buyer bears all risks of transport from the moment the goods have been delivered
at the agreed place and time if:
Does not notify the seller the name of the carrier that will pick up the goods.

The carrier named by the buyer fails to take the goods on the date or deadline agreed.

OBLIGATIONS OF THE SELLER AND THE BUYER

In either of these circumstances, the buyer bears all costs (storage) and risk (loss or
damage) in transporting the goods from the agreed delivery date or, if there is no
specific date, from completion of the agreed delivery period.
To transfer the risk, it is necessary that the goods transported can be identified and individualized as the goods object of the sale contract. Also, the seller must notify the buyer
in a reliable way that he has put the goods at his disposal at the place of delivery.
Insurance contract

Neither party has the obligation to make a contract of insurance for transporting the
goods. However, it is advisable that the buyer hires insurance transport, at least to
cover the international transport of goods. In this sense, the seller must provide the
buyer with any information necessary to enable him to hire the insurance he needs.

EXW
FCA

Inspection of goods in the country of origin

The costs of any mandatory inspection of the goods prior to shipment are paid by the
buyer, except when such inspection is required by regulations or institutions in the
country of the seller; in this case the costs are borne by the seller.
Export and import customs clearance

All procedures, costs and taxes of export clearance are borne by the seller.
All procedures, costs and taxes of import clearance are borne by the buyer.
Allocation of costs between seller and buyer

The seller assumes the following operational costs:

Packaging, checking and marking of goods.
Loading the goods at the first carrier.

Inland transportation (pre-carriage) to transport center, port, airport, in sellers

country.

Costs and taxes of export clearance.

For its part, the buyer assumes the following operational costs:
Terminal costs (warehousing, handling, loading) in transport center, port, airport,
in sellers country.

OBLIGATIONS OF THE SELLER AND THE BUYER

Main transport to the country of destination.

Insurance transport (if it is hired).
Terminal costs (unloading, handling, warehousing) in transport center, port or
airport, in buyers country.
Costs and taxes of import clearance.
Inland transportation (on-carriage) from the transport center, port, airport, to
the buyers premises.
Unloading of goods on buyers premises.

EXW
FCA

Methods of payment

FCA can be used with any payment methods (payment in advance, cash on delivery,
open account, bank transfer or check) and also with documentary methods (letter of
credit or documentary credit). In the case of documentary methods, the seller must
ensure to obtain the transport document that justifies the delivery of the goods because it is the buyer who contracts the main transport. For this, the seller must request
the carrier or the forwarder hire by the buyer a copy of the international transport
document that has been used (CMR, B/L, SWB, AWB or FBL). This document, is
usually required to collect the credit as proof of delivery of the goods.
PRACTICAL ADVICE TO USE FCA
FCA is a term that requires more involvement by the seller that EXW, as the seller
manages logistics in their own country and performs export clearance; however, both
activities do not present excessive complexity and, therefore, any exporting company
must be offering quotations, at least, in FCA.
Moreover, FCA is a very flexible Incoterm because it allows different places of delivery of the goods depending on the type of transport used. It is also very suitable for
multimodal transport.
There are several alternatives to use FCA, whose election depends on the place of delivery:
FCA factory or warehouse: it is recommended using this alternative to full load
truck or container) as an alternative to EXW. Delivery takes place once the goods
have been loaded on the truck, in the sellers premises, and at his own risk.
FCA transport center: it is use mainly for groupage. The seller pays the inland
transportation (pre-carriage) till delivered the goods to the carrier that has been
designated by the buyer at a terminal or transport center. Delivery of goods oc-

OBLIGATIONS OF THE SELLER AND THE BUYER

curs when the truck is located in the loading dock of the international carrier
designated by the buyer.
FCA port or port terminal: it is the most appropriate Incoterm, substituting
FOB, when using full containers. The seller is responsible for the transport of
the container from its premises to the container terminal at the designated port.
The delivery takes place when the truck carrying the goods arrive at the ports
container terminal. All handling operations at the terminal, which are known as
THC (Terminal Handling Charges) are borne by the buyer.
FCA airport: the seller bears the cost of transport from his premises to the airport
that has been designated to deliver the goods. It is understood that the goods have
been delivered when the vehicle is parked in the loading dock of the assigned
terminal. Any further handling will be paid by the buyer.

EXW
FCA

FCA railroad: the delivery of goods occurs when the inland carrier that has been
hired by the seller puts the truck in the loading dock of the rail terminal.
Incoterm FCA is suitable for companies that have their own transport vehicles (trucks, vans)
and export using groupage services; this situations involves little cost and risk to transport
the goods (in boxes or pallets) to the place of delivery (transportation terminal, port, airport). Generally, the place of delivery will not be far away from the sellers premises.
FCA is useful for the following types of international operations:

Companies that do not have too much experience in foreign markets and do not want
to manage international logistics to deliver the goods in the destination country.

Exports of full loads (trucks, containers) in which it is preferable that the seller
perform the load on the first carrier (usually truck) in its own facilities.
Exports in groupage for which the seller uses their own transport vehicles to deliver the goods somewhere (transport center, port, airport) in their own country,
usually near his premises.
Sales in a integrated economic area (e.g. the EU), where there is a free movement
of goods and therefore is not necessary clear the goods for export or import.
Sales to customers in EU countries, but in which the goods will be sent to a third
country (a country outside the EU) so it is advisable, for tax purposes, that the
seller obtains the documents that justify the exit of goods from the EU.
In short, FCA is a very flexible Incoterm, increasingly used, that will probably replace
EXW for most exports in which the seller delivers the goods in their own country and
prefers not to manage international logistics.

OBLIGATIONS OF THE SELLER AND THE BUYER

EXW
FCA

KEYS TO FCA

Mode of transport

Any type of transport (land, air, sea) and, specially, multimodal

transport (containers).

Delivery place

a) In sellers premises (factory or warehouse).

b) In different locations (transport center, port, airport) in the
sellers country.

Loading/unloading of the
goods

a) Load in the first carrier (usually truck).

b) Prepared for the unloading in the delivery place.

Delivery document

a) Receipt of the carrier sent by the buyer to the sellers

premises or FIATA FCR certificate for multimodal transport.
b) Delivery note of goods from the carrier hired by the seller
to the international carrier or forwarder hired by the buyer.

Type of cargo

Any type of cargo (general cargo, complete cargo, groupage).

Contract of main transport

Buyer.

Contract of insurance

There is no obligation on either party. However, it is advisable

that the buyer purchases insurance because he assumes the
risks.

Transfer of risks in transport

a) Once the goods have been loaded in the first carrier, at the
sellers premises.
b) In the delivery place, before the goods are unloaded from
the first transport for delivery to the carrier hired by the
buyer.

Pre-shipment inspection

Buyer, except when the inspection is required by regulations

or institutions in the country of the seller.

Export customs clearance

Seller.

Import customs clearance

Buyer.

Methods of payment

Payment in advance, cash on delivery, open account, check. It

is also suitable for documentary methods (letter of credit or
documentary credit).

OBLIGATIONS OF THE SELLER AND THE BUYER

FAS

Free Alongside Ship (named port of shipment)

Costs
Risks
Documents

EXW
FAS

HOW TO USE FAS

Incoterm FAS is used only for sea transport. The seller delivers the goods placing them
alongside the ship named by the buyer at the agreed port of shipment. The export
clearance is done by the seller
This Incoterm is only used for certain commodities and materials that are not packed
and cannot be individualized, such as grain, timber, minerals, steel products, etc.; delivery is done in those ports that have specialized terminals for this type of products.
If the goods are carried in containers, Incoterm FCA should be used as containers are
delivered at port terminals and not alongside ships.
The export clearance must be done by the seller. Usually, it is necessary to clear the
goods before placing them alongside the ship.
When using FAS, the buyer is responsible for loading the goods on the ship. For this
reason, the buyer must know very well the practices in the port of shipment because
in the case of problems arise there.

OBLIGATIONS OF THE SELLER AND THE BUYER

FAS MAIN CHARACTERISTICS

Mode of transport

This Incoterm can only be used with sea or inland waterways (rivers, canals, lakes)
transport. When the goods are in containers, FCA should be used as containers are
delivered in port terminals and not alongside ships.
Place of delivery and reception of goods

EXW
FAS

The seller must deliver the goods alongside the ship named by the buyer in the dock
of the designated port of shipment. The delivery should be made on the date or
deadline agreed.
For those products (raw materials, commodities, etc.) that can be sold during the
transport of goods at sea (afloat), the rules of this Incoterm state that the goods
can be delivered alongside ship or providing the goods so delivered. The latter
expression refers to the merchandise that can be delivered after the buyer placed the
goods alongside the ship, for example during the voyage to destination port, so that
the first buyer can sell the goods to another buyer using the documentation of the
first sale.
The goods should be placed in the dock where the ship will dock to perform international transport. The choice of the dock depends on the type of merchandise and
the shipping line that is to perform transportation. In this sense, the buyer must
notify the seller the name or number of the pier and the name of the ship that will
collect the goods at the designated port. If within the port area, the buyer has not
indicated a specific place for the loading, the seller can choose the most convenient
for delivering the goods.
The buyer is required to collect the goods in the port of shipment and date agreed, if
the seller properly notified him in due time.
Loading/unloading of goods

The goods are delivered alongside the ship, properly prepared to be loaded so that
it is accessible to the media (cranes, conveyors belts, etc.), available to the port or to
the ship for loading.
Delivery document

The seller must provide the buyer with a document showing the delivery of the goods
at the agreed conditions. Normally, this document is the dock receipt issued by the
shipping company stating that the goods have been received for shipment. It also

OBLIGATIONS OF THE SELLER AND THE BUYER

can be used a mates receipt which is a document signed by the First Officer which
acknowledges receipt of the goods on board.
Documents for export/import procedures

EXW
FAS

Shipping documents (Bill of Lading B/L or Seaway Bill) must be paid by the buyer
who is the one that hires sea transport.
If the parties agree or if it was normal practice, the seller can provide the documents
to the buyer using electronic procedures.
Transport contract

It is the buyer who must hire transportation from the port of shipment to the final
destination of the goods. However the buyer can ask the seller to contract transport
on usual conditions, at the risk of the buyer. The seller may reject the request and in
this case, he should inform the buyer as soon as possible.
Transfer of risks in transport

The risk in transporting the goods is transferred from buyer to seller at the time of
delivery, i.e. when the goods are placed alongside the ship, within reach of the media
handling of cargo.
The buyer bears all risks of transport from the time the merchandise is delivered in
agreed time and place if:
Does not notify the seller the loading dock, the name of the ship and the precise
date of loading, within the agreed period time.
The ship named by the buyer does not come at the agreed time or cannot take
care of the goods.
In either of these circumstances, the buyer bears all costs (warehousing) and risks (loss

OBLIGATIONS OF THE SELLER AND THE BUYER

or damage) in transporting the goods from the agreed delivery date or, if there is no
specific date, from completion of the agreed delivery period.
To transfer the risk, it is necessary that the goods transported can be identified and individualized as the goods object of the sale contract. Also, the seller must notify the buyer
in a reliable way that he has put the goods at his disposal at the place of delivery.
Insurance contract

Neither party has the obligation to make a contract of insurance for transporting the
goods. However, it is advisable that the buyer hires insurance transport, at least to
cover the international transport of goods. In this sense, the seller must provide the
buyer with any information necessary to enable him to hire the insurance he needs.

EXW
FAS

Inspection of goods in the country of origin

All procedures, costs and taxes of export clearance are borne by the seller.
All procedures, costs and taxes of import clearance are borne by the buyer.
Allocation of costs between seller and buyer

The seller assumes the following operational costs:

Packaging, checking and marking of goods.
Loading the goods at the first carrier.
Inland transportation (pre-carriage) to shipment port in sellers country.
Costs and taxes of export clearance.
Costs in the port of shipment (warehousing, handling).
For its part, the buyer assumes the following operational costs:
Loading in the ship in the port of shipment.

OBLIGATIONS OF THE SELLER AND THE BUYER

Sea transport till the port of destination.

Insurance transport (if it is hired).
Terminal costs (unloading, handling, warehousing) in the port of destination.
Costs and taxes of import clearance.
Inland transportation (on-carriage) from the port of destination to the buyers
premises.
Unloading of goods on buyers premises.

EXW
FAS

Methods of payment

FAS can be used with any payment methods (payment in advance, cash on delivery,
open account, bank transfer or check) and also with documentary methods (letter of
credit or documentary credit). In the case of documentary methods, it is advisable to
use a bill of lading B/L on board (on-board B/L) that confirms the shipment of the
goods on the ship. The seller can include in the bill of lading the clause to order
thereby maintaining possession of the goods until payment occurs. To justify the
delivery can also be used a Mates receipt.
On the other hand, by having the bill of lading B/L the condition of title to the goods,
the carrier or freight forwarder that manages transportation (usually named by the
buyer) should give the seller a copy of the bill of landing B/L since he is the owner of
the goods. In that sense, the seller will have no problem for presenting at the bank the
B/L as a document justifying the delivery and thereby collecting the letter of credit.
PRACTICAL ADVICE TO USE FAS
FAS is an Incoterm that requires the use of sea or fluvial transport and is really only
used for international transport of commodities and bulk. The goods can be left on
the quay alongside the ship only when there is a specialized port terminal.
When the goods are transported in container FCL (Full Container Load) usually
the seller delivers the goods to a carrier at the ports container terminal and does not
place them alongside the ship. Therefore, in these cases the Incoterm FCA should be
used instead of FAS.
If the merchandise is grouped with other companies in a container LCL (Less than
Container Load), once the shipper has consolidated the container with merchandise
of several companies is carried along with other containers to the side of the ship and
loaded onto the ship, so neither in these cases can be used FAS, but FCA. Therefore,

OBLIGATIONS OF THE SELLER AND THE BUYER

most of the goods except bulk, cannot be left on a dock alongside the ship. If the
delivery place is the shipment port, normally the Incoterm FCA is used and if the
goods are delivered on board of a ship the Incoterm to be used is FOB.
Sometimes it may happen that the load cannot be in the dock as the ship hired by
the buyer have too much depth to dock and is necessary to use barges. In these circumstances, barges will be paid by the seller or the buyer, depending on the customs
of the port.
When using FAS, the buyer is responsible for loading the goods on the ship and for
this reason must know very well the practices in the port of shipment that is where,
if any, there may be problems.
FAS is used mainly for two types of operations:

EXW
FAS

Exports by shipping of products such as grain, timber, minerals, fuels, steel products, building materials, etc., that are not packaged or individualized.
Exports by shipping of machinery and equipment being transported by truck till
the port. The truck stands on the dock alongside the ship, so that the machine is
loaded directly from the truck to the ship.

OBLIGATIONS OF THE SELLER AND THE BUYER

EXW
FAS

KEYS TO FAS

Mode of transport

Only for sea or inland waterway transport. It is not advisable to

use this Incoterm with multimodal transport (containers).

Delivery place

Alongside the ship in the dock of the port of shipment named

by the buyer.

Loading/unloading of the
goods

Prepared for loading in the ship designated by the buyer.

Delivery document

Dock receipt or Mates receipt. When using letters of credit

Bill of Lading B/L with the mention on-board.

Type of cargo

Bulk, heavy loads and complex loads (machinery).

Contract of main transport

Buyer.

Contract of insurance

There is no obligation on either party. However, it is advisable

that the buyer purchases insurance because he assumes the
risks.

Transfer of risks in transport

Once the goods have been placed a disposal of the buyer in

the dock of the port of shipment.

Pre-shipment inspection

Buyer, except when the inspection is required by regulations

or institutions in the country of the seller.

Export customs clearance

Seller.

Import customs clearance

Buyer.

Methods of payment

Payment in advance, cash on delivery, open account, check. It

is also suitable for documentary methods (letter of credit or
documentary credit).

OBLIGATIONS OF THE SELLER AND THE BUYER

FOB

Free On Board (named port of shipment)

Costs
Risks
Documents

EXW
FOB

HOW TO USE FOB

FOB is the oldest Incoterm and together with CIF the most widely used with sea
transport. The seller delivers the goods by placing them on board the ship named by
the buyer in the port of shipment. The terminal costs and export clearance are borne
by the seller.
This Incoterm should be used preferably with bulk, heavy loads and general cargo.
Also, in the case of complex goods (e.g. machinery) whose loading on board the ship
may involve some risk so it is better that the seller assumes this risk till the loading
has been completed and the goods delivered.
When the goods are transported in containers and the place of delivery is the port
of shipment, Incoterms 2010 rules advised to use FCA instead of FOB, because the
containers are delivered regularly in the ports container terminal and not loaded on
board the ship.
Although FOB has traditionally been one of the most commonly used Incoterms
the evolution of sea transport and the importance of logistics as a sales strategy have
diminished the use of this Incoterm that is being gradually replaced by other terms
like CFR or CIF.

OBLIGATIONS OF THE SELLER AND THE BUYER

FOB MAIN CHARACTERISTICS

Mode of transport

This Incoterm can only be used with sea or inland waterways (rivers, canals, lakes)
transport. When the goods are carried in containers, FCA should be used as containers
are delivered in port terminals and not on board of ships.
Place of delivery and reception of goods

EXW
FOB

The seller must deliver the goods on board the ship named by the buyer in the port of
shipment. The delivery should be made on the date or deadline agreed. If no specific
loading point has been indicated by the buyer, the seller may select the point within
the port of shipment that best suits him.
For those products (raw materials, commodities, etc.) that can be sold during the
transport of goods at sea (afloat), the rules of this Incoterm state that the goods can
be delivered on board the vessel or providing the goods so delivered. The latter
expression refers to the merchandise can also be delivered after the buyer placed the
goods alongside the vessel, for example during the voyage to destination port, so that
the first buyer can sell the goods to another buyer using the documentation of the
first sale.
The buyer is required to collect the goods in the port of shipment and date agreed, if
the seller properly notified him in due time.
Loading/unloading of goods

The goods must be delivered on board of the ship; i.e. the loading on the ship is borne
by the seller. This is a relevant difference with respect to the rules of Incoterms 2000,
in which the goods were delivered once had passed the ships rail, and therefore, the
costs and risks of loading on the ship were shared by buyer and seller. According to
Incoterms 2010, the loading on the ship should be done entirely by the seller.
Delivery document

The seller must provide the buyer with a document showing the delivery of the goods
at the agreed conditions, usually a copy of the bill of lading B/L is used. A mates
receipt can also be used because is a document signed by the First Officer which
acknowledges receipt of the goods on board. The advantage of the latter is that the
seller can obtain it directly while in the case of bill of lading B/ L must ask the carrier
of the buyer. The carrier is obliged to give the seller a copy of the bill of lading B/ L
because constitutes title of the goods and the owner is the seller.

OBLIGATIONS OF THE SELLER AND THE BUYER

Documents for export/import procedures

EXW
FOB

If the parties agree or if it was normal practice, the seller can provide the documents
to the buyer using electronic procedures.
Transport contract

It is the buyer who must hire transportation from the port of shipment to the final
destination of the goods. However the buyer can ask the seller to contract transport
on usual conditions, at the risk of the buyer. The seller may reject the request and in
this case he should inform the buyer as soon as possible.
Transfer of risks in transport

The risk in transporting the goods is transferred from buyer to seller at the time of
delivery, i.e. when the goods are placed on board the ship named by the buyer in the
port of shipment.
The buyer bears all risks of transport from the time the merchandise is delivered in
agreed time and place if:
Does not notify the seller the loading dock, the name of the ship and the precise
date of loading, within the agreed period time.
The ship named by the buyer does not come at the agreed time or cannot take
care of the goods.
In either of these circumstances, the buyer bears all costs (warehousing) and risks (loss
or damage) in transporting the goods from the agreed delivery date or, if there is no
specific date, from completion of the agreed delivery period.

OBLIGATIONS OF THE SELLER AND THE BUYER

To transfer the risk, it is necessary that the goods transported can be identified and
individualized as the goods object of the sale contract. Also, the seller must notify
the buyer in a reliable way that he has put the goods at his disposal at the place of
delivery.
Insurance contract

Neither party has the obligation to make a contract of insurance for transporting the
goods. However, it is advisable that the buyer hires insurance transport, at least to
cover the international transport of goods. In this sense, the seller must provide the
buyer with any information necessary to enable him to hire the insurance he needs.
Inspection of goods in the country of origin

EXW
FOB

All procedures, costs and taxes of export clearance are borne by the seller.
All procedures, costs and taxes of import clearance are borne by the buyer.
Allocation of costs between seller and buyer

The seller assumes the following operational costs:

Packaging, checking and marking of goods.
Loading the goods at the first carrier.
Inland transportation (pre-carriage) to shipment port in sellers country.
Costs and taxes of export clearance.
Costs in the port of shipment (warehousing, handling, loading).
The buyer assumes the following operational costs:
Sea transport till the port of destination.
Insurance transport (if it is hired).

OBLIGATIONS OF THE SELLER AND THE BUYER

Terminal costs (unloading, handling, warehousing) in the port of destination.

Costs and taxes of import clearance.
Inland transportation (on-carriage) from the port of destination to the buyers
premises.
Unloading of goods on buyers premises.
Methods of payment

EXW
FOB

FOB can be used with any payment methods (payment in advance, cash on delivery,
open account, bank transfer or check) and also with documentary methods (letter of
credit or documentary credit). In the case of documentary methods is advisable to use
a bill of lading B/L on board (on-board B/L) that confirms the shipment of the goods
on the ship. The seller can include in the bill of lading the clause to order thereby
maintaining possession of the goods until payment occurs. To justify the delivery can
also be used a Mates receipt.
On the other hand, by having the bill of lading B/L the condition of title to the goods,
the carrier or freight forwarder that manages transportation (usually named by the
buyer) should give the seller a copy of the bill of lading B/L since he is the owner of
the goods. In that sense, the seller will have no problem for presenting at the bank the
B/L as a document justifying the delivery and thereby collecting the letter of credit.
PRACTICAL ADVICE TO USE FOB
FOB is the oldest of all Incoterms. Its use is accredited by English merchants in the
early nineteenth century. It was create only for sea transport at that time it was the
only means of international transport and today it also continues its exclusive maritime use under rules of Incoterms 2010. However, the extensive use of this Incoterm
has led sometimes to use FOB with international air transport and when the place of
delivery is an airport. This error may be particularly serious if the payment method
of the operation is a letter of credit and discrepancies arise in the terms agree in the
sale contract.
In this Incoterm, all costs of handling at the port of shipment are borne by the seller.
In the language of international logistics this costs are known as THC (Terminal
Handling Costs). Though in the THC are included the cost of loading the goods on
the ship, this cost is usually charged jointly with the freight cost (paid by the buyer),
so to avoid duplication in their collection, buyer and seller should agree on who bears
the costs of loading the goods the ship, although, according to Incoterms 2010 rules
this cost must be paid by the seller.

OBLIGATIONS OF THE SELLER AND THE BUYER

FOB do not fit well with sea transport operations in which the goods are carried in
containers, either in FCL (Full Container Load containers with goods from one supplier) or LCL (Less than Container Load when merchandise of several companies is
grouped in a container). When the goods are delivered to the ports container terminal
and then loaded together with other containers Incoterms 2010 rules recommend the
used of FCA instead of FOB.
In ships type RO-RO (roll-on/roll-off) were the goods are not really loaded on the
ship as they enters directly into the ship through a ramp is more appropriate to use
other Incoterms as FCA, CFR or CIF rather than FOB as the goods are not loaded
on board.

EXW
FOB

It is advisable to use FOB when the goods are of some added value or delicate handling
such as the case of machinery because the risk in loading the ship is higher and therefore it is preferable that the seller controls the loading of goods. If goods are damaged
before or during the load on the ship, the seller will be responsible, but if the goods are
damaged once the loading has been done, the buyer will bear the damage.
When using FOB, the risk of theft of goods in the port of shipment and the risk
of a workers strike are borne by the seller; on the contrary warehousing costs of the
goods at the port of shipment due to a delay of the ship that comes to collect them
are assume by the buyer.
FOB is useful for the following types of international operations:
Exports in which the seller has no experience in managing sea transport operations
and, therefore, it is preferable that the negotiations and hiring of such transport
is done by the buyer.
Exports in which the buyer can get a price of shipping (freight) cheaper than the
seller because of its trading volume or the transport route to be used.
General cargo operations or large volume of goods traveling by ship but not in
containers because in that case FCA should be used.
Although FOB has traditionally been one of the most commonly used Incoterms,
the evolution of sea transport and the importance of logistics as a sales strategy have
diminished the use of this Incoterm that is being replaced by other terms in C like
CFR or CIF. Also, due to the recommendations made in Incoterms 2010 rules in
order to avoid the use of FOB when the merchandise travels in containers has made
that Incoterm FOB will gradually being replaced by Incoterm FCA when delivery
takes place in the port of shipment.

OBLIGATIONS OF THE SELLER AND THE BUYER

EXW
FOB

KEYS TO FOB

Mode of transport

Only for sea or inland waterway transport. It is not advisable to

use this Incoterm with multimodal transport (containers).

Delivery place

On board the ship in the port of shipment chosen by the

buyer.

Loading/unloading of the
goods

On board the ship named by the buyer.

Delivery document

Bill of Lading B/L (with the mention on-board when using

letters of credit) or Mates receipt.

Type of cargo

Heavy loads, complete loads or complex loads (machinery).

Contract of main transport

Buyer.

Contract of insurance

There is no obligation on either party. However, it is advisable

that the buyer purchases insurance because he assumes the
risks.

Transfer of risks in transport

Once the goods have been placed a disposal of the buyer on

board of the ship in the port of shipment.

Pre-shipment inspection

Buyer, except when the inspection is required by regulations

or institutions in the country of the seller.

Export customs clearance

Seller.

Import customs clearance

Buyer.

Methods of payment

Payment in advance, cash on delivery, open account, check. It

is also suitable for documentary methods (letter of credit or
documentary credit).

OBLIGATIONS OF THE SELLER AND THE BUYER

CPT

Carriage Paid To (named place of destination)

Costs
Risks
Documents

EXW
CPT

HOW TO USE CPT

In Incoterm CPT the delivery of goods occurs when the seller makes them available to
the carrier that he has hired to perform international transport, although the seller also
manages and assumes the costs of international transport to the place of destination.
Therefore, the point where the risk of transport is transferred (when the goods are
delivered to the carrier in the sellers country) is different from the point till the seller
bears the costs of transport (named place of destination in the buyers country).
In the event that there are several successive carriers, such as multimodal transport
or truck-air or truck-ship, the transport risk passes from the seller to the buyer when
the goods are delivered to the first carrier in the chain.
In CPT, unlike Incoterm CIP, the seller has no obligation to hire insurance transport
to cover the goods from the place of delivery to destination.
In this Incoterm, the seller has to complete the formalities and bear the costs of customs clearance for export, not the import clearance that corresponds to the buyer.

OBLIGATIONS OF THE SELLER AND THE BUYER

CPT MAIN CHARACTERISTICS

Mode of transport

CPT can be used with any mode of transport (land, sea, air), including multimodal
transport (containers).
Place of delivery and reception of goods

The seller fulfills the obligation to deliver when he makes the goods available to the
carrier that he has hired in the place he has chosen, usually in their own country. If
seller and buyer did not agree on a specific place of delivery, the seller may choose the
one that best suits them. The delivery should be made on the date or deadline.

EXW
CPT

If there were several successive carriers transporting goods to the destination, it is understood that the obligation to deliver is fulfilled when the goods have been delivered
to the first carrier in the chain.
The buyer is required to collect the goods at the place and date agreed, if the seller
properly notified him in due time.
Loading/unloading of goods

The goods are delivered loaded in the first carrier who has been hired by the seller.
Therefore, all costs and risks of unloading the goods at destination are borne by the
buyer.
However, it is common that the carrier hired by the seller to transport the goods to
destination will be interested to have their means of transport (trucks, ships, aircraft)
free as soon as possible so that the discharge is usually included in the port (terminal
discharge) paid by the seller. That is, the unloading at destination, except in the case
of sea transport is usually paid by the seller, though according to Incoterms rules
shall be borne by the buyer. In the event that, according to the contract of carriage,
unloading costs are borne by the seller, the buyer may not claim a refund, unless both
parties agree.
Delivery document

The seller must give the buyer the usual transport document for the type of transport
to be hired like carriage of goods by road CMR (land transport), bill of lading B/L
(sea transport), airway bill AWB (air transport), railway bill of lading CIM (train
transport) or FIATA bill of lading FBL (multimodal transport). These documents
are usually nominal, i.e. the goods are consigned to a persons name or company.

OBLIGATIONS OF THE SELLER AND THE BUYER

In the case of the bill of lading B/L also can be to the order, so that the holder of
the original documents can transmit the possession of the goods to another person
or company by endorsement.
The transport document used to justify the delivery of goods must meet the following requirements:
Include the contract goods.
Be dated within the period that has been established for loading or shipping.
Allow the buyer claiming delivery of goods to the carrier at destination.

EXW
CPT

Where agreed between the parties or if it was normal business practice, the transport document must allow the buyer to sell the goods to another buyer during
the transport, from the place of delivery to destination. To this end, in the case
of a negotiable document, such as a bill of lading B/L the seller must provide the
buyer with a full set of originals so he can make the sale.
Documents for export/import procedures

The seller is obliged to provide the buyer with the commercial documents accompanying the goods (commercial invoice and packing list). He also has to get all the
documents required for export clearance (export SAD, certificates, licenses and authorizations, etc.).
Furthermore, the seller must provide the buyer with any information and help in
obtaining any documents necessary to complete the formalities for import into the
country of destination; and those documents relating to security in the transport of
the goods from the delivery place to the final destination. The buyer must pay the
seller for expenses made to obtain such information and documents.
Transport documents (carriage of goods by road CMR, bill of lading B/L, air waybill
AWB, railway bill of lading CIM and FIATA bill of lading FBL) shall be obtained
by the seller.
If the parties agree or if it was normal practice, the seller can provide the documents
to the buyer using electronic procedures.
Transport contract

It is the seller who must arrange transportation from the place of delivery to the place
of destination. When the seller hires transportation will choose a common transport
route between the two places (delivery and destination) and a means of transportation
(truck, aircraft, ship) that is appropriate for the type of goods being transported.

OBLIGATIONS OF THE SELLER AND THE BUYER

Transfer of risk in transport

The risk in transporting the goods is transferred once the goods have been delivered
to the carrier that transport them to destination in buyers country. If several carriers
are involved in transporting the goods, the risk is transferred when the goods are delivered to the first carrier in the chain. Therefore, the buyer bears all risks of transport,
including the risks that may occur during international transport from the place of
delivery to the place of destination.
To transfer the risk, it is necessary that the goods transported can be identified and individualized as the goods object of the sale contract. Also, the seller must notify the buyer
in a reliable way that he has put the goods at his disposal at the place of delivery.
Insurance contract

EXW
CPT

Neither party has the obligation to hire transport insurance.

If the buyer wants to cover the goods with insurance for the international transport
he must hire the insurance or use Incoterm CIP which is equivalent to CPT but with
transport insurance hired by the seller, though in the case of damage the beneficiary
of the insurance is the buyer.
Inspection of goods in the country of origin

All procedures, costs and taxes of export clearance are borne by the seller.
All procedures, costs and taxes of import clearance are borne by the buyer.
Allocation of costs between seller and buyer

The seller assumes the following operational costs:

Packaging, checking and marking of goods.
Loading of the goods at the first carrier.
Inland transportation (pre-carriage) to transport center, port, airport in sellers
country.

OBLIGATIONS OF THE SELLER AND THE BUYER

Costs and taxes of export clearance.

Terminal costs (warehousing, handling, loading) in transport center, port, airport,
in sellers country.
Main transport to the country of destination.
For its part, the buyer assumes the following operational costs:
Insurance transport (if it is hired).
Terminal costs (unloading, handling, warehousing) in transport center, port or
airport, in buyers country.
Costs and taxes of import clearance.

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CPT

Inland transportation (on-carriage) from the transport center, port, airport, to

the buyers premises.
Unloading of goods on buyers premises.
Methods of payment

CPT can be used with any method of payment. However, if the goods have high value
(e.g. machinery) the documentary methods (letter of credit or documentary credit)
will require insurance to cover the international transport and in this case Incoterm
CIP should be used instead of CPT.
PRACTICAL ADVICE TO USE CPT
CPT is an Incoterm lesser used than CIP, except when it comes to sales between
nearby countries without no customs and the value of goods is not very high so is not
considered necessary to hire insurance to cover international transport.
In these circumstances, CPT is quite favorable for the seller because it allows him to
deliver the goods at a place chosen by the buyer in his own country, without the need
for customs clearance of export and import. Moreover, if the goods do not have much
value and the international transport implies few risks, there will be no need for a
transport insurance carrier. In addition, the seller transfers the risk of transport when
loading the goods on the first means of transport (usually truck) so any subsequent
incidence is borne by the buyer.
Incoterm CPT is used sometimes with land transportation (truck) between neighboring countries without customs to deliver the goods at buyers premises and is the

OBLIGATIONS OF THE SELLER AND THE BUYER

buyer who bears the risk of transport to destination. In this cases the cost of transport
in the country of destination (on carriage) is assumed by the seller.
For the buyer, Incoterm CPT is not too favorable from the standpoint of risk in transport. Most of the times the buyer will prefer to use other Incoterms as CIP, DAP or
FCA; in CIP the goods are covered by transport insurance paid by the seller; in DAP
the risk of transport is transfer in the destination country; and in FCA, although the
buyer has to bear the risk of transport and the goods are delivered in its own country
origin, it is the buyer who makes the decisions regarding the hiring of transport insurance and, therefore, carries out a better control of the risks.
CPT is useful for the following types of international operations:
When the seller wants to place the goods at the buyers country, but without assuming the risk and the cost of transport insurance.

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CPT

In operations between neighboring countries, with no customs so it is not necessary clear goods for export and import, and the goods are to be delivered at the
buyers premises but without the seller assuming the risk of transport.
For exports between developed countries where the risk of transport is limited
and is not considered essential to hire a transport insurance.
In operations that due to the low value of the goods is not necessary to hire a
transport insurance.

OBLIGATIONS OF THE SELLER AND THE BUYER

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CPT

KEYS TO CPT

Mode of transport

Any type of transport (land, air, sea), including multimodal

transport (containers).

Delivery place

Different delivery places in buyers country (transport centers,

airports, ports, etc.).

Loading/unloading of the
goods

Loaded in the international transport hired by the seller.

Delivery document

Transport document (CMR, B/L, AWB).

Type of cargo

Any type of cargo (general cargo, complete cargo, groupage).

Contract of main transport

Seller.

Contract of insurance

There is no obligation on either party. However, it is advisable

that the buyer purchases insurance because he assumes the
risks.

Transfer of risks in transport

When the goods are delivered to the first carrier hired by the
seller.

Pre-shipment inspection

Buyer, except when the inspection is required by regulations

or institutions in the country of the seller.

Export customs clearance

Seller.

Import customs clearance

Buyer.

Methods of payment

Payment in advance, cash on delivery, open account, check. It

is also suitable for documentary methods (letter of credit or
documentary credit), except for high value goods that should
be insured.

OBLIGATIONS OF THE SELLER AND THE BUYER

CFR

Cost and Freight (named port of destination)

Costs
Risks
Documents

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CFR

HOW TO USE CFR

In Incoterm CFR the seller delivers the goods on board of a ship in the port of shipment, but he also manages and pays the cost of freight to the port of destination.
Therefore, the point where the risk of transport is transmitted (port of shipment)
is different from the point to which the seller bears the costs of transport (port of
destination). The terminal costs and export clearance in the port of shipment are
borne by the seller.
The only difference between Incoterms CFR and CIF is that in CFR the seller is
not obliged to hire an insurance transport from the port of shipment to the port of
destination.
CFR is a sea transport Incoterm used mainly for general cargo and large volumes of
goods. When the goods are transported in containers and the place of delivery is the
port of destination, Incoterms 2010 rules advised to use CPT instead of CFR, because
the containers are usually delivered at the terminals of the ports, that is, before being
placed on board of the ships.

OBLIGATIONS OF THE SELLER AND THE BUYER

CFR MAIN CHARACTERISTICS

Mode of transport

This Incoterm can only be used with sea or inland waterways (rivers, canals, lakes)
transport. When the goods are transported in containers and the place of delivery
is the port of destination, Incoterms 2010 rules advised to use CPT instead of CFR,
because the containers are delivered regularly in the ports container terminal and
not loaded on board the ship.

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CFR

Place of delivery and reception of goods

The seller must deliver the goods on board of the ship or procuring the goods so
delivered in the shipping port of his choice. This last phrase procuring the goods so
delivered refers to the merchandise can also be delivered after its first delivery to the
buyer on board the ship, for example during transport of goods at sea, so that the first
buyer can sell the goods to another buyer using the documents of the operation that
has already begun. This type of sale is used in international trade of certain products
like raw materials, commodities, fuel, etc.
The seller is responsible for choosing the port of shipment and the ship that will transport the goods to the designated port on the destination country. If the buyer was
interested in a certain port to ship the goods must be specified in the sale contract.
The delivery should be made on the date or deadline. If the parties agree, the buyer is
entitled to determine a date or deadline for the shipment of goods as well as a specific
point to receive the goods at the port of destination.
The buyer is obliged to collect the goods from the carrier hired by the seller at the port
of destination, provided that the seller has duly notified him in a timely manner.
Loading/unloading of goods

The goods are delivered on board the ship and ready for unloading. Therefore, all
costs and risks of unloading the goods at the port of destination are borne by the
buyer, unless the contract of carriage states that this costs are borne by the seller. In
that case, the seller cannot claim a refund to the buyer, unless both parties agree.
Delivery document

The document that justifies the obligation to deliver is the bill of lading B/L marked
with the mention freight prepaid, which means that the selling price of the goods
includes the cost of freight.

OBLIGATIONS OF THE SELLER AND THE BUYER

The transport document that justifies the delivery must meet the following requirements:
Include the contract goods.
Be dated within the period that has been established for shipment.
Allow the buyer claiming delivery of goods to the carrier at the port of destination.
Allow the buyer, unless otherwise agreed, to sell the goods to another buyer during the sea voyage from the port of shipping to the port of destination. In this
case, as the bill of lading B/L is a negotiable document the seller must provided
the buyer with a full set of originals so he could make the sale.

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CFR

Documents for export/import procedures

The seller is obliged to provide the buyer with the commercial documents accompanying the goods (commercial invoice and packing list). He also has to get all
the documents required for export clearance (export SAD, certificates, licenses and
authorizations, etc.). The document of sea transport (bill of lading B/L) shall be
obtained by the seller.
Furthermore, the seller must provide the buyer with any information and help in
obtaining any documents necessary to complete the formalities for import into the
country of destination, and those documents relating to security in the transport of
the goods from the delivery place to the final destination. The buyer must pay the
seller for expenses made to obtain such information and documents.
If the parties agree or if it was normal practice, the seller can provide the documents
to the buyer using electronic procedures.
Transport contract

It is the seller who must arrange transportation from the shipping port to destination
port. When the seller hires transportation will choose a common transport route
between the two ports and a type of ship that is appropriate for the kind of goods
being transported.
Transfer of risks in transport

The risk in transporting the goods is transferred after the goods have been delivered
on board the ship at the port of shipment chosen by the seller. From that moment
the buyer bears all risks of transport, including the risks that may occur during sea
transport until the arrival of the goods at the port of destination.

OBLIGATIONS OF THE SELLER AND THE BUYER

To transfer the risk, it is necessary that the goods transported can be identified and individualized as the goods object of the sale contract. Also, the seller must notify the buyer
in a reliable way that he has put the goods at his disposal in the port of destination.
Insurance contract

Neither party has the obligation to hire transport insurance.

If the buyer wants to cover the goods with insurance for the international transport
he must hire the insurance or use Incoterm CIF which is equivalent to CFR but with
transport insurance hired by the seller though in the case of damage the beneficiary
of the insurance is the buyer.
Inspection of goods in the country of origin

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CFR

The costs of any mandatory inspection of the goods prior to shipment are paid by
the buyer, except when such inspection is required by regulations or institutions in
the country of the seller; in this case the cost are borne by the seller.
Export and import customs clearance

All procedures, costs and taxes of export clearance are borne by the seller.
All procedures, costs and taxes of import clearance are borne by the buyer.
Allocation of costs between seller and buyer

The seller assumes the following operational costs:

Packaging, checking and marking of goods.
Loading the goods at the first carrier.
Inland transportation (pre-carriage) to shipment port in sellers country.
Costs and taxes of export clearance.
Costs in the port of shipment (warehousing, handling, loading).
Sea transport to the port of destination.
The buyer assumes the following operational costs:
Insurance transport (if it is hired).

OBLIGATIONS OF THE SELLER AND THE BUYER

Terminal costs (unloading, handling, warehousing) in the port of destination.

Costs and taxes of import clearance.
Inland transportation (on-carriage) from the port of destination to the buyers
premises.
Unloading of goods on buyers premises.
Methods of payment

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CFR

CFR can be used with any method of payment. However, if the goods have some
value, usually the letter of credit will required to have insurance to cover transport
and in this case should be used Incoterm CIF that is the equivalent of CFR, but with
insurance purchased by the seller in favor of the buyer.
When CFR is used in letters of credit, the bill of lading B/L, besides being the contract of carriage, also serves to transfer possession of the goods. In that cases, the seller
can enter in the bill of lading the clause to order, thereby maintaining possession
of the goods until payment is made.
PRACTICAL ADVICE TO USE CFR
There are former names of this Incoterm such as C&F or C+F that are still used
though are not correct. According to Incoterms 2010 rules the term used should
only CFR.
This Incoterm is used exclusively with sea transport and has essential differences with
other sea Incoterms like FOB and CIF:
In relation to FOB: in CFR the seller assumes the cost of shipping while in FOB
is assumed by the buyer.
In relation to CIF: in CFR the seller is not obligated to hire insurance transport
while in CIF the seller must hire an insurance whose beneficiary in case of damage is the buyer.
Moreover, in this three terms (FOB, CFR and CIF) the risk in transporting the goods
is transferred from seller to buyer in the same place, i.e. once the goods have been
placed on board the ship at the shipping port in the selling country.
For the transport of goods in containers is not advisable to use CFR as containers
are not delivered loaded on board a ship but in the container terminals in ports. Nor
is suitable to use CFR for bulk or commodities since there are other Incoterms such

OBLIGATIONS OF THE SELLER AND THE BUYER

as FAS more suited to the characteristics of such goods. In the case of high value
goods (e.g. machinery) would be preferable to use a Incoterm requiring the hiring of
insurance transport such as CIF.
For the buyer, CFR has the disadvantage of not intervening in the choice of carrier
or the ship that will carry the load, and in this sense, must be very aware of the
contract of transport.
It is advisable to use CFR:
For sea transport in which the seller wants to place the goods in a port in the
buyers country, but without assuming the risk of transportation or the cost of
hiring a insurance transport.

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CFR

In general cargo or large volumes of goods that travel by ship but not in containers because in that case the Incoterm that should be used is CPT.
For sea transport operations where there is the possibility of selling the goods in
transit to the port of destination, while such goods are not insured because in
that case the Incoterm to be used is CIF.

OBLIGATIONS OF THE SELLER AND THE BUYER

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CFR

KEYS TO CFR

Mode of transport

Only for sea or inland waterway transport. It is not advisable to

use this Incoterm with multimodal transport (containers).

Delivery place

On board the ship in the port of shipment chosen by the

seller.

Loading/unloading of the
goods

On board the ship chosen by the seller.

Delivery document

Bill of lading B/L with the mention freight prepaid.

Type of cargo

Mainly general cargo and complete cargo.

Contract of main transport

Seller.

Contract of insurance

There is no obligation on either party. However, it is advisable

that the buyer purchases insurance because he assumes the
risks.

Transfer of risks in transport

Once the goods have been placed on board of the ship in the
port of shipment.

Pre-shipment inspection

Buyer, except when the inspection is required by regulations

or institutions in the country of the seller.

Export customs clearance

Seller.

Import customs clearance

Buyer.

Methods of payment

Payment in advance, cash on delivery, open account, check. It

is also suitable for documentary methods (letter of credit or
documentary credit), except for high value goods that should
be insured.

OBLIGATIONS OF THE SELLER AND THE BUYER

CIP

Carriage Insurence and Paid to (named place of destination)

Costs
Risks
Documents

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CIP

HOW TO USE CIP

In the Incoterm CIP, the seller delivers the goods in their own country when loading
them in the first carrier hire by himself, but he pays for costs of international transport
to bring the goods to their destination in the buyers country.
The buyer assumes all the risks once the goods have been delivered to the carrier in
the country of the seller. If subsequent carriers are used to bring the goods to the
place of destination, the risks are transferred from seller to buyer when the goods
have been delivered to the first carrier.
Under Incoterm CIP the seller must hire insurance to cover the risk borne by the
buyer for loss or damage of goods during international transport. Consequently, the
seller contracts for insurance and pays the premium, although the beneficiary of the
insurance is the buyer. However, the buyer has to take into account that Incoterm
CIP requires the seller only an insurance with minimum coverage (Clause C of the
Institute Cargo Clauses). If the buyer wants a larger coverage, he needs to agree with
the seller to hire additional insurance.
In this Incoterm, the seller has to complete the formalities and bear the costs of customs clearance for export, not the import clearance that corresponds to the buyer.

OBLIGATIONS OF THE SELLER AND THE BUYER

CIP MAIN CHARACTERISTICS

Mode of transport

CIP can be used with any mode of transport (land, sea, air) and especially with
multimodal transport (containers).
Place of delivery and reception of goods

The seller fulfills the obligation to deliver when he makes the goods available to the
carrier that he has hired in the place he has chosen, usually in his own country. If
seller and buyer did not agree on a specific place of delivery, the seller may choose the
one that best suits them. The delivery should be made on the date or deadline.

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CIP

If there were several successive carriers transporting goods to the destination, it is

understood that the obligation to deliver is fulfilled when the goods have been delivered to the first carrier in the chain.
The buyer is required to collect the goods at the place and date agreed, if the seller
properly notified him in due time.
Loading/unloading of goods

The goods are delivered loaded in the first carrier who has been hired by the seller.
Therefore, all costs and risks of unloading the goods at the destination are borne by
the buyer.
However, it is common that the carrier hired by the seller to transport the goods to
destination will be interested to have their means of transport (trucks, ships, aircrafts)
free as soon as possible so that the discharge is usually included in the port (terminal
discharge) paid by the seller. That is, the unloading at destination, except in the case
of sea transport is usually paid by the seller, though according to Incoterms rules
shall be borne by the buyer. In the event that, according to the contract of carriage,
unloading costs are borne by the seller, the buyer may not claim a refund, unless
both parties agree.
Delivery document

The delivery is justified by two documents:

Transport document: depending on the type of transport can be carriage of
goods by road CMR (land transport), bill of lading B/L (sea transport), airway
bill AWB (air transport), railway bill of lading CIM (train transport) or FIATA
bill of lading FBL (multimodal transport).

OBLIGATIONS OF THE SELLER AND THE BUYER

Document of transport insurance: insurance policy or insurance certificate.

The transport document used to justify the delivery of goods must meet the following requirements:
Include the contract goods.
Be dated within the period that has been established for loading or shipping.
Allow the buyer claiming delivery of goods to the carrier at destination.
Where agreed between the parties or if it was normal business practice, the transport document must allow the buyer to sell the goods to another buyer during
the transport from the place of delivery to destination. To this end, in the case
of a negotiable document, such as a bill of lading B/L, the seller must provide
the buyer with a full set of originals so he can make the sale.

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CIP

Documents for export/import procedures

The seller is obliged to provide the buyer with the commercial documents accompanying the goods (commercial invoice and packing list). He also has to get all
the documents required for export clearance (export SAD, certificates, licenses and
authorizations, etc.).
The seller must provide the buyer with a copy of the transportation insurance policy
or certificate of insurance to have proof that insurance has been hired according to
agreed conditions.
Furthermore, the seller must provide the buyer with any information and help in
obtaining any documents necessary to complete the formalities for import into the
country of destination, and those documents relating to security in the transport of
the goods from the delivery place to the final destination. The buyer must pay the
seller for expenses made to obtain such information and documents.
Transport documents (carriage of goods by road CMR, bill of lading B/L, air waybill
AWB, railway bill of lading CIM and FIATA bill of lading FBL) shall be obtained
by the seller.
If the parties agree or if it was normal practice, the seller can provide the documents
to the buyer using electronic procedures.
Transport contract

It is the seller who must arrange transportation from the place of delivery to the place
of destination. When the seller hires transportation will choose a common transport

OBLIGATIONS OF THE SELLER AND THE BUYER

route between the two places (delivery and destination) and a means of transportation
(truck, aircraft, ship) that is appropriate for the type of goods being transported.
Transfer of risks in transport

The risk in transporting the goods is transferred after the goods have been delivered
to the carrier that transport them to destination in buyers country. If several carriers are involved in transporting the goods, the risk is transferred when the goods
are delivered to the first carrier in the chain. Therefore, the buyer bears all risks of
transport, including the risks that may occur during international transport from
the place of delivery to the place of destination.
To transfer the risk, it is necessary that the goods transported can be identified and
individualized as the goods object of the sale contract. Also, the seller must notify
the buyer in a reliable way that he has put the goods at his disposal at the place of
delivery.

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CIP

Insurance contract

In Incoterm CIP, the seller has an obligation to the buyer to hire an insurance policy
covering transport, at least, transport from the place of delivery to the place of destination. However the seller is only required to purchase a policy with minimum
coverage, which is known as a C Clause in the classification of policies of the
Institute Cargo Clauses (IUA/LMA). If the buyer wants additional coverage should
agree specifically with the seller or hire his own insurance policy.
The insurance of transport made by the seller must fulfill the following requirements:
Cover at least the transport of goods from the place of delivery to the place of
destination.
Cover at least the sales contract price plus 10%, i.e. the sum insured must be
110% of the contract price.
Cover at least the risks specified in Clause C of the Institute Cargo Clauses (IUA/
LMA) or other similar terms.
Contract with an insurance company that has a good reputation.
Contract in the same currency of the contract of sale.
Grant the insurance beneficiary (the buyer) or other company or physical person
having insurable interest in the goods the right to claim directly to the insurer
in case of disaster.

OBLIGATIONS OF THE SELLER AND THE BUYER

If the buyers request it, the seller must hire, on the account and risk of the buyer, an
transport insurance policy that provides coverage beyond those set out in the compulsory insurance contract. These coverage can be provided by Clause A or B, or others like
the War Clause or the Strike Clause, all issued by the Institute Cargo Clauses (IUA/
LMA).
Inspection of goods in the country of origin

The costs of any mandatory inspection of the goods prior to shipment are paid by
the buyer, except when such inspection is required by regulations or institutions in
the country of the seller; in this case the cost are borne by the seller.
Export and import customs clearance

All procedures, costs and taxes of export clearance are borne by the seller.

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CIP

All procedures, costs and taxes of import clearance are borne by the buyer.
Allocation of costs between seller and buyer

The seller assumes the following operational costs:

Packaging, checking and marking of goods.
Loading of the goods at the first carrier.
Inland transportation (pre-carriage) to transport center, port, airport in sellers
country.
Costs and taxes of export clearance.
Terminal costs (warehousing, handling, loading) in transport center, port, airport
in sellers country.
Main transport to the delivery place in the country of destination.
Insurance transport (minimum coverage) from the place of delivery to the place
of destination.
For its part, the buyer assumes the following operational costs:
Terminal costs (warehousing, handling, loading) in transport center, port, airport
in sellers country.
Terminal costs (unloading, handling, warehousing) in transport center, port or

OBLIGATIONS OF THE SELLER AND THE BUYER

airport in buyers country.

Costs and taxes of import clearance.
Inland transportation (on-carriage) from the transport center, port, airport, to
the buyers premises.
Unloading of goods on buyers premises.
Methods of payment

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CIP

CIP can be used with any method of payment. It is useful for the documentary
methods (letter of credit and documentary credit) as it is the seller who hires transportation and therefore have the corresponding transport document (CMR, B/L,
AWB or FBL) that can provide the buyer with the rest of documentation to meet the
payment terms of credit. Moreover, the transport contract made by the seller is to
the place of destination specify on the Incoterm, which is the same place mentioned
in the issue of the letter of credit.
PRACTICAL ADVICE TO USE CIP
Incoterm CIP is increasingly used as the trend nowadays is that the seller offers a
higher level of service to the buyer and place the goods in the country of destination.
On the other hand, is very versatile and can be used with any means of transport and
type of cargo (general, complete or groupage).
The only difference between CPT and CIP is that in CIP the seller is required to hire
and pay for insurance transport of goods to the destination, although the beneficiary
of insurance and the one that must claim compensation from the insurance company
in case of disaster is the buyer. Therefore, before closing a transaction with Incoterm
CIP the buyer must require the seller to hire an insurance with a well known insurance company and payable in the buyers country.
According to Incoterms 2010 for CIP Incoterm the seller has the obligation to
hire minimum insurance coverage; this coverage corresponds to Clause C of the
Institute Cargo Clauses of London (IUA/LMA). However, if the goods are of some
value indeed for all manufactured goods, the buyer should be required to hire the
maximum coverage (Clause A). Normally, the buyer may require these conditions
if a letter of credit is used as payment. If seller and buyer do not reach an agreement
as to the insurance, the buyer always has the option of hiring their own additional
insurance.
One advantage for the seller of using CIP is that once he has placed the goods at
the buyers country he does not to clear them for import; that is important because

OBLIGATIONS OF THE SELLER AND THE BUYER

in some countries customs is very complex. However, using this Incoterm facilitates
customs clearance in the country of destination as the CIF value for sea transport
(or its equivalent for different means of transport) is used in most customs to apply
import taxes.
For the buyer, Incoterm CIP is also a very favorable because it allows him to receive
the goods at home and covered with an insurance transport, though the risk of international transport is assumed by him.
On the other hand, when the buyer uses Incoterm CIP and payment is made at the
same moment of the delivery of the goods, the buyer must ensure that the seller cannot instruct the carrier to change the destination of the goods. For this, the transport
documents (CMR, B/L, AWB) provide the buyer with a duplicate original that it
is used to prevent the seller from giving new instructions to the carrier. In the case
of bill of lading B/L does not usually have this preventive function, but allows for a
disposal clause which prevents the seller to order the carrier to deliver the goods to
a third party in a different place that stipulated.

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CIP

It is advisable to use CIP:

When the seller wants to offer a good level of service to the buyer by placing the
goods in the country of destination and covered with insurance transport.
In land transport operations (truck) between nearby countries in which there are
no customs and therefore is not necessary to clear goods for export and import.
In this case, using CIP the seller can deliver the goods at buyers premises (factory or warehouse). DAP would be equivalent with the difference that in this
Incoterm the risk of transport is borne by the seller.
In air transport operations of some value and where there is a risk that justifies
the use of letter of credit as payment method. The seller delivers the goods documentation (including the airway bill) against payment of the credit.
In multimodal transport operations in which the goods travel in containers with
a single transport document that is the multimodal bill of lading FBL. In these
situations, if the destination is a port, the Incoterms 2010 advised to use CIP
instead of CIF.

OBLIGATIONS OF THE SELLER AND THE BUYER

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CIP

KEYS TO CIP

Mode of transport

Any type of transport (land, air, sea), specially multimodal

transport (containers).

Delivery place

Different delivery places in buyers country (transport centers,

airports, ports, etc.).

Loading/unloading of the
goods

Loaded in the international transport hired by the seller.

Delivery document

Transport document (CMR, B/L, AWB) and insurance

document (policy or certificate).

Type of cargo

Any type of cargo (general cargo, complete cargo, groupage).

Contract of main transport

Seller.

Contract of insurance

The seller is obliged to hire insurance transport whose

beneficiary is the buyer. Only requires a minimum insurance
coverage (Clause C of the Institute Cargo Clauses).

Transfer of risks in transport

When the goods are delivered to the first carrier hired by the
seller.

Pre-shipment inspection

Buyer, except when the inspection is required by regulations

or institutions in the country of the seller.

Export customs clearance

Seller.

Import customs clearance

Buyer.

Methods of payment

Payment in advance, cash on delivery, open account, check. It

works very well with documentary methods (letter of credit
or documentary credit).

OBLIGATIONS OF THE SELLER AND THE BUYER

CIF

Cost, Insurance and Freight (named port of destination)

Costs
Risks
Documents

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CIF

HOW TO USE CIF

CIF has historically been a widely used Incoterm because, in addition to placing the
goods at the port of destination in the buyers country, the CIF value is used in most
of the customs to apply tariffs and import taxes, so using this Incoterm facilitates to
clear the goods for import.
In Incoterm CIF the seller delivers the goods on board of a ship in the port of shipment, but he also manages and pays the cost of freight to the port of destination.
Therefore, the point where the risk of transport is transferred (port of shipment)
is different from the point to which the seller bears the costs of transport (port of
destination).
The costs of terminal in the port of shipment are borne by the seller. Unlike Incoterm CFR, the seller is obliged to hire insurance transport covering at least the way
from the port of shipping to the port of destination. The insurance shall cover the
price of the contract plus 10% (i.e., 110%). The beneficiary of this insurance and,
therefore, the one that must apply to the insurer for compensation in case of disaster
is the buyer.
CIF is used only for sea transport and usually for general cargo of both consumer
products and industrial products of high value. If the goods travel in containers
Incoterms 2010 rules recommends the use of Incoterm CIP.

OBLIGATIONS OF THE SELLER AND THE BUYER

CIF MAIN CHARACTERISTICS

Mode of transport

This Incoterm can only be used with sea or inland waterways (rivers, canals, lakes)
transport. When the goods are carried in containers and the place of delivery is the
port of destination, Incoterms 2010 rules advised to use CIP instead of CIF, because
the containers are delivered usually in the ports container terminal and not loaded
on board the ship.

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CIF

Place of delivery and reception of goods

The seller must deliver the goods on board of the ship or procuring the goods so
delivered in the shipping port of his choice. This last phrase procuring the goods
so delivered refers to the merchandise can also be delivered after its first delivery
to the buyer on board the ship, for example during transport of goods at sea, so
that the first buyer can sell the goods to another buyer using the documents of the
operation that has already begun. This type of sale is used in international trade of
certain products like raw materials, commodities, fuel, etc.
The seller is responsible for choosing the port of shipment and the ship that will
transport the goods to the designated port on the destination country. If the buyer
was interested in a certain port to ship the goods must be specified in the sale
contract.
The delivery should be made on the date or deadline. If the parties agree, the buyer
is entitled to determine a date or deadline for the shipment of goods as well as a
specific point to receive the goods at the port of destination.
The buyer is obliged to collect the goods from the carrier hired by the seller at the port
of destination, provided that the seller has duly notified him in a timely manner.
Loading/unloading of goods

The obligation to deliver is justify by two documents: the transport document and
the insurance document. The first is the bill of lading B/L marked with the mention
freight prepaid, which means that the selling price of the goods includes the cost

OBLIGATIONS OF THE SELLER AND THE BUYER

of freight. The document of transport insurance can be the insurance policy or a

insurance certificate.
The transport document that justifies the delivery must meet the following requirements:
Include the contract goods.
Be dated within the period that has been established for shipment.
Allow the buyer claiming delivery of goods to the carrier at the port of destination.
Allow the buyer, unless otherwise agreed, to sell the goods to another buyer during the sea voyage from the port of shipping to the port of destination. In this
case, as the bill of lading B/L is a negotiable document the seller must provided
the buyer with a full set of originals so he could make the sale.

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CIF

Documents for export/import procedure

The seller is obliged to provide the buyer with the commercial documents accompanying the goods (commercial invoice and packing list). He also has to get all
the documents required for export clearance (export SAD, certificates, licenses and
authorizations, etc.). The document of sea transport (bill of lading B/L) shall be
obtained by the seller.
The seller must provide the buyer with a copy of the transportation insurance policy
or certificate of insurance to have proof that insurance has been hired according to
agreed conditions.
Furthermore, the seller must provide the buyer with any information and help in
obtaining any documents necessary to complete the formalities for import into the
country of destination, and those documents relating to security in the transport of
the goods from the delivery place to the final destination. The buyer must pay the
seller for expenses made to obtain such information and documents.
If the parties agree or if it was normal practice, the seller can provide the documents
to the buyer using electronic procedures.
Transport contract

It is the seller who must arrange transportation from the shipping port to the destination port. When the seller hires transportation will choose a common transport
route between the two ports and a type of ship that is appropriate for the kind of
goods being transported.

OBLIGATIONS OF THE SELLER AND THE BUYER

Transfer of risks in transport

The risk in transporting the goods is transferred after the goods have been delivered
on board the ship at the port of shipment chosen by the seller. From that moment,
the buyer bears all risks of transport, including the risks that may occur during sea
transport until the arrival of the goods to the port of destination.
To transfer the risk, it is necessary that the goods transported can be identified and
individualized as the goods object of the sale contract. Also, the seller must notify
the buyer in a reliable way that he has put the goods at his disposal in the port of
destination.

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CIF

Insurance contract

In Incoterm CIF, the seller has an obligation to the buyer to hire an insurance policy
covering transport, at least, from the port of delivery to the port of destination.
However, the seller is only required to purchase a policy with minimum coverage,
which is known as a C Clause in the classification of policies of the Institute Cargo
Clauses (IUA/LMA). If the buyer wants additional coverage should agree specifically
with the seller or hire his own insurance policy.
The insurance of transport made by the seller must fulfill the following requirements:
Cover at least the transport of goods from the place of delivery to the place of
destination.
Cover at least the sales contract price plus 10%, i.e. the sum insured must be
110% of the contract price.
Cover at least the risks specified in Clause C of the Institute Cargo Clauses (IUA/
LMA) or other similar terms.
Contract with an insurance company that has a good reputation.
Contract in the same currency of the contract of sale.
Grant the insurance beneficiary (the buyer) or other company or physical person
having insurable interest in the goods the right to claim directly to the insurer
in case of disaster.
If the buyers request it, the seller must hire, on the account and risk of the buyer,
a transport insurance policy that provides coverage beyond those set out in the
compulsory insurance contract. These coverage can be provided by Clause A or B,
or others like the War Clause or the Strike Clause, all issued by the Institute Cargo
Clauses (IUA/LMA).

OBLIGATIONS OF THE SELLER AND THE BUYER

Inspection of goods in the country of origin

The costs of any mandatory inspection of the goods prior to shipment are paid by
the buyer, except when such inspection is required by regulations or institutions in
the country of the seller; in this case the cost are borne by the seller.
Export and import customs clearance

All procedures, costs and taxes of export clearance are borne by the seller.
All procedures, costs and taxes of import clearance are borne by the buyer.
Allocation of costs between seller and buyer

The seller assumes the following operational costs:

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CIF

Packaging, checking and marking of goods.

Loading the goods at the first carrier.
Inland transportation (pre-carriage) to shipment port in sellers country.
Costs and taxes of export clearance.
Costs in the port of shipment (warehousing, handling, loading).
Sea transport to the port of destination.
Insurance transport (minimum coverage) from the port of shipment to the port
of destination.
The buyer assumes the following operational costs:
Insurance transport (if it is hired).
Terminal costs (unloading, handling, warehousing) in the port of destination.
Costs and taxes of import clearance.
Inland transportation (on-carriage) from the port of destination to the buyers
premises.
Unloading of goods on buyers premises.

OBLIGATIONS OF THE SELLER AND THE BUYER

Methods of payment

CIF can be used with any method of payment. It is useful for the documentary methods (letter of credit and documentary credit) as it is the seller who hires sea transport
and therefore have the bill of lading B/L that can provide the buyer along with the
rest of the documentation to meet the payment terms of credit. Besides, the transport
contract made by the seller is to the place of destination specify on the Incoterm,
which is the same place mentioned in the issue of the letter of credit.
When CIF is used in letters of credit or documentary credits, the bill of lading B/L,
besides being the contract of carriage, also serves to transfer possession of the goods.
In this sense, the seller can enter in the bill of lading the clause to order, thereby
maintaining possession of the goods until payment is made.

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CIF

PRACTICAL ADVICE TO USE CIF

In Incoterm CIF, the seller plays an important role in international logistics since he
assumes the cost and management of sea transport to the port of destination in the
buyers country. On the other hand, if the seller normally exports through maritime
transport can benefit from lower rates or volume discounts on contracting with
freight forwarders and logistics operators. These benefits can be transferred to their
prices which will improve the competitiveness of their offers, or include them in his
markup which will lead to increased the profitability of exports.
Moreover, although the seller does not perform the import clearance, somehow makes
it easy since most of customs laws apply tariffs and import taxes on CIF values already calculated in the documentation (invoice) to be provide to the buyer in order
to make import procedures.
The differential aspect of Incoterm CIF in relation to other Incoterms is that, while
is the seller who hires and pays the insurance, the beneficiary in case of disaster is
the buyer. Therefore, before closing a transaction with Incoterm CIF the buyer must
asked the seller to hire insurance with a company of good reputation and payable in
the buyers country.
According to Incoterms 2010, when using CIP the seller has the obligation to hire
minimum insurance coverage; this coverage corresponds to Clause C of the Institute Cargo Clauses of London (IUA/LMA). However, if the goods are of some
value indeed for all manufactured goods, the buyer should be required to hire the
maximum coverage (Clause A). Normally, the buyer may require these conditions
if a letter of credit is used as method of payment. If seller and buyer do not reach an
agreement as to the insurance, the buyer always has the option of hiring their own
additional insurance.

OBLIGATIONS OF THE SELLER AND THE BUYER

Incoterm CIF is only for sea transport, normally for general cargo products of consumer products and industrial products of high value (e.g. machinery).
The use of CIF is not recommended when goods are transported in containers either
in the form of FCL (Full Container Load) or LCL (Less than Container Load) due
that containers are delivered in port terminals and not loaded onto ships. For these
cases the Incoterms 2010 recommends the use of CIP.
It is advisable to use CIF in the following cases:
Exports of companies that already have experience in sea transport and, therefore,
it is preferable that the hiring of such transport is performed by the seller.

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CIF

Exports in which the seller can get a price of shipping (freight) cheaper than the
buyer because of their annual procurement volume or the transport route that
will be used.
Exports in which the value of goods or the buyers requirements make necessary
to obtain insurance covering the transport of goods between the port of shipment
and the port of destination.
Exports in which the seller wishes to place the goods at a port in the buyers
country but without assuming the risk of transport and unloading at destination
because in this case Incoterm DAT must be used.
General cargo operations of large volume of goods traveling by ship but not in
containers because in that case Incoterm CIP must be used.

OBLIGATIONS OF THE SELLER AND THE BUYER

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CIF

KEYS TO CIF

Mode of transport

Only for sea or inland waterway transport. It is not advisable to

use this Incoterm with multimodal transport (containers).

Delivery place

On board the ship in the port of shipment chosen by the

seller.

Loading/unloading of the
goods

On board the ship chosen by the seller.

Delivery document

Bill of lading B/L with the mention freight prepaid and

insurance document (policy or certificate).

Type of cargo

Mainly general cargo and complete cargo.

Contract of main transport

Seller.

Contract of insurance

The seller is obliged to hire insurance transport whose

beneficiary is the buyer. Only requires a minimum insurance
coverage (Clause C of the Institute Cargo Clauses).

Transfer of risks in transport

Once the goods have been placed on board of the ship in the
port of shipment.

Pre-shipment inspection

Buyer, except when the inspection is required by regulations

or institutions in the country of the seller.

Export customs clearance

Seller.

Import customs clearance

Buyer.

Methods of payment

Payment in advance, cash on delivery, open account, check. It

works very well with documentary methods (letter of credit
or documentary credit).

OBLIGATIONS OF THE SELLER AND THE BUYER

DAT

Delivered At Terminal (named terminal at port or place of destination)

Costs
Risks
Documents

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DAT

HOW TO USE DAT

In Incoterm DAT the seller delivers the goods unloaded at a port terminal or another
place of destination in the buyers country. The terminal concept is quite broad and
includes both terminals of transportation (land, air, sea) and logistics infrastructure
(ports, airports, railway stations) or similar facilities as docks, warehouses and free
zones.
Due to the different places of delivery that allows this Incoterm is important to clearly
mention the specific point that seller and buyer have chosen for delivery so the contract for international transport made by the seller conforms to that choice.
When the seller carries the goods from the delivery terminal to another point in the
buyers country such as buyers premises (factory or warehouse) Incoterm DAT should
not be used. The Incoterms suitable for that situation are DAP or DDP.
In Incoterm DAT, the seller has to complete the formalities and bear the costs of customs clearance for export, not the import clearance that corresponds to the buyer.

OBLIGATIONS OF THE SELLER AND THE BUYER

DAT MAIN CHARACTERISTICS

Mode of transport

DAT can be used with any mode of transport (land, sea, air) and especially with
multimodal transport (containers).
Place of delivery and reception of goods

The seller must deliver the goods at the port terminal or place of destination. If the
parties do not agree on a specific terminal, the seller can choose the terminal at the
port or place of destination that suits him better. The delivery should be made on
the date or deadline agreed.

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DAT

The buyer is obliged to collect the goods from the carrier hired by the seller at the
terminal of the destination port if the seller has duly notified in a timely manner.
Loading/unloading of goods

The seller delivers the goods unloaded from the transportation that he has hired to
carry the goods to the port or place of destination.
Delivery document

The seller must provide the buyer with a document that allows him to collect the
goods at the destination place. Normally, this document is a delivery note of the carrier hired for the seller that should be signed by the buyers carrier. When delivery
takes place in a port, the document used is a bill of lading B/L with the reference
discharge, meaning the cost of unloading is included in the price.
Documents for export/import procedures

OBLIGATIONS OF THE SELLER AND THE BUYER

Transport documents (carriage of goods by road CMR, bill of lading B/L, air waybill
AWB, railway bill of lading CIM and FIATA bill of lading FBL) shall be obtained
by the seller.
If the parties agree or if it was normal practice, the seller can provide the documents
to the buyer using electronic procedures.
Transport contract

It is the seller who must arrange transportation to the terminal at the port or place of
destination. That includes both the pre-carriage in the country of the seller and the
international transport to the destination terminal in buyers country.
Transfer of risks in transport

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DAT

The risk is transferred from buyer to seller once the goods have been unloaded at the
terminal in the port or place of destination. Therefore, the risks of unloading in the
place of delivery are borne by the seller.
To transfer the risk, it is necessary that the goods transported can be identified and
individualized as the goods object of the sale contract. Also, the seller must notify
the buyer in a reliable way that he has put the goods at his disposal at the place of
delivery.
Insurance contract

Neither party has the obligation to hire transport insurance. However, it is advisable
that the seller hire a transport insurance for international transport because he assumes the risks. In this sense, the buyer must provide the seller, upon request, with
all information necessary to hire a transport insurance.
Inspection of goods in the country of origin

The costs of any mandatory inspection of the goods prior to shipment are paid by
the buyer, except when such inspection is required by regulations or institutions in
the country of the seller; in this case the cost are borne by the seller.
Export and import customs clearance

All procedures, costs and taxes of export clearance are borne by the seller.
All procedures, costs and taxes of import clearance are borne by the buyer.

OBLIGATIONS OF THE SELLER AND THE BUYER

Allocation of costs between seller and buyer

The seller assumes the following operational costs:

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DAT

Insurance transport (if it is hired).

Terminal costs (warehousing, handling, loading) in sellers country.
For its part, the buyer assumes the following operational costs:
Costs and taxes of import clearance.
Inland transportation (on-carriage) from the transport center, port, airport, to
the buyers premises.
Unloading of goods on buyers premises.
Methods of payment

DAT as well as the two other Incoterms in which the goods are delivered at destination (DAP and DDP) must not be used with documentary methods of payment such
as letter of credit. In this case a transport document should be requested, normally a
carriers delivery note signed by the buyers carrier, that serves as a proof of reception
of goods at destination. In that sense, the seller is dependent on the effectiveness and
speed of the carrier to obtain the document in order to collect the credit. Moreover,
in the case of sea transport will be a delay of several weeks to complete the necessary
documentation to collect the credit.
On the other hand, if the letter of credit do not request a document certifying receipt
of goods at destination, the seller may collect the credit only with documents generated by himself (invoice, packing list, certificate of origin, transport document, etc.),
but if the goods do not arrive on time at destination, the buyer would not be required

OBLIGATIONS OF THE SELLER AND THE BUYER

to pay the letter of credit and therefore a conflict would arise once the seller would
have already collect the credit.
In short, if the seller wants to use a letter of credit as method of payment of exports
is advisable to use Incoterms CIP or CIF in which the seller controls the transport
document that serves to justify the delivery and also allows to collect the credit once
the goods have been delivered to the international carrier in the country of origin.
PRACTICAL ADVICE TO USE DAT
This Incoterm was first created in the version of Incoterms 2010. It assumes the
roles of Incoterms DAF (Delivered At Frontier), DES (Delivered Ex Ship) and DEQ
(Delivered Ex Quay) that disappeared since they were very little used.

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DAT

The reason for this new Incoterm is the great number and diversity of international
logistics infrastructures that exist nowadays and can be considered a terminal.
Therefore, when using this Incoterm is very important to specify the place where
delivery is made.
Initially, although DAT can be used with any mode of transport, assuming the functions of DES and DEQ (both sea Incoterms), seems more appropriate to use when
goods are delivered at a port in the buyers country.
In this Incoterm the seller has to hire freight from the port of shipment to the port of
destination and must do so in a type of freight (known as liner terms) in which the
cost of unloading the goods are included in the price of freight, because in Incoterm
DAT the costs at the port of destination are paid by the seller.
There are different alternatives to use DAT, whose choice depends on the place of
delivery:
DAT dock in the port of destination: it is recommend to use this alternative
for bulk cargo, heavy loads and complex loads (machinery). Delivery takes place
once the goods have been placed in the dock at the port of destination. It would
be the equivalent to Incoterm DEQ (Delivered Ex Quay) included in Incoterms
2000 that was eliminated in Incoterms 2010.
DAT terminal in the port of destination: it is suitable when the seller wants
to deliver containers unloaded at the port of destination. The seller assumes the
risks and costs of transport to the port of destination terminal.
DAT logistics zone in the country of destination: suitable for goods that are
delivered in free zones, free warehouses or customs warehouses in order to undergo a transformation and benefit from a favorable tax and customs system.

OBLIGATIONS OF THE SELLER AND THE BUYER

DAT transport hub in the country of destination: suitable for goods traveling in groupage by road and delivered in a transportation hub in the country of
destination, and afterwards carried to buyers premises on his own account.
DAT air cargo center in the country of destination: for goods traveling in
groupage, by plane, and delivered in logistics platforms specializing in the treatment of air cargo.
DAT rail terminal in the country of destination: for general cargo or complete
cargo (complete wagons) that are supplied unloaded at the docks of railway terminals.
Regarding the other two Incoterms in which the goods are delivered at destination,
such as DAP and DDP, the main differences with DAT are:
In DAT the goods are delivered unloaded while in DAP are delivered ready for
unloading.

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DAT

In DAT import clearance is done by the buyer while in DDP is done by seller.
In DAT transportation in the country of destination (on-carriage) is assumed by
the buyer, while in DAP and DDP is assumed by the seller.
It is advisable to use DAT in the following type of exports:

Operation of heavy loads, bulk and complex goods (machinery) in which the
buyer wants to place the goods at the dock of the port of destination. It would be
the same use as the old Incoterm DEQ, disappeared in Incoterms 2010 version.

Sales of complete containers delivered unloaded in the port of destination.

Groupage operations in which the goods are delivered to terminals and logistics
platforms in buyers country, and then carried to buyers premises in his own
account.

Goods that are delivered on port logistics zones (free zones, free warehouses or customs warehouses) in order to benefit from a favorable tax and customs system.

Exports to countries at risk or with complex customs in which it is desirable to

deliver the goods in a neighboring country that has a logistics center near the
customs office of destination country so the buyer can collect the goods at that
place and make import procedures in the country. It would be a similar use to
the old Incoterm DAF (Delivered At Frontier) that was eliminated in Incoterms
2010 version.

OBLIGATIONS OF THE SELLER AND THE BUYER

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DAT

KEYS TO DAT

Mode of transport

Any type of transport (land, air, sea), specially multimodal

transport (containers).

Delivery place

In terminals (land, air, port) or other places like docks,

warehouses, free zones, in the country of destination.

Loading/unloading of the
goods

Unloaded from the means of transport hired for the seller to

carry the goods to delivery place in country of destination.

Delivery document

Delivery note of sellerss carrier signed by buyers carrier or

bill of lading B/L with the mention discharged.

Type of cargo

Any type of cargo (general cargo, complete cargo, groupage).

Contract of main transport

Seller.

Contract of insurance

There is no obligation on either party. However, it is advisable

that the seller hires insurance because he assumes the risks.

Transfer of risks in transport

When the goods are unloaded from the means of transport in

the delivery place.

Pre-shipment inspection

Buyer, except when the inspection is required by regulations

or institutions in the country of the seller.

Export customs clearance

Seller.

Import customs clearance

Buyer.

Methods of payment

Payment in advance, cash on delivery, open account, bank

transfer, check. It is not suitable for documentary methods
(letter of credit or documentary credit).

OBLIGATIONS OF THE SELLER AND THE BUYER

DAP

Delivered At Place (named place of destination)

Costs
Risks
Documents

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DAP

HOW TO USE DAP

In Incoterm DAP the seller delivers the goods, without unloading, at the place of
destination in the buyers country. The transport risk is transferred from buyer to
seller in the same place where the goods are delivered.
The place of delivery may be the buyers premises or a place nearby, other than a
transport terminal, in the country of destination. If delivery occurs at a transport
terminal or transport infrastructure (port, airport, etc.) in the country of destination
Incoterm DAT should be used.
In this Incoterm the seller has to complete the formalities and bear the costs of customs clearance of export, not the import clearance that corresponds to the buyer. In
the event that the seller also clear goods for import Incoterm DDP should be used.
This is a very useful Incoterm for sales between countries of the same economic area
(e.g. European Union) in which the seller wants to deliver the goods at buyers premises but is not necessary to clear goods for import as there are no customs.

OBLIGATIONS OF THE SELLER AND THE BUYER

DAP MAIN CHARACTERISTICS

Mode of transport

DAP can be used with any mode of transport (land, sea, air) and especially with
multimodal transport (containers).
Place of delivery and reception of goods

The seller must deliver the goods at agreed place of destination, usually the buyers
premises (factory or warehouse) or a nearby place. If the parties do not agree on a
specific place, the seller can choose the place that suits him better. The delivery should
be made on the date or deadline agreed.

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DAP

The buyer is obliged to collect the goods from the carrier hired by the seller at the
place of destination if the seller has duly notified in a timely manner.
Loading/unloading of goods

The seller delivers the goods prepared for unloading from the transportation that he
has hired to carry them to the place of destination. Therefore, all costs and risks of
unloading the goods in the place of destination are on the account of the buyer.
If in the contract of carriage the unloading costs are on the account of the seller, the
seller may not claim a refund of those, unless both parties agree.
Delivery document

The seller must provide the buyer with a document that allows him to collect the
goods at the destination place. Normally, this document is a delivery note of the
carrier hired for the seller signed by the buyer (if the goods are delivered in buyers
premises) or a delivery note signed by the buyers carrier (if the goods are delivered
in another place in buyers country).
Documents for export/import procedures

OBLIGATIONS OF THE SELLER AND THE BUYER

country of destination, and those documents relating to security in the transport of

the goods from the delivery place to the final destination. The buyer must pay the
seller for expenses made to obtain such information and documents.
Transport documents (carriage of goods by road CMR, bill of lading B/L, air waybill
AWB, railway bill of lading CIM and FIATA bill of lading FBL) shall be obtained
by the seller.
If the parties agree or if it was normal practice, the seller can provide the documents
to the buyer using electronic procedures.
Transport contract

It is the seller who must arrange transportation to the place of destination. That
includes pre-carriage in the country of the seller, international transport, and oncarriage to the place of destination in buyers country.

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DAP

Transfer of risks in transport

The risk is transferred from buyer to seller once the goods have been delivered prepared for unloading at the place of destination. Therefore, the risks of unloading in
the place of delivery are borne by the buyer.
To transfer the risk, it is necessary that the goods transported can be identified and
individualized as the goods object of the sale contract. Also, the seller must notify
the buyer in a reliable way that he has put the goods at his disposal at the place of
delivery.
Insurance contract

The costs of any mandatory inspection of the goods prior to shipment are paid by
the buyer, except when such inspection is required by regulations or institutions in
the country of the seller; in this case the cost are borne by the seller.
Export and import customs clearance

All procedures, costs and taxes of export clearance are borne by the seller.

OBLIGATIONS OF THE SELLER AND THE BUYER

All procedures, costs and taxes of import clearance are borne by the buyer.
Allocation of costs between seller and buyer

The seller assumes the following operational costs:

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DAP

Main transport to the country of destination.

Insurance transport (if it is hired).
Terminal costs (warehousing, handling, loading) in sellers country.
Inland transportation (on carriage) to the place of delivery in sellers country.
For its part, the buyer assumes the following operational costs:
Costs and taxes of import clearance.
Inland transportation (on carriage), if it is hired, from to the place of delivery in
buyers country to his own premises (factory or warehouse).
Unloading of goods on buyers premises.
Methods of payment

DAP as well as the two other Incoterms in which the goods are delivered at destination (DAT and DDP) must not be used with documentary methods of payment such
as letter of credit. In this case a transport document should be requested, normally
a carriers delivery note signed by the buyers carrier, that serves a proof of reception
of goods at destination. In that sense the seller is dependent on the effectiveness
and speed of the carrier to obtain the document and proceed to collect the credit.
Moreover, in the case of sea transport will be a delay of several weeks to complete
the documentation to collect the credit.

OBLIGATIONS OF THE SELLER AND THE BUYER

On the other hand, if the letter of credit do not request a document certifying receipt
of goods at destination, the seller may collect the credit only with documents generated by himself (invoice, packing list, certificate of origin, transport document, etc.),
but if the goods do not arrive on time at destination, the buyer would not be required
to pay the letter of credit and therefore a conflict would arise once the seller would
have already collect the credit.
In short, if the seller wants to use a letter of credit as method of payment of the export
is advisable to use Incoterms CIP or CIF in which the seller controls the transport
document that serves to justify the delivery and also allows to collect the credit once
the goods have been delivered to the international carrier in the country of origin.
PRACTICAL ADVICE TO USE DAP

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DAP

This Incoterm was first created in the version of Incoterms 2010. It assumes the functions of Incoterm DDU (Delivered Duty Unpaid) that disappeared.
In DAP, goods are delivered at destination country, either on buyers premises or at
any point or nearby town that has good transport links to the final destination of
the goods.
As the delivery occurs at any point in the destination country, it must be taken into
account that the buyer must performs customs formalities and pay import taxes
in order to meet the agreed delivery terms. Therefore, when exporting to countries
with difficult customs the seller must be confident that the buyer will make the
appropriate import procedures so that there is no delay in delivery.
This Incoterm is more suitable for sales between countries that belong to the same
economic area so there are no customs and therefore the buyer shall not clear goods
for import. When used in countries with customs there is the possibility of delays in
clearance and in that case the costs of warehousing are on the account of the seller.
Also must be considered that if the seller hires logistics services in the country of
destination (transport, insurance, warehousing, freight handling, etc.) it is likely that
indirect taxes (VAT) of these services cannot be deducted for tax purposes or, in any
case, its recovery will be expensive and difficult.
Regarding the other two Incoterms in which the goods are delivered at destination,
such as DAT and DDP, the main difference with DAP is that:
In DAP the goods are delivered prepared for unloading in any point of destination country, except a transport terminal, while in DAT the goods are delivered
unloaded in a transport terminal in destination country.

OBLIGATIONS OF THE SELLER AND THE BUYER

In DAP import clearance is done by the buyer while in DDP is done by the
seller.

It is advisable to use Incoterm DAP in the following cases:

Sales between countries without customs, preferably full load (complete trucks or
containers), in which the seller wants to deliver the goods at the buyers premises
but without clearing goods for import.
Sales between countries without customs in which the seller wants to deliver the
goods at an inland point in the country of destination other than a terminal or
transport infrastructure because in that case Incoterm DAT should be used.

EXW
DAP

Sales between countries with customs but in which the seller have experience
and confidence that the buyer will make import procedures properly and thus
will not delay the delivery of the goods at a point inside destination country.
Exports of high value goods (e.g. jewelry, equipment, turnkey plants) in which
it is preferable that the seller does not only hires insurance transport, but is the
beneficiary of insurance so in case of damage can manage compensation, unlike
what happens in Incoterm CIP where the buyer assumes the risk of international
transport and, therefore, has to make the claim to the insurance company.

OBLIGATIONS OF THE SELLER AND THE BUYER

EXW
DAP

KEYS TO DAP

Mode of transport

Any type of transport (land, air, sea), specially multimodal

transport (containers).

Delivery place

a) At buyers premises (factory or warehouse) in destination

country.
b) In any other point in country of destination, except in a
transport terminal.

Loading/unloading of the
goods

Unloaded from the means of transport hired for the seller to

carry the goods to delivery place in country of destination.

Delivery document

a) Delivery note of sellerss carrier signed by the buyer.

a) Delivery note of sellerss carrier signed by the buyers
carrier.

Type of cargo

Any type of cargo (general cargo, complete cargo, groupage).

Contract of main transport

Seller.

Contract of insurance

There is no obligation on either party. However, it is advisable

that the seller hires insurance because he assumes the risks.

Transfer of risks in transport

When the goods are delivered prepared for unloading from

the transportation in the delivery place.

Pre-shipment inspection

Buyer, except when the inspection is required by regulations

or institutions in the country of the seller.

Export customs clearance

Seller.

Import customs clearance

Buyer.

Methods of payment

Payment in advance, cash on delivery, open account, bank

transfer, check. It is not suitable for documentary methods
(letter of credit or documentary credit).

100

OBLIGATIONS OF THE SELLER AND THE BUYER

DDP

Delivered Duty Paid (named place of destination)

Costs
Risks
Documents

EXW
DDP

HOW TO USE DDP

In Incoterm DDP the seller delivers the goods, without unloading, at buyers premises
or a nearby place in the country of destination. The transport risk is transferred from
buyer to seller in the same place where the goods are delivered.
DDP is somewhat the reverse of Incoterm EXW; it represents the greatest obligation
for the seller because he assumes all costs and risks of the operation, including import
procedures, to deliver the goods at the agreed place in the buyers country. The only
cost do not assume by the seller is the unloading of goods at delivery place.
Any import tax and specifically VAT, are paid by the seller, unless the parties agree
in the contract of sale that VAT or other taxes are paid by the buyer. In that case a
variant of DDP, known as DDP VAT unpaid, should be used.
The only difference between Incoterms DDP and DAP is that in DDP all costs and
taxes of import clearance are paid by the seller while in DAP are paid by the buyer.
In the event that the seller has no capacity by himself or through his representatives
for doing import clearance, Incoterm DDP should not be used.
If between the country of origin and the country of destination there is no customs
(e.g. European Union) and the goods are delivered at buyers premises, Incoterm
DAP must be used instead of DDP, because will not be necessary to clear goods for
import.

101

OBLIGATIONS OF THE SELLER AND THE BUYER

DDP MAIN CHARACTERISTICS

Mode of transport

DDP can be used with any mode of transport (land, sea, air) and especially with
multimodal transport (containers).
Place of delivery and reception of goods

EXW
DDP

The buyer is obliged to collect the goods from the carrier hired by the seller at the
place of destination if the seller has duly notified in a timely manner.
Loading/unloading of goods

The seller delivers the goods prepared for unloading from the means of transport that
he has hired to carry them to the place of destination. Therefore, all costs and risks of
unloading the goods in the place of destination are on the account of the buyer.
If in the contract of carriage the unloading costs are on the account of the seller, the
seller may not claim a refund of those, unless both parties agree.
Delivery document

The seller must provide the buyer with a document that allows him to collect the
goods at the destination place. Normally, this document is a delivery note of the
carrier hired for the seller signed by the buyer (if the goods are delivered in buyers
premises) or a delivery note signed by the buyers carrier (if the goods are delivered
in another place in buyers country).
Documents for export/import procedures

102

OBLIGATIONS OF THE SELLER AND THE BUYER

country of destination; and those documents relating to security in the transport of

EXW
DDP

Transfer of risk in transport

The risk is transferred from buyer to seller once the goods have delivered prepared for
unloading at the place of destination. Therefore, the risks of unloading in the place
of delivery are borne by the buyer.
To transfer the risk, it is necessary that the goods transported can be identified and individualized as the goods object of the sale contract. Also, the seller must notify the buyer
in a reliable way that he has put the goods at his disposal at the place of delivery.
Insurance contract

The costs of any mandatory inspection of the goods prior to shipment are paid by
the buyer, even when such inspection is required by regulations or institutions in the
country of the seller.
Export and import customs clearance

All procedures, costs and taxes of both export and import clearance are borne by
the seller.

103

OBLIGATIONS OF THE SELLER AND THE BUYER

Allocation of costs between seller and buyer

The buyer only assumes the costs of unloading on buyers premises. All other costs
are borne by the seller:
Packaging, checking and marking of goods.
Loading of the goods at the first carrier.
Inland transportation (pre-carriage) to transport center, port, airport in sellers
country.
Costs and taxes of export clearance.
Terminal costs (warehousing, handling, loading) in sellers country.
Main transport to the country of destination.

EXW
DDP

Insurance transport (if it is hired).

Terminal costs (warehousing, handling, loading) in sellers country.
Inland transportation (on carriage) to the place of delivery in sellers country.
Costs and taxes of import clearance.
Inland transportation (on carriage), from terminal, port, airport in buyers country to buyers premises (factory or warehouse).
Methods of payment

DDP as well as the two other Incoterms in which the goods are delivered at destination (DAT and DAP) must not be used with documentary methods of payment such
as letter of credit. In this case a transport document should be requested, normally a
carriers delivery note signed by the buyers carrier, that serves as a proof of reception
of goods at destination. In that sense, the seller is dependent on the effectiveness and
speed of the carrier to obtain the document in order to collect the credit. Moreover,
in the case of sea transport will be a delay of several weeks to complete the necessary
documentation to collect the credit.
On the other hand, if the letter of credit do not request a document certifying receipt
of goods at destination, the seller may collect the credit only with documents generated by himself (invoice, packing list, certificate of origin, transport document, etc.),
but if the goods do not arrive on time at destination, the buyer would not be required
to pay the letter of credit and therefore a conflict would arise once the seller would
have already collect the credit.

104

OBLIGATIONS OF THE SELLER AND THE BUYER

In short, if the seller wants to use a letter of credit as method of payment of exports
is advisable to use Incoterms CIP or CIF in which the seller controls the transport
document that serves to justify the delivery and also allows to collect the credit once
the goods have been delivered to the international carrier in the country of origin.
PRACTICAL ADVICE TO USE DDP
DDP is the last of the eleven Incoterms, and somehow the reverse of EXW: the
seller pays all costs, expenses and taxes, to place the goods at the agreed point in the
destination country. The only cost not assumed by the seller is the unloading of the
goods at delivery place.

EXW
DDP

For the buyer, the Incoterm DDP is the most favorable alternative since it has to assume
the management, nor the costs and risks of international operations. On the other
hand allows the buyer to compare the offer of the foreign supplier (which includes all
costs) with offerings from local providers to see which is more competitive.
In this Incoterm usually the place of delivery are the buyers premises (factory or
warehouse) since in this way the buyer offers a complete logistics service (which is
known as door to door). However, if the goods travel in groupage is customary
that the goods be delivered to a terminal or transportation center. In this case the
seller must use DDP carrier.
This Incoterm requires that the seller has experience in managing international logistics because he will have to carry out transport operations, customs and tax declarations in countries that sometimes can become very complex. The seller will need local
support to make the proceedings in the best conditions of safety and speed.
Moreover, as the import clearance is done by the seller, any change in customs regulations (e.g. an increase in tariffs or the requirement of an import license) will mean
a higher cost of the export operation that will be difficult to include in the price of
the contract.
From the fiscal point of view, it must be taken into account that if the seller hires
transportation services in the country of destination (handling of the goods at the
terminal, inland transportation, insurance, etc.), it is likely that indirect taxes (e.g.
VAT) of these services may not be tax deductible or his recovery will be very costly
and difficult.
Besides, in DDP, import taxes and VAT are paid by the seller and that could be a
significant percentage of merchandise value that will be difficult to recover. Therefore, these taxes should be included in the price or agreed with the buyer that VAT
be on his account. In that case a variant of DDP, known as DDP VAT unpaid,
should be used.

105

OBLIGATIONS OF THE SELLER AND THE BUYER

The only difference between DDP and DAP is that in DDP all costs and taxes of
import clearance are paid by the seller while in DAP are paid by the buyer. In this
sense, when two countries have no customs (e.g. European Union) DDP should not
be used because clear goods for import will not be necessary.
It is advisable to use this Incoterm is the following occasions:
Exports of companies with extensive experience and knowledge of international
trade and logistics that wish to provide a complete service to its customers.
Sales transactions of companies that belong to the same multinational group, in
which the head office assumes all costs and risks of sending the goods to their
branch offices abroad.

EXW
DDP

Exports to countries in which the seller has customs brokers or freight forwarders
that can take import procedures in an speedy and safely way.
Exports of high cost goods (e.g. jewelry, medical equipment, etc.) in which it is
desirable that the seller owns the control and possession of the goods throughout
the complete export process so if there is any problem the seller will take the
initiative to solve it or to make claims to the carrier or the insurance company.
Urgent shipments (e.g. spare parts) through courier companies, as these services
are usually door to door and the seller wants to prevent the client from doing
any customs proceeding or expending any money.
Despite the difficulties that may present this Incoterm, the evolution of logistics and
the need to provide a complete service to customers, have made DDP an Incoterm
increasingly used.

106

OBLIGATIONS OF THE SELLER AND THE BUYER

EXW
DDP

KEYS TO DDP

Mode of transport

Any type of transport (land, air, sea), specially multimodal

transport (containers).

Delivery place

a) At buyers premises (factory or warehouse) in destination

country.
b) In any other point in country of destination, except in a
transport terminal.

Loading/unloading of the
goods

Not unloaded from the means of transport hired for the seller
to carry the goods to delivery place in country of destination.

Delivery document

a) Delivery note of sellerss carrier signed by the buyer.

a) Delivery note of sellerss carrier signed by the buyers
carrier.

Type of cargo

Complete cargo (complete trucks, containers) and groupage.

Contract of main transport

Seller.

Contract of insurance

There is no obligation on either party. However, it is advisable

that the seller hires insurance because he assumes the risks.

Transfer of risks in transport

When the goods are delivered prepared for unloading from

the transportation in the delivery place.

Pre-shipment inspection

Seller.

Export customs clearance

Seller.

Import customs clearance

Seller.

Methods of payment

Payment in advance, cash on delivery, open account, bank

transfer, check. It is not suitable for documentary methods
(letter of credit or documentary credit).

TEN KEYS
FOR THE
PROFESSIONAL
USE OF
INCOTERMS

108

TEN KEYS FOR THE PROFESSIONAL USE OF INCOTERMS

Ten keys for the professional use of Incoterms

Incoterms are trade rules used in many documents such as sale contracts, commercial
invoices or letters of credit; so it is important that exporters and importers use them
in a proper way. The main purpose of Incoterms is to clearly convey the conditions
agreed between the parties in order to avoid conflicts.
Here are ten basic tips that exporters and importers should take into account when
using Incoterms in international trade transactions.
Specify precisely the place of delivery
The first function of Incoterms is to define exactly the place of delivery of the goods.
To do so, following the Incoterm should be included as accurately as possible the
place of delivery (sellers or buyers premises, transportation hub, port, airport, etc.),
the city, province and country where goods are delivered. It is important to mention
the city and country where delivery takes place as the worlds geography is vast and
is not always easy to locate a city in a country.
Example of place of delivery in Incoterms
CIP Tianjin Airport, China, Incoterms 2010

A situation in which perhaps is better not to establish with precision the place of
delivery is when using letters of credit as payment method and the goods are delivered at a port in the country of origin. It may happen that at certain times there is a
saturation for shipping the goods to a port on the destination country and finding a
ship for the period stipulated in the letter of credit is difficult. In these situations it
is better to mention such as place of delivery port in the country of delivery (e.g.
British port) rather than a specific port (e.g. Plymouth or Southhampton) and
therefore have the option of loading the goods at different ports.
Avoid using EXW
EXW really does not reflect the delivery conditions of an international operation
because all costs and risks, except packaging, are borne and manage by the buyer,
which sends a transport vehicle (usually truck) to collect the goods from the sellers
premises.
This lack of involvement by the seller in international logistics may cause various
problems:

109

TEN KEYS FOR THE PROFESSIONAL USE OF INCOTERMS

Uncertainty about the final destination of the goods: the seller is not sure
about who is the true recipient of the goods or the place to be delivered to the
destination country. This could lead to distribution problems, if the goods are
not sent to the country that was expected or if the goods are distributed through
other channels. It could even be the case that the goods are not exported and
compete with the goods of the seller at their own market.
No evidence of exit of the goods from the country: when goods are sold outside
the national territory the seller must have a receipt as proof of the export of the
goods because the commercial invoices are issued without VAT. This proof may
be the international transport document (e.g. CMR, B/L or AWB) or the SAD
(Single Administrative Document), but when exporters used the Incoterm EXW
they do not have any of the this documents since they do not hire international
transport, nor make export clearance either.

Incidents in the loading of the goods: in EXW load of goods in the first means
of transportation (usually truck) is made by the buyer, but in practice it is the
seller who load the merchandise as the truck that comes to sellers premises don
not usually have lifting equipment to raise it, especially if it is a full container load.
So if there is problems on the load (i.e. the goods fall and break down some boxes)
the buyer would not want to pay these products because he has not made the load
operation but according to the rules of EXW the responsibility is theirs.

Difficulties using EXW with letters of credit: in EXW the seller has no transport document justifying the delivery of the goods at the agreed conditions, and
also to meet the delivery terms will depend on the buyer sending the truck to
collect the goods. Moreover, the buyer is not sure about the sellers compliance
with the terms of delivery. Therefore it is uncommon to use EXW when the
method of payment is the letter of credit.
In addition to all these potential problems one should also take into account that
the Incoterm EXW involves the lowest level of service from seller to buyer and in
this sense, exporters that make their offers on EXW conditions are less competitive
compared with those that place the product in the destination country using Incoterms in C or D.
FCA when goods are delivered in the country of origin
The Incoterm FCA is very flexible and has many advantages if the seller and buyer
agree to deliver the goods at the sellers country. Among others:

Different places of delivery: with FCA the goods can be delivered at various
points such as the sellers premises (FCA factory or warehouse), a transportation
center (FCA transport center), a port (FCA port or terminal port), an airport
(FCA airport), etc.

110

TEN KEYS FOR THE PROFESSIONAL USE OF INCOTERMS

Different types of cargo: FCA serves for both, full load and groupage. In the
first case it is usual that the goods are delivered to the Sellers premises that is
where the truck comes to pick them; in groupage, the merchandise is usually
delivered in a transportation hub, port terminal or airport that is where consolidation is done with the goods of other carriers.
Adaptation to the multimodal transport: FCA is a Incoterm very well suited to
multimodal transport, especially when the goods travel by ship in containers. In
these cases the rules Incoterms 2010 advised to use FCA instead of FOB, when
the goods are delivered in the port of shipment in sellers country.
Documents justifying the export: in FCA the seller clear the goods for export
clearance and has to obtain the necessary documents to justify for tax purposes
(invoices without VAT invoices) the exit of the goods from the country.
Compatibility with letters of credit: FCA can be used with letters of credit.
The seller only has to request from the buyer a copy of the international transport
document (CMR, B/L, AWB, etc.) or obtain a certificate FIATA FCR in the
case of multimodal transport.
In short, the Incoterm FCA is increasingly being used and likely will replace EXW
in most trade operations in which the seller does not arrange international transport
and delivers the goods in their own country.
With containers use only Incoterms for any mode of transport
The rules of the Incoterms 2010 clearly specifies that when the goods travel in containers should not be used sea Incoterms because containers are not delivered loaded
on ships but in port terminals; in these cases in instead of using FOB, CFR or CIF
should use FCA, CPT or CIP, respectively.
However, this new use of Incoterms 2010 may enter in conflict with the practice in
international trade as a large part of exports in container is done through the FOB
and CIF Incoterms that are the oldest and most widely used. It is therefore expected
that for some time exporters, importers, carriers, freight forwarders, etc., continue to
use sea Incoterms when the goods travel in containers. In these cases, it is advisable to
ask the one that drafts the contract (seller or buyer) to replace the sea Incoterm with
the adequate one, according to Incoterms 2010 to avoid problems of interpretation
in case of conflict.

111

TEN KEYS FOR THE PROFESSIONAL USE OF INCOTERMS

Ten keys for the professional use of Incoterms

Use sea Incoterms only for goods load overboard

In Incoterms 2010 the use of sea terms is relegated in comparison with Incoterms for
any mode of transport. In fact, the classification of Incoterms 2010 presents the first
obligations of sellers and buyers in the seven Incoterms for any mode of transport
Incoterms and then those of the four sea Incoterms.
Incoterms for any mode of transport fit much better than sea Incoterms with the
current logistics applications, especially in terms of loading and unloading in ports.
In this sense, sea Incoterms should be used only for goods loaded by the ships rail
as general cargo, bulk or large loads (e.g. heavy machinery).
Control international transport: export in C and import en F
As a rule, the most experienced companies in international trade try to control international transport. They have developed logistics expertise or use the services
of forwarding agents from different geographical areas that allow them to manage
international logistics, placing the goods exported to the countries of their customers
and buying goods imported from the countries of their suppliers; i.e. this companies
export in terms C and import in terms F.
International transport management provides several advantages to exporters and
importers:

112

TEN KEYS FOR THE PROFESSIONAL USE OF INCOTERMS

Cost savings: if the company has a significant international trade volume,

hiring transportation will give cheaper rate when negotiating with carriers,
forwarders or logistics providers. These savings will mean greater profitability
in their operations and also may be apply to reduce their prices to be more
competitive.
Meeting deadlines: international transport generates uncertainty in time needed to deliver the goods, especially in the case of intercontinental shipping. On
the other hand, delivery terms are really important for companies that import
raw materials or components that are used in their production processes, and
also for importing consumer products resell in their local market. In these
circumstances, if the imports are made in F (FCA or FOB) it will be easier
because the seller fulfils the delivery time when he places the goods at the agreed
place in his own country.
Documents control: documents of international trade are complex and can be
a barrier to ensure that goods reach their destination. If the company controls
the international transport, it will be in a better position to obtain the documents necessary for customs clearance. Furthermore, in the case of any incident
occurring in transport will respond quickly, providing the documents needed
to prevent the operation is delayed.
Compliance with the conditions of letters of credit: in the case of exports,
if the seller uses a C term, they will have no trouble getting the documents
required in the letter of credit, in particular, the document of international
transport that serves to proof the delivery of goods. In the case of imports under F terms, the buyer may request an inspection at the port of shipment as
a document requirement for the letter of credit payment.
Use Incoterms in D only for countries of low risk
Incoterms of delivery in the country of destination (Incoterms in D) should only be
used in low-risk countries in which the seller has the means to control logistics. The
concept of risk is broad and covers political risk (war, social conflicts), commercial
(customer default), logistic (deficiencies in transport infrastructure) or administrative
risk (complex customs procedures). Any of these risks can jeopardize international
sale when seller and buyer agree to deliver the goods in the country of destination,
under D terms.
Incoterms in D (DAT and DAP) are suitable for delivery in an integrated economic
area such as the EU where there are no customs. When using DDP, it should be taken
into account that the seller pay the import clearance formalities on arrival and that
includes payment of all taxes (tariffs, taxes, VAT) which will be difficult to recover,
because normally the seller has no fiscal residence in the country where the goods
are delivered.

113

TEN KEYS FOR THE PROFESSIONAL USE OF INCOTERMS

Insurance international transport with maximum coverage

For any goods manufactured, it is advisable to hire insurance transport, especially for
the international transport between the country of origin and destination. The cost
of insurance is not too expensive since it represents about 0.5% of the goods value.
According to Incoterms 2010, only in terms CIF and CIP is transport insurance
required: it must be the seller who hires the insurance and bear the costs while the
beneficiary of insurance is the buyer, who is the one that assumes the risk.
Although not required, buyers and sellers should insure the goods depending who
takes the risks in international transport. In Incoterms EXW and F, the international transportation risk is assumed by the buyer and therefore, he should hire the
insurance. In Incoterms CPT an CFR he also assumes the risk and hires the insurance. In Incoterms in D is the seller who assumes the risk to delivery in the country
of destination and should hire transport insurance.
In Incoterms CIP and CIF the seller is only obliged to obtain minimum insurance
coverage (Section C of the London Institute Cargo Clauses), but it is advisable to hire
for international transportation a maximum coverage that includes coverage Clause A
of the Institute Cargo Clauses (ICC) plus War Clause and Strike Clause. The cost of
hiring these additional coverage is not significant and is the closest to the concept of
all risk which does not really exist as such in international transport insurance.
Maximum coverage insurance freight
Clause A of ICC + War Clause + Strike Clause

Do not use variant of Incoterms

Exporters and importers must adhere to the use of eleven Incoterms published in
the 2010 version, avoiding variations that have been used in the past. In fact, in the
Incoterms 2010, unlike previous versions, there is no mention to any variant.
However, due to common use of some variants, three of them should be taken into
account and eventually may appear in international operations:
EXW loaded: in this version of EXW, the costs of loading the goods in the truck
and, therefore, the risks are on the account of the seller. Normally when using
EXW is the seller who makes the load on the first carrier and, therefore, this
variant corresponds more to reality than the rule EXW in which the costs and
risks of the load are borne by the buyer.
CIF maximum coverage: the seller hires insurance coverage of international

114

TEN KEYS FOR THE PROFESSIONAL USE OF INCOTERMS

transportation with Clause A of the Institute Cargo Clauses plus a Strike Clause
and a War Clause.
DDP VAT unpaid: the seller bears the costs of import clearance but without accounting for VAT. Incoterms 2010 specifically referred to this possibility because
of the difficulties faced by the seller to recover the VAT applied over the value of
the goods at the destination country.
In any case, when using some variant of the Incoterms, it should be clearly specified
in the contract of sale how cost and risks are allocated between buyer and seller according to the variant.
Reference to Incoterms 2010 version
As mentioned at the beginning of this publication, the importance of Incoterms is
based on the widespread use made of them in international trade. Therefore, whenever
Incoterms are used in certain documents offers, purchase orders, sales contracts,
pro forma invoices, etc. it is worth mentioning that it refers to the latest version of
Incoterms published by International Chamber of Commerce. For that, it is sufficient
to include after the three acronym letters of the Incoterm and the place of delivery
the expression Incoterms 2010.

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