Imagine you’re buying or selling goods internationally. There are lots of steps between when the goods leave the seller and reach the buyer: they need to be packed, insured, transported, cleared through customs and delivered. Each step costs money, and there’s a certain risk that something might happen to the goods along the way.
Incoterms are a standardised set of rules that define who (either the buyer or the seller) is responsible for the cost and risk, at each step of the journey. Created by the International Chamber of Commerce, Incoterms make it clear who pays for what, and when the risk passes from seller to buyer. This way, both sides know exactly what their responsibilities are, helping to prevent misunderstandings and delays.
When do we use incoterms?
When the buyer is in the process of purchasing goods from the seller, both parties should agree on which incoterm the goods will be sold under. Once the incoterm has been agreed upon between the two parties, it becomes legally binding.
Examples of Incoterms
EXW - Ex Works
The seller makes goods available at their premises. The buyer is responsible for all transportation costs and risks from that point onward.
FCA – Free Carrier
The seller has to make sure the goods are customs cleared for export, and deliver the goods to the carrier of the buyers choosing. The buyer then takes on transportation and risk from the carrier’s location onward.
DAP – Delivered at Place
The seller has to deliver the goods to the buyers premises. The buyer is responsible for the import clearance and import duties and VAT.
DDP – Delivered Duty Paid
The seller has to deliver the goods to the buyer’s premises, with the import duties and VAT being paid.
FOB – Free on Board
The seller loads the goods onto the ship, and the risk transfers once the goods are on board.
CIF – Cost, Insurance and Freight
The seller pays for transport and insurance up to the destination port.
Click on below link to download the full Incoterm map, which will explain and guide you through the different terms: