In 1936, in an attempt to simplify the communication problems involved in international business, Incoterms were developed by the International Chamber of Commerce (ICC). They are still used today and periodically revised. The term is the abbreviation of English (International Commercial Terms), which in Portuguese means “International Commercial Terms”. These are standardized rules that regulate various aspects of international trade. The Incoterms are important because they have the role of clarifying the allocation of risks, costs and obligations between the buyer and the seller in a contract for the purchase and sale of goods. It is worth mentioning that these are not impositions, but a proposal for a better understanding between seller and buyer.
In this guide you will know how many and which Incoterms are and much more, in its newest update (2020).
EXW — Ex Works — At Origin (named place of delivery);
FCA — Free Carrier — Free On Carrier (named delivery place);
FAS — Free Alongside Ship — Free Alongside Ship (named port of shipment);
FOB — Free On Board — Free On Board (named port of shipment);
CPT — Carriage Paid To — Carriage Paid To (named destination);
CIP — Carriage And Insurance Paid To — Transporte E Seguro Paid To (named destination);
CFR — Cost And Freight — Cost and Freight (named port of destination);
CIF — Cost Insurance And Freight — Cost, Insurance and Freight (named port of destination);
DAP — Delivered At Place — Delivered At Place (named place of destination);
DPU — Delivered At Place Unloaded — Delivered At Place Unloaded (Named Place of Destination); It is
DDP — Delivered Duty Paid — Delivered Duty Paid (named place of destination).
1. EXW — Ex Works — In Origin (named delivery place);
Incoterm EXW is one of the most used incoterms in foreign trade. The acronym EXW means Ex Works. It is broader, and can be used in any mode of transport, be it land, sea or air, and provides responsibility for the shipping process to the buyer.
When closing an EXW-type contract, the seller only has to make the goods available at the place and date set. Thereafter, the buyer must arrange for the transport of the goods and bear all transport risks. For example, the merchandise can be made available in a factory, warehouse, etc.
2. FCA — Free Carrier — Free On Carrier (named delivery place);
The Incoterm FCA (Free Carrier) means that the seller makes the goods available at their headquarters or transport to the place indicated by the importer. The seller is also responsible for carrying out all customs clearance. The difference between the FCA and other category F Incoterms is the use of sea, air or land transport.
3. FAS — Free Alongside Ship — Free Alongside Ship (named port of shipment);
The Incoterms FAS means “Free Alongside Ship” which in Portuguese is defined as Livre Ao Lado Do Navio. In FAS, the seller fulfills his delivery obligation when the cargo is placed alongside the vessel designated by the buyer, on the quay or in a vessel, at the named port of shipment. The risk of loss or damage to the goods rests with the buyer after delivery of the goods.
The transport is the buyer’s responsibility to hire and pay for it. As for cargo insurance, it is up to the buyer to contract and pay for insurance, if they so wish. Therefore, in the Incoterm FAS, the customs formalities in the export are borne by the seller, when applicable. He has no obligation regarding customs formalities on importation and transit through third countries.
4. FOB — Free On Board — Free On Board (named port of shipment);
FOB is the acronym for Free on Board, in this incoterm the seller ends its obligations when the goods pass through the ship’s rail at the port of shipment that was previously indicated, from that moment on, it is up to the buyer to liability for losses and possible damages. The delivery of the goods is officialized on board the product on the ship that was indicated by the Buyer and it is after this moment that the expenses start to be destined to the purchased.
5. CPT — Carriage Paid To — Carriage Paid To (named destination);
In the CTP, the seller hires and pays for the transportation from origin to the stipulated destination. In addition to transport, the seller is also responsible for all clearance, both in the country of origin and in the country of destination, delivering the goods to the buyer or a carrier indicated by him in his country.
From the moment the seller passes the goods through customs, the seller’s responsibility ends up being entirely the buyer’s, the decision to take out insurance becomes the responsibility of the buyer.
6. CIP — Carriage And Insurance Paid To — Transport And Insurance Paid To (named destination);
The main transport as well as the freight must be paid by the seller and from the moment the goods are delivered to the carrier at their destination, responsibility for damage, loss and theft becomes entirely the buyer’s responsibility, if the buyer wants or so if you find it necessary, you can take out additional insurance to avoid this.
According to the CIP term, the seller only needs to take out insurance for a minimum coverage. If the buyer wishes to be protected by a more extensive insurance coverage, he must, under these conditions, obtain the agreement of the seller, or take out additional insurance himself.
7. CFR — Cost And Freight — Cost and Freight (named port of destination);
The INCOTERM CFR (cost and freight) defines that the seller is responsible for the goods until they cross the ship, from then on all responsibilities become entirely the buyer’s, that is, when the seller places the goods on the ship, he disclaims all liability for loss, damage and theft.
Once inside the main transport, the risks for the goods then pass entirely to the buyer, who can prevent this by taking out insurance to cover any loss or damage. However, under Incoterm CFR, the seller must deliver the goods cleared for carriage to the designated port.
8. CIF — Cost Insurance And Freight — Cost, Insurance and Freight (named port of destination);
The Incoterms CIF is the Cost Insurance And Freight rule that is, in Portuguese Cost, Insurance and Freight. When carrying out a waterway negotiation (maritime, river or lake), you can choose the Incoterm CIF, in which the seller bears all the costs of transport and insurance, up to the port of destination.
As for Delivery and risks of the goods, the CIF “Cost, Insurance and Freight” means that the seller delivers the goods to the buyer on board the ship or when acquiring the goods already delivered in this way. The risk of loss or damage to the goods is transferred from the seller to the buyer, when it is on board the ship, so that the seller has fulfilled his obligation to deliver the goods, whether or not the goods arrive at their destination in good condition, in the expected quantity, or even not get to the whole.
9. DAP — Delivered At Place — Delivered At Place (named place of destination);
The DAP is the acronym of Delivered at Place this Incoterm was created to replace the terms DAF, DES and DDU. The INCOTERM DAP aims to make the goods available to the buyer, that is, the importer, while at the port of destination or even inside the carrier vessel.
It is important to point out that the term DAP can be used for any means of transport, even when it involves more than one type. In Incoterm DAP, the seller completes his obligations when he makes the goods available to the buyer, on the date, at the indicated destination, but which is not a terminal and is ready to be unloaded from the transport vehicle and not cleared for import.
In Portuguese, INCOTERM DAP, Delivered at Place, means in Portuguese: delivered at the place, therefore, the seller must carry out the international transport and take the goods to the place agreed with the buyer, That is, the import clearance at the place of destination, as well as the unloading of the goods, are the responsibility of the buyer.
10. DPU — Delivered At Place Unloaded — Delivered At Place Unloaded (Named Place of Destination);
DPU is the incoterm that replaced DAT, the acronym DPU means “Delivered At Place Unloaded” or in Portuguese: “Delivered At Place Desembarcado”. The seller must therefore ensure that he is in a position to organize unloading at the designated location. If the parties want the seller not to assume the risk and cost of unloading, in this case the DPU rule should be avoided, and the DAP rule should be used.
The Incoterm DPU requires the seller to release the goods for export, where applicable. However, the seller is under no obligation to clear the goods upon importation, nor to pay any import duties or to comply with any customs formalities upon importation.
11. DDP — Delivered Duty Paid — Delivered Duty Paid (named place of destination).
In INCOTERM DDP (Delivered Duty Paid) the seller above all assumes all the responsibilities and risks of the transport, from the origin to the destination address stipulated by the buyer. The seller must therefore provide for all clearance and payment of fees, both in the country of origin for export and in the country of destination for import.
Much easier to understand, right?
We hope that this guide gathers all the necessary information for your company to take the first step in foreign trade, we are at your disposal to help you on this journey!
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Adaptation: Faz Comex (https://www.fazcomex.com.br/incoterms/)