What is the most commonly shipping terms I need to know about?
Have you ever tried to import products from overseas and yet you have been confused with the different shipping terms? What do they all mean? What are their difference? What are the Incoterms?
Background Information About Incoterms
The Incoterms or International Commercial Terms are a series of pre-defined commercial terms published by the International Chamber of Commerce (ICC) relating to international commercial law. These terms, which at present are comprised of 11 internationally recognized rules, are widely used in international commercial transactions or procurement processes. Their use is encouraged and commonly accepted by trade councils, legal authorities, courts, international legal practitioners and lawyers as well as governments worldwide for the interpretation of most commonly used terms in international trade.
The first Incoterms was published by the ICC on international trade terms back in 1923, and they are amended several times and the latest version of Incoterms was released and published on September 10, 2019, which is called Incoterms 2020.
What Incoterms 11 Rules Define?
The Incoterms appears in a set of 11 rules which all of them are signified in an abbreviations of a three-letter system trade terms related to common contractual sales practices. The respective three-letter Incoterms rules are intended primarily to clearly communicate the tasks, costs, and risks associated with the global or international transportation and delivery of goods. Incoterms inform sales contracts defining respective obligations, costs, and risks involved in the delivery of goods from the seller to the buyer. In actual practice, we can see that the terms are explicitly specifying who (buyer or seller) is responsible for paying for and managing the shipment, insurance, documentation, customs clearance, and other logistical activities.
However, the 11 Incoterms rules do not themselves conclude a contract, determine the price payable, currency or credit terms, govern contract law or define where title to goods transfers. They are only intended to reduce or completely remove altogether the uncertainties being incurred from the differing interpretations of the rules in various countries worldwide. Thereupon, Incoterms are regularly incorporated into international sales contracts.
Short Definitions and Abberviations of the 11 Incoterms Rules
7 Rules for any mode of transport
EXW – Ex Works (named place of delivery)
FCA – Free Carrier (named place of delivery)
CPT – Carriage Paid To (named place of destination)
CIP – Carriage and Insurance Paid to (named place of destination)
DPU – Delivered At Place Unloaded (named place of destination)
DAP – Delivered At Place (named place of destination)
DDP – Delivered Duty Paid (named place of destination)
4 Rules for sea and inland waterway transport
FAS – Free Alongside Ship (named port of shipment)
FOB – Free on Board (named port of shipment)
CFR – Cost and Freight (named port of destination)
CIF – Cost, Insurance & Freight (named port of destination)
For a layman, this series of three-letter abbreviations seem very strange and confusing. However, the most important thing is that you got to know the term in your trade or contract, no matter you are the buyer or the seller. As mentioned above, the Incoterms rule defines the responsibilities of the goods during the transportation. In short, each term will depict and specify whether the buyer or the seller will need to bear for the risk and cost within the respective stage of the transit or point of delivery.
INCOTERMS 2020 Detailed Definition
Listing below is a diagram describing the delivery point, risk and cost for the 11 Incoterms (source: https://www.aademc.com/an-introduction-to-incoterms/):
One can also refer to https://en.wikipedia.org/wiki/Incoterms for more details about Incoterms 2020.