Inco Terms are internationally recognised commercial terms that are issued by the International Chamber of Commerce, that define the respective roles and responsibilities of the seller and the buyer in the arrangement of transportation for the goods being purchased. They do not determine ownership or transfer in title of goods, so these terms are to be used in conjunction with a sales agreement or other method of transacting the sale/purchase of goods.
FAS / FOB / CFR / CIF – Even though these are very commonly used they are actually only designed for use on Conventional/Break bulk shipping contracts.
FCA / CPT / CIP / DAP / DDP – These are the correct set of Inco terms to be used for container sea-freight as well as Air/Road.
There are 9 key stages outlined in any of the transportation chain and there are 2 different aspects to consider, who is responsible for the transport and who is at risk if the goods are lost or damaged whilst transport is still under their care.
Seller’s Responsibility Buyer’s Responsibility
NOTES
- It is the sellers responsibility to provide carrier or agent with commercial documents to arrange customs clearance but the cost for the clearance is for the buyers account.
- It is the sellers responsibility to delivery goods to quay but the cost for loading it onto vessel are for buyers account.
- These would be the minimum requirements of the seller but they may have to incur more costs depending on where the named place was, for example if terms were CPT Singapore port then that would mean port of loading costs and freight costs would also have to be bourne by the seller.
- Destination delivery charges may also be for the sellers account depending on the named place of delivery, i.e if its DAP Singapore, then the charges would be applicable, but if it is DAP Singapore city limits, then the seller would have to pay all of the destination charges excluding destination customs clearance formalities which are still for the buyers account or any duties & taxes which also be for the buyers account.
All information given as guidelines only, you should refer to your Inco Terms book for full clarification.
INCO TERMS DEFINITIONS
EXW
(Ex Works)
The buyer bears all the costs and risks involved in taking the goods from the sellers premises to the desired destination. The seller’s obligation is to make the goods available at their premises (works, factory and warehouse). This term represents the minimum obligation for the seller.
FCA
(Free Carrier)
The seller’s obligation is to hand over the goods (cleared for export) into the charge of the carrier named by the buyer at the named place or point. If no precise point is indicated by the buyer, the seller may choose within the place or range stipulated where the carrier shall take the goods into his charge. When the seller’s assistance is required in making the contract with the carrier the seller may act at the buyers risk and expense.
FAS
(Free Alongside Ship)
The seller has fulfilled his obligation when goods have been placed alongside the vessel at the port of shipment. The buyer is responsible for all costs and risks of loss or damage to the goods from that moment. The seller is required to clear the goods for export.
FOB
(Free On Board)
Once the goods have passed over the ship’s rail at the port of export, the buyer is responsible for all costs and risks of loss or damage to the goods from that point. The seller is required to clear the goods for export.
CFR
(Cost & Freight)
The seller must pay the costs and freight required in bringing the goods to the named port of destination. The risk of loss or damage is transferred from seller to buyer when the goods pass over the ship’s rail in the port of shipment. The seller is required to clear the goods for export.
CIF
(Cost, Insurance & Freight)
The seller has the same obligations as under CFR however, they are also required to provide insurance against the buyer’s risk of loss or damage to the goods during transit. The seller is required to clear the goods for export.
CPT
(Carriage Paid To)
The seller pays the freight for the carriage of goods to the named destination. The risk of loss or damage to the goods occurring after the delivery has been made to the carrier is transferred from the seller to the buyer. This term requires the seller to clear the goods for export.
CIP
(Carriage & Insurance Paid To)
The seller has the same obligations as under CPT, but has the responsibility of obtaining insurance against the buyer’s risk of loss or damage of goods during the carriage. The seller is required to clear the goods for export however, is only required to obtain insurance on minimum coverage. This term requires the seller to clear the goods for export.
DAT
(Delivered At Terminal)
The seller is responsible for the costs and risks to bring the goods to the point specified in the contract. The seller delivers goods, once unloaded from the arriving means of transport, the goods are placed at the disposal of the buyer at a named terminal at the named port or place of destination. “Terminal” includes quay, warehouse, container yard or road, rail or air terminal. Both parties should agree the terminal and if possible, a point within the terminal at which point the risks will transfer from the seller to the buyer of the goods. The seller is responsible for the export clearance procedures and the importer is responsible for clearing the goods for import, arranging import customs formalities and paying import duty.
DAP
(Delivered At Place)
The seller bears the responsibility and risks to deliver the goods to a named place. The goods are deemed to be delivered when they are placed at the disposal of the buyer on the arriving means of transport, ready for unloading at the named place of destination. Parties are advised to specify as clearly as possible the point from seller to buyer. The seller is required to clear the goods for export and the importer is responsible for effecting customs clearance and paying any customs duties.
DDP
(Delivered Duties Paid)
The seller is responsible for delivering the goods to the named place in the country of importation, including all costs and risks in bringing the goods to import destination. This includes duties, taxes and customs formalities.
