Customs Terms of Trade

Learning the Language of Incoterms® 2020 Rules

“Incoterms” is a trademark of the International Chamber of Commerce (ICC). Incoterms® rules are frequently used worldwide in international contracts, illustrating responsibilities between buyers and sellers with regards to costs, risks, responsibilities for cargo insurance and regulatory compliance.

What you need to know

  • Incoterms® rules serve to standardize the process of shipping and receiving merchandise. In addition, they determine the cost allocation of international commercial transactions and establish agreed responsibilities for exporters and importers.
  • The main objective of Incoterms® rules is to define criteria for the distribution of obligations, costs and the assignment of risk between parties involved in international transactions.
  • In general, the Incoterm® is a mandatory field in the customs declaration, therefore important to be clearly indicated in the customs invoice.
Incoterms® 2020 rules are classified into two categories according to the mode of transport.
Incoterms® 2020 rules are classified into two categories according to the mode of transport.
  • The Incoterms® Chart of Responsibility provides an overview of the exporter’s and importer’s obligations within each category.
  • Use of Incoterms® trade terms is not a legal requirement, however using them is always recommended to simplify transactions, reduce misunderstandings with those you do business with.
  • You can read more about global Incoterms® rules and trade terms by visiting the International Chamber of Commerce website, which includes an FAQ and an explanation of Incoterms® rules.

EXW
Ex Works

Means that the seller delivers the goods to the buyer when it places the goods at the disposal of the buyer at a named place (like a factory or warehouse), and that named place may or may not be the seller’s premises. For delivery to occur, the seller does not need to load the goods on any collecting vehicle, nor does it need to clear the goods for export, where such clearance is applicable.

FCA
Free Carrier
Means that the seller delivers the goods to the buyer in one or other of two ways:
  • First, when the named place is the seller’s premises, the goods are delivered when they are loaded on the means of transport arranged by the buyer.
  • Second, when the named place is another place, the goods are delivered when, having been loaded on the seller’s means of transport, they reach the named other place and are ready for unloading from that seller’s means of transport and at the disposal of the carrier or of another person nominated by the buyer.

Whichever of the two is chosen as the place of delivery, that place identifies where risk transfers to the buyer and the time from which costs are for the buyer’s account.

CPT
Carriage Paid To
Means that the seller delivers the goods – and transfers the risk - to the buyer by handing them over to the carrier contracted by the seller or by procuring the goods so delivered. The seller may do so by giving the carrier physical possession of the goods in the manner and at the place appropriate to the means of transport used. Once the goods have been delivered to the buyer in this way, the seller does not guarantee that the goods will reach the place of destination in sound condition, in the stated quantity or indeed at all. This is because risk transfers from seller to buyer when the goods are delivered to the buyer by handing them over to the carrier; the seller must nonetheless contract for the carriage of the goods from delivery to the agreed destination.
CIP
Carriage and Insurance Paid To
Means that the seller delivers the goods – and transfers the risk - to the buyer by handing them over to the carrier contracted by the seller or by procuring the goods so delivered. The seller may do so by giving the carrier physical possession of the goods in the manner and at the place appropriate to the means of transport used. Once the goods have been delivered to the buyer in this way, the seller does not guarantee that the goods will reach the place of destination in sound condition, in the stated quantity or indeed at all. This is because risk transfers from seller to buyer when the goods are delivered to the buyer by handing them over to the carrier; the seller must nonetheless contract for the carriage of the goods from delivery to the agreed destination.
DPU
Delivered at Place Unloaded
Means that the seller delivers the goods – and transfers risk - to the buyer when the goods, once unloaded from the arriving means of transport, are placed at the disposal of the buyer at a named place of destination or at the agreed point within that place, if any such point is agreed. The seller bears all risks involved in bringing the goods to and unloading them at the named place of destination. In this Incoterms rule, therefore, the delivery and arrival at destination are the same. DPU is the only Incoterms rule that requires the seller to unload goods at destination. The seller should therefore ensure that it is in a position to organize unloading at the named place. Should the parties intend the seller not to bear the risk and cost of unloading, the DPU rule should be avoided and DAP should be used instead.
DAP
Delivered at Place
Means that the seller delivers the goods – and transfers risk - to the buyer when the goods are placed at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination or at the agreed point within that place, if any such point is agreed. The seller bears all risks involved in bringing the goods to the named place of destination or to the agreed point within that place. In this Incoterms rule, therefore, delivery and arrival at destination are the same.
DDP
Delivered Duty Paid
Means that the seller delivers the goods to the buyer when the goods are placed at the disposal of the buyer, cleared for import, on the arriving means of transport, ready for unloading, at the named place of destination or at the agreed point within that place, if any such point is agreed. The seller bears all risks involved in bringing the goods to the named place of destination or to the agreed point within that place. In this Incoterms rule, therefore, delivery and arrival at destination are the same.
There are four terms in this category:
  • FAS (Free Alongside Ship)
  • FOB (Free on Board)
  • CFR (Cost and Freight)
  • CIF (Cost, Insurance, Freight)
These terms are listed for your information only as they are not needed when sending shipments with DHL Express.
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