When trading in global markets, there are certain types of delivery to deliver products from sellers to buyers. The international commercial terms; Incoterms are updated by the International Chamber of Commerce (ICC) almost every ten years. Thus, incoterms help to make international trading easier by providing standard terms that are uniformly recognized across the world. By determining the delivery method at the beginning of the buying process, logistics costs are calculated in accordance with the delivery method selected by accepting the buyer and seller obligations. While determining the delivery type in export, apart from considering the cost, it is also important to determine which type is more convenient for the product. Freight rates are also one of the important determinant factors. The 2 most preferred types of delivery in international trade are FOB and CIF. However, in this blog article, we are going to analyze all types of incoterms in export.
Below you can see in detail the different types of incoterms in export:
EXW means that the seller has delivered when they place or deliver suitably packaged goods at the disposal of the buyer at an agreed-upon place (i.e. the works, factory, warehouse, etc.). The goods are not cleared for export. The seller is not required to load the goods onto a collecting vehicle and, if they do, it is at the buyer's expense. From the collection, the buyer is responsible for all risks, costs, and clearances. EXW is the only Incoterm where the goods are not required to be cleared for export.
In this type of delivery, only the packaged goods cost is included in the sales price that is specified in the contract. In other words, all shipping, loading, unloading, and insurance costs are paid by the buyer as from the delivery date.
FREE CARRIER (FCA)
In this type of delivery, the delivery obligation of the seller ends with the delivery of the goods to the carrier determined by the buyer, at the specified place or point.
If an exact delivery place is not specified by the buyer, the seller can determine a place near the place where the carrier will receive the goods. The costs and risks of this freight contract fall on the buyer. The buyer must be informed of delivery arrangements by the seller in time for the buyer to arrange insurance.
FREE ALONGSIDE SHIP (FAS)
FAS stands for when the seller delivers the goods, packaged suitably, and cleared for export, by placing them beside the vessel at the agreed upon the port of shipment. At this point, responsibility for the goods passes from the seller to the buyer. The buyer maintains responsibility for loading the goods and any further costs. The sales price stated in the contract in FAS includes both the cost of the goods and the transportation fee to the dock.
This term indicates that the buyer has to withdraw the goods from the customs for export. The term FAS should not be used if the buyer will not directly or indirectly perform the export transactions.
FAS only applies to ocean or inland waterway transport.
FREE ON BOARD (FOB)
The seller clears the goods for export and ensures they are delivered to and loaded onto the vessel for transport at the named port of departure. The buyer takes over risk and costs, including import clearance and duties, as soon as the goods are loaded onto the transport vessel at the port of departure.
COST AND FREIGHT (CFR)
The seller is required to clear the goods for export, deliver them onboard the ship at the port of departure, and pay for transport of the goods to the named port of destination. The risk passes from seller to buyer when the seller delivers the goods onboard the ship.
CFR term indicates that the seller has to clear the goods through customs for export.
COST, INSURANCE, AND FREIGHT (CIF)
The seller delivers the goods, cleared for export, onboard the vessel at the port of shipment, pays for the transport of the goods to the port of destination, and also obtains and pays for minimum insurance coverage on the goods through their journey to the named port of destination.
CIF term indicates that the seller has to clear the goods through customs for export. CIF only applies to ocean and inland waterway transport.
CARRIAGE PAID TO (CPT)
The seller to clear the goods and arrange carriage (by one or more transport modes) to the named place of destination. The seller does not need to obtain or pay for insurance. Under CPT rules, the seller’s risk ends, and the buyer’s risk begins, when the first carrier receives the goods from the seller. However, the buyer is only responsible for additional costs after the goods arrive at the final destination
A carrier is any person or company that undertakes the carriage of the goods, such as a shipping line, airline, trucking company, railway, or freight forwarder.
CARRIAGE AND INSURANCE PAID TO (CIP)
CIP means that the seller delivers the goods to a carrier or another approved person (selected by the seller) at an agreed location. The seller is responsible for paying the freight and insurance charges, which are required to transport the goods to the selected destination. CIP states that, even though the seller is responsible for freight and insurance, the risk of damage or loss of the transported goods transfers from the seller to the buyer the moment the carrier receives the goods.
The seller is only obliged to procure the minimum level of insurance coverage. Should the buyer want additional insurance, they are responsible for arranging it themselves.
DELIVERED AT FRONTIER (DAF)
DAF is a term used in international shipping contracts that requires a seller to deliver goods to a border location.
Frontier is a designation for a border on a transportation route that is usually highly trafficked and includes a customs freight inspection. The seller is usually responsible for all costs of transporting the goods to the drop-off point for the buyer. The party picking up the goods will usually be importing them and traveling across customs.
DELIVERED EX SHIP (DES)
This type of delivery requires a seller to deliver goods to a buyer at an agreed port of arrival. The seller met its obligation upon delivery of uncleared goods in a designated port. It assumed the full cost and risk involved in getting the goods to that point, at which time it was available to the buyer and the buyer assumed all ensuing costs and risks. DES only applies to ocean or inland waterway transport.
DELIVERED EX QUAY(Duty Paid) (DEQ)
"Delivered Ex Quay (duty paid)" means that the seller fulfills his obligation to deliver when he has made the goods available to the buyer on the quay(wharf) at the named port of destination, cleared for importation.
The seller has to bear all risks and costs including duties, taxes, and other charges of delivering the goods thereto.
This term should not be used if the seller is unable directly or indirectly to obtain the import license. If the parties wish the buyer to clear the goods for importation and pay the duty the word 'duty unpaid' should be used instead of "duty paid". If the parties wish to exclude from the seller's obligations some of the costs payable upon importation of the goods (such as value-added tax(VAT)), this should be made clear by adding words to this effect; "Delivered ex quay, VAT unpaid ...(named port of destination)".
DELIVERED DUTY UNPAID (DDU)
"Delivered duty unpaid" means that the seller fulfills his obligation to deliver when the goods have been made available at the named place in the country of importation.
The seller has to bear the costs and risks involved in bringing the goods thereto (excluding duties, taxes and other official charges payable upon importation) as well as the costs and risks of carrying out customs formalities.
The buyer has to pay any additional costs and to bear any risks caused by his failure to clear the goods for import in time.
If the parties wish the seller to carry out customs formalities and bear the costs and risks resulting therefrom, this has to be made clear by adding words to this effect.
If the parties wish to exclude from the seller's obligations some of the costs payable upon importation of the goods (such as added tax(VAT)), this should be made clear by adding words to this effect; "Delivered ex quay, VAT unpaid ...(named port of destination)". This term may be used irrespective of the mode of transport.
DELIVERED DUTY PAID (DDP)
The seller is responsible for arranging carriage and delivering the goods at the named place, cleared for import and all applicable taxes and duties paid (e.g. VAT, GST) Risk transfers from seller to buyer when the goods are made available to the buyer, ready for unloading from the arriving conveyance. This rule places the maximum obligation on the seller and is the only rule that requires the seller to take responsibility for import clearance and payment of taxes and/or import duty.
Source: İHİB – www.ihib.org.tr – Export Dictionary