Incoterms refers to internationally recognized delivery terms. By referencing them, the seller and buyer agree in commercial deliveries who is responsible for the goods during delivery and transport and at what stage the responsibility transfers.
With Incoterms delivery terms, the seller and buyer aim to avoid unnecessary misunderstandings. Incoterms are created and updated by the International Chamber of Commerce (ICC), which holds all rights to their commercial publication. The latest version is Incoterms 2020. More information is available at ICC website. Shipit is responsible for the content of this summary.
Terms suitable for all modes of transport Incoterms 2020:
EXW – Ex Works – Collected from sender's designated location.
The EXW seller must package the shipment correctly. Responsibility transfers to the buyer when their designated carrier collects the package from the seller's designated location. The seller also determines when the shipment is available for collection, the buyer is responsible for loading. The buyer is responsible for insuring the goods. The buyer is also responsible for loading the goods. Export and import obligations are also the buyer's responsibility.
EXW is commonly used for domestic shipments, while FCA is a good option for international shipments. EXW vs FCA differs in who handles the loading and export clearance. Under EXW the seller is not responsible for export clearance or loading, so it's better to use FCA unless the buyer can easily handle export clearance themselves and get permission to handle loading on behalf of the seller.
FCA – Free Carrier (E.g. FCA Helsinki) – Free Carrier.
The parties must agree precisely where the goods are to be collected from, e.g. the seller's warehouse address. The seller is responsible for the goods until they are loaded onto the carrier ordered by the buyer.
Seller's responsibility:
Packaging the goods
Export clearance and formalities
Loading (only if collection is from seller's premises, if seller delivers the shipment to carrier's terminal responsibility transfers to buyer when goods are unloaded at carrier's terminal)
Buyer's responsibility:
Inspecting the goods
Responsibility for goods transfers to buyer from collection point
Delivery charges
Insurance
Import clearance, formalities and related costs
Unloading shipment
CPT – Carriage Paid To (E.g. CPT Mariehamn) – Carriage paid to.
In this option, parties must agree precisely where the seller's responsibility for transport costs ends. The agreement should also mention unloading of goods.
Seller's responsibility:
Packaging the goods
Responsibility for goods until agreed loading point and loading the goods
Export clearance and formalities
Delivery costs to agreed destination
Buyer's responsibility:
Inspecting the goods
Goods are buyer's responsibility already when carrier collects goods from seller
Delivery charges from agreed destination onwards
Insurance
Import clearance, formalities and related costs
Unloading shipment
CIP – Carriage and Insurance Paid (E.g. CIP Turku) – Carriage and insurance paid.
Same as CPT, but the seller is responsible for insuring the shipment to the agreed destination, from where the buyer arranges and insures onward transport. The seller only needs to insure goods to minimum, so additional insurance is buyer's responsibility. Responsibility for goods transfers to buyer already at collection.
This delivery term and transfer of responsibility can be modified by the parties.
DPU (E.g. DPU Savonlinna) – Delivered At Place unloaded – Delivered unloaded from vehicle at agreed terminal. (Replaced DAT delivery term)
Seller's responsibility:
Packaging the goods
Export clearance and formalities
Loading
Delivery costs to agreed terminal (if possible, contract should specify exact terminal location where goods are delivered)
Unloading goods at agreed terminal
Responsibility for goods until delivery
Buyer's Responsibility:
Inspecting the goods
Delivery charge and responsibility after unloading from agreed terminal to final destination
Insurance
Import clearance, formalities and related costs
DAP (E.g. DAP Oulu) – Delivered At Place – Delivered to place
Seller's responsibility:
Packaging the goods
Export clearance and formalities
Loading
Delivery costs to agreed destination (destination must be agreed as precisely as possible)
Unloading goods at agreed destination
Buyer's responsibility:
Inspecting the goods
Insurance
Import clearance, formalities and related costs
DDP (E.g. DDP Rovaniemi) – Delivered Duty Paid – Delivered duty paid
Seller's responsibility:
Packaging the goods
Export clearance and formalities
Loading
Delivery costs to agreed destination
Import clearance and formalities (Import clearance includes customs clearance and taxes at destination)
DDP should not be used unless the seller can easily arrange import clearance for the goods. This can be agreed so that the seller is responsible for costs incurred by the buyer for doing this.
Buyer's responsibility:
Inspecting the goods
Insurance
Unloading shipment
Terms suitable only for sea transport Incoterms 2010:
FAS (E.g. FAS Hanko) – Free Alongside Ship – Free alongside ship
Seller's Responsibility:
Packaging the goods
Delivering goods next to vessel/to loading area designated for vessel chosen by buyer
Export clearance and formalities
Buyer's responsibility:
Inspecting the goods
Loading goods at agreed port
Transport costs
Responsibility transfers to buyer when seller has delivered goods to agreed loading area when vessel has arrived at port
Insurance
Import clearance and formalities
Unloading
FOB (E.g. FOB Kemi) – Free On Board – Free on board
Not suitable for container transport. If container transport, FCA should be used as delivery term.
Seller's responsibility:
Packaging goods
Export clearance and formalities
Loading goods onto ship at agreed port
Seller must be able to prove loading onto ship if needed, which seller gets from carrier.
Buyer's responsibility:
Inspecting goods
Responsibility transfers to buyer when goods are loaded onto vessel at departure port at agreed delivery time
Transport costs from departure port onwards
Insurance
Import clearance and formalities
Unloading
CFR (E.g. CFR Hamina) – Cost and Freight – Costs and freight paid
Seller's responsibility:
Packaging goods
Export clearance and formalities
Loading shipment onto vessel at agreed port
Transport costs to agreed port at destination
Buyer's responsibility:
Inspecting goods
Responsibility already from departure port when seller has loaded goods onto vessel
Insurance
Import clearance, formalities and related costs
Unloading
CIF (E.g. CIF Kotka) – Cost, Insurance and Freight – Cost, insurance and freight paid
For container transport, CIP should be chosen as delivery term
Seller's responsibility:
Packaging goods
Export clearance and formalities
Loading goods onto vessel at agreed port at agreed time
Transport costs to agreed port and location there
Insurance on behalf of buyer for duration of transport until agreed port
Buyer's responsibility:
Inspecting goods
Responsibility for shipment already from departure port when goods loaded onto vessel
Import clearance, formalities and related costs
Unloading