09.22.19. 11 key terms of Incoterms: what you need to know when concluding a contract

The conclusion of contracts for the international supply of goods requires knowledge of the special terminology introduced into circulation by the International Chamber of Commerce. This will help to avoid misinterpretation of concepts in the field of foreign economic activity and, as a result, related disputes, unfavorable conditions of deals. All the terms that are necessary to optimize, standardize and adjust the conditions of international treaties to the laws of the parties to the contract are registered in the international regulatory act Incoterms. Our experts had conducted a thorough analysis of the document and identified 11 key concepts that everyone who is involved in foreign economic activity must know.

Basic Concepts of Incoterms

  1. EXW, Ex Works: the goods for the buyer are transferred to the supplier’s warehouse. The seller’s duties do not include loading operations, the preparation of accompanying documentation for sending products abroad. When receiving the goods, the buyer assumes all costs and risks.
  2. FCA, Free Carrier: the supplier delivers the goods to the carrier or other persons representing the interests of the recipient. After sending all risks are assigned to the buyer.
  3. CPT, Carriage Paid To: the goods are transferred to the recipient in any place agreed in advance. The supplier’s responsibility is to search for a carrier, conclude a contract with the carrier, and pay for transportation.
  4. CIP, Carriage And Insurance Paid To: the supplier organizes and pays for the delivery, issues the simplest insurance, taking into account the loss or damage to the cargo during transportation.
  5. DAT, Delivered at Terminal: the seller is in charge of loading, shipping, unloading, transferring the goods to the recipient at a specified place (warehouse, freight yard, berth, etc., conventionally called “Terminal”), with all delivery risks.
  6. DAP, Delivered at Place: the supplier delivers the order to the specified location, pays transportation, guarantees safety. Unloading is the duty of the recipient.
  7. DDP, Delivered Duty Paid: the buyer is provided with goods that went through customs clearance and was prepared for unloading. The supplier prepares a package of documents, passes all customs clearance procedures, pays fees and transportation.
  8. FAS, Free Alongside Ship: the supplier is obliged to bring the goods to the ship, arrange it alongside ship. After completion of its arrangement, all responsibilities are shifted to the recipient.
  9. FOB, Free on Board: supplier arranges delivery. Until the cargo is loaded on the ship all responsibilities are on the supplier, after - on the recipient, including costs and risks.
  10. CFR, Cost and Freight: The seller’s duties include freight, delivery of goods to the vessel, but the transportation itself and the accompanying risks are buyer's duties.
  11. CIF, Cost, Insurance and Freight: in addition to shipping and delivering the order on board, the supplier pays minimum insurance. The buyer has the right to choose the extended insurance, coordinating it with the seller or concluding a corresponding contract in person.

Neither the supplier nor the buyer wants to delve into the specifics of customs clearance, transit through another country, negotiate all necessary contracts, prescribe all possible scenarios, choosing the best solution for themselves. You will not have to do all the above mentioned if you entrust the related work to the specialists of our company.