Need to Know: Export Terms

For folks new to exporting or even importing there will be a myriad of abbreviations which are important to know as you start exploring the export market. The international commercial terms (Incoterms for short) are the official rules of the International Chamber of Commerce that explain typical trade terms. These were put in place by the ICC to help facilitate communication and lay the foundation for export industry standards. While they are completely voluntary for parties to use, they are very well written, explained, and widely accepted in shipping, freight, and exporting. The latest version of the incoterms are the Incoterms 2010. There are many older versions, so be sure to use the latest in your contracts. Note that these basic terms only help explain certain aspects of the export contract. It will not define the pricing, payment methods, issues, breach, ownership, and other liability issues that the contract should address.

These are the 2010 Incoterms:

EXW – Ex Works: This means the seller of the goods only has to make the goods available at a specified place, usually the factory or warehouse. The buyer will then be responsible for loading, shipping, and all export procedures.

FCA – Free Carrier: This requires the seller to deliver to a specific location, usually a transportation hub and loading, where the buyer then takes delivery and is responsible for the main carriage. The seller will take responsibility for export clearance but the buyer will assume all risk at delivery at the specific place.

CPT – Carriage Paid To: Here the seller is responsible for arranging carriage to a specific place but not for insuring the goods to the specific place. The risk transfers from the seller to the buyer when the goods are taken by the carrier.

CIP – Carriage and Insurance Paid To: The seller arranges for the transportation and is also responsible for insuring the goods. Note that the risk still transfers to the buyer when the goods are taken by the carrier but with insurance coverage by the seller.

DAT – Delivery at Terminal: This requires the seller to arrange for the carriage, delivery, unloading, and insurance of the goods until offloaded at the specific place, generally a transport hub in the country of the buyer. The risk transfers from the seller to the buyer upon unloading. Buyer is usually still responsible for import clearance and any import taxes or fees.

DAP – Delivery at Place: Here the seller is responsible for arranging carriage, and insurance during transport of the goods. Note that unlike DAT, unloading is not the responsibility of the seller, but the buyer. The risk transfers when the goods are available for unloading.

DDP – Delivery Duty Paid: This means the seller is responsible for arranging carriage, delivery at the specific place, and all import taxes and duties. The risk transfers from seller to buyer when the goods are made available to the buyer, ready for unloading. This places the maximum amount of responsibility on the seller and only incoterm that requires seller to pay for import clearance.

FAS – Free Alongside Ship: This term is only used for transportation by waterway or sea and means the seller will deliver the goods, cleared for export alongside the vessel at the named port. The risk transfer to the buyer when the goods are available at the ship side, where the buyer is responsible for all costs thereafter, including loading.

FOB – Free on Board: For transportation only by waterway or sea. The seller delivers the goods, cleared for export, and loaded on the vessel at the specific place. The buyer assumes risk when the goods are loaded on the ship.

CFR – Cost and Freight: For transportation only by waterway or sea. Here the seller will arrange and pay for the transportation to the specific place, delivery, export costs, and loading onto the ship. The risk then transfers to the seller when the goods are loaded on the ship but before the carriage takes place.

CIF – Cost, Insurance, and Freight: For transportation only by waterway or sea. This requires the seller to arrange and pay for transportation to the specific place, with delivery, export costs, and loading included. The risk transfers to the buyer once the goods have been loaded but before the carriage takes place. The seller will also arrange and pay for insurance for the goods to the ship.

If you are considering exporting or importing, call Reidel Law Firm to find out how we can help guide you through the import/export process while protecting your interests. Reach us by the email button below or by calling us at +1(832)510-3292.