International Commercial terms or Incoterms, are a series of pre-defined three-letter trade terms that are commonly in international commercial transactions. These terms are intended to clearly communicate tasks, costs, and risks associated with the transportation and delivery of goods. These terms have been successful because of their consistent use throughout the industry and their acceptance by governments, authorities, legal authorities, and practitioners worldwide.
Because of the new ISF filing requirement, Berkeley Sourcing Group generally only quotes using the terms of: FOB – China. This means that ownership of the goods is transferred in China when the goods are put on the boat. The reason for this is that when our freight forwarder is working with yours, it is better that one shipping company is both responsible for the getting the ISF filing in and also knowing that it has been submitted BEFORE the boat leaves the port. If there is miscommunication and the boat leaves before the ISF filing is in, the client is subject to a $5,000 filing fee. By quoting FOB China, your shipping broker will be in charge of the complete ISF filing process and thus will know when it has been filed and then allow the boat to leave so that this problem does not occur.
In the following chart, the following terms are explained and it can be seen how terms beginning with C deal with shipments where the seller pays for shipping. E terms occur when a seller’s responsibilities are fulfilled when goods are ready to depart from their facilities. D terms cover shipments where the shipper/seller’s responsibility ends when the goods arrive at some specific point. Terms beginning with F refer to shipments where the primary cost of shipping is not paid for by the seller.
Rules for Any Modes of Transport
DDP – Delivered Duty Paid (named place of destination)
Seller is responsible for delivering the goods to the named place in the country of the buyer, and pays all costs in bringing the goods to the destination including import duties and taxes.
EXW – Ex Works (named place of delivery)
The seller makes the goods available at its premises. This term places the maximum obligation on the buyer and minimum obligations on the seller. The Ex Works term is often used when making an initial quotation for the sale of goods without any costs included. EXW means that a seller has the goods ready for collection at his premises (works, factory, warehouse, plant) on the date agreed upon.
DAT – Delivered at Terminal (named terminal at port or place of destination)
Seller pays for carriage to the terminal, except for costs related to import clearance, and assumes all risks up to the point that the goods are unloaded at the terminal.
FCA – Free Carrier (named place of delivery)
The seller hands over the goods, cleared for export, into the disposal of the first carrier (named by the buyer) at the named place. The seller pays for carriage to the named point of delivery, and risk passes when the goods are handed over to the first carrier.
CIP – Carriage and Insurance Paid to (named place of destination)
The containerized transport/multimodal equivalent of CIF. Seller pays for carriage and insurance to the named destination point, but risk passes when the goods are handed over to the first carrier.
CPT – Carriage Paid To (named place of destination)
The seller pays for carriage. Risk transfers to buyer upon handing goods over to the first carrier.
DAP – Delivered at Place (named place of destination)
Seller pays for carriage to the named place, except for costs related to import clearance, and assumes all risks prior to the point that the goods are ready for unloading by the buyer.
Rules for Sea and Inland Waterway Transport
CFR – Cost and Freight (named port of destination)
Seller must pay the costs and freight to bring the goods to the port of destination. However, risk is transferred to the buyer once the goods are loaded on the vessel. Maritime transport only and Insurance for the goods is NOT included.
FAS – Free Alongside Ship (named port of shipment)
The seller must place the goods alongside the ship at the named port. The seller must clear the goods for export. Suitable only for maritime transport but NOT for multimodal sea transport in containers. This term is typically used for heavy-lift or bulk cargo.
CIF – Cost, Insurance and Freight (named port of destination)
Exactly the same as CFR except that the seller must in addition procure and pay for the insurance. Maritime transport only.
FOB –Free on Board (named port of shipment)
The seller must load the goods on board the vessel nominated by the buyer. Cost and risk are divided when the goods are actually on board of the vessel. The seller must clear the goods for export. The term is applicable for maritime and inland waterway transport only but NOT for multimodal sea transport in containers. The buyer must instruct the seller the details of the vessel and the port where the goods are to be loaded, and there is no reference to, or provision for, the use of a carrier or forwarder.