National Commerce Terms

Download

Incoterm types and their meaning:

The International Commercial Terms (Incoterms). Are a group of standard regulations about costs and risks transference between parts in international commercial operations, that its own terminology and criteria.

The International Chamber of Commerce (ICC) published those regulations in 1936 and have been through successive releases. The most recent one being in 2020 that takes on the 2010 release. They’re not mandatory regulations but are the most Internationally spread.

Incoterms 2020 key changes:

Incoterms 2020 key changes:

• Several levels of insurance coverage in relation to Cost Insurance & Freight (CIF) and Carriage & Insurance Paid to (CIP) Incoterms.
• Includes agreements with own means of transport in FCA, DAP, DPU and DDP.
• DAT Incoterm (delivered at terminal) it’s been replaced by DPU.
• Incorporates requirements regarding safety in obligations and shipping costs.
• Considers the possible need of Bill of Landing (BL) with onboard shipments and the Free Carrier Incoterms (FCA).

Incoterm types and their meaning:

FOB – Free on Board.

The seller delivers the goods on board the vessel stated by the buyer at the named port or containment terminal for its consolidation and groupage (on that last scenario, using FCA Incoterm is advised).

The seller takes on the exporting fees. The buyer takes on the importing fees and customs duty.

The seller also takes on the storage, handling and shipping costs in its country.

FCA – Free Carrier.

The seller delivers the goods to the bearer at the specified delivery place, ranging from the seller’s facility to any other.

The risks transference is done when:

• The agreed delivery place is the seller’s facility, and the goods are loaded at the transport designed by the buyer.
• The goods are delivered elsewhere (loading terminal, docks, airport) at the seller’s country. There, risk transfers to the buyer before the goods are unloaded from the first transport to the courier designated by the buyer.

The seller must ship the goods for export when applicable. It’s exempted from any obligation to dispatch the goods for import, payment of import duties or import customs procedures.

The buyer also takes on the storage, handling and loading costs at the seller’s country.

FAS – Free Alongside Ship.

The seller delivers the goods alongside the buyer’s vessel or container terminal for its groupage and consolidation (on that second scenario, use of FCA Incoterms is advised).

Export costs are taken by the seller. The buyers take on the import costs and custom clearance.

DPU – Delivered at Place Unloaded.

Risks transfers when the goods reach its destination and is ready for loading at the buyer’s transport.

DPU demands that the buyer ship the goods for export, when applicable. Although, the seller has no obligation to ship the goods for import, take on any import rights or customs clearance costs.

DDP – Delivered Duty Paid.

The seller delivers the goods to the buyer at the pick-up destination, with al import and export costs paid.

Risk transfers when the goods arrive at its destination and it’s ready for loading at the buyer designated transport.

Customs duty, VAT and other import duties are taken by the seller. But if both parts agree on the contract being at buyers’ expense, a DDP variant must be used, being DDP VAT Unpaid.

DAP – Delivered at Place.

The seller delivers the goods, without unloading, at the agreed destination in the buyer’s country. Import costs are taken by the buyer.

Risk transfers at the same place where the goods are delivered.

CPT – Carrier Paid To.

The seller delivers the goods at the agreed destination taking on all delivery costs up to that point.

Risk transfers when the goods arrive at the destination and are ready for their loading at the buyer’s transport.

The seller takes on export costs. The buyer takes on the import costs and customs duty.

CIP – Carrier and Insurance Paid To.

The seller takes on transport and insurance, until the goods reach its destination point. The beneficiary of the insurance is the buyer.

Transport risk transfers when the goods are delivered to the courier for their delivery to the agreed destination.

Should there be multiple couriers taking on the delivery, the risk transfers as soon as the goods are delivered to the first courier. From that point, the buyer takes on all the transport risks, including those that may occur during transit.

The buyer must note that, under CIP conditions, the seller is required to purchase an insurance with at least 110% goods CIP value of coverage (Clause A of Institute of Cargo Clauses), from the delivery point to the designated destination.

The seller takes on export costs. The buyer takes on the import costs and customs duty.

CIF – Cost, Insurance and Freight.

The seller delivers the goods at the designated port.

The actual delivery takes place when the goods are loaded on the vessel.

The buyer must note that, under CIF conditions, the seller is required to purchase an insurance with at least 110% goods CIF value of coverage (Clause A of Institute of Cargo Clauses), from the delivery point to the designated destination.

This rule is mostly used when shipping raw material.

The buyer must note that, under CIP conditions, the seller is required to purchase an insurance with at least 110% goods CIP value of coverage (Clause A of Institute of Cargo Clauses), from the delivery point to the designated destination.

The seller takes on export costs. The buyer takes on the import costs and customs duty.

CIF – Cost, Insurance and Freight.

The seller delivers the goods at the designated port.

The actual delivery takes place when the goods are loaded on the vessel.

The buyer must note that, under CIF conditions, the seller is required to purchase an insurance with at least 110% goods CIF value of coverage (Clause A of Institute of Cargo Clauses), from the delivery point to the designated destination.

This rule is mostly used when shipping raw material.

The buyer must note that, under CIP conditions, the seller is required to purchase an insurance with at least 110% goods CIP value of coverage (Clause A of Institute of Cargo Clauses), from the delivery point to the designated destination.

The seller takes on export costs. The buyer takes on the import costs and customs duty.

CFR – Cost and Freight.

The seller delivers the goods at the designated port.

The risks transfer when the goods are loaded on the vessel, or the container terminal if any handling is required (on that scenario, use of CPT incoterms is advised).
The seller transfers all costs and risks of loss or damage caused to the goods, when delivering the goods on board the designated ship.

If not mandatory, insuring the goods is strongly advised. The costs of the insurance are taken by the buyer.