Having an export-import business requires deep knowledge of terminologies which can assist in a better understanding of the working procedure. Here is a brief introduction about Incoterms and how they are used in Export-Import.
Incoterms are set of import-export terms designed by the International Chamber of Commerce (ICC). These terms are used universally stating the key features of trade business. Majorly, they are used by Banks, Buyers, Sellers, Traders, Producers, Chambers, and Trade Federations. These terms are always revised by ICC and the latest set of incoterms were last updated in 2010; the next update is estimated to be made in 2020. These terms cover trade processes such as Customs, taxes, responsibilities of risks, deliverability of goods, contract holdings and minor tasks involved in shipping. The major incoterms (2010 Update) are as follows:
EXW – Ex Works: Delivery of goods at which the seller takes on the least risk.
FCA – Free Carrier: Buyers organize shipping of goods and export documentation.
CPT- Carriage Paid to Similar to FCA, a defined destination where goods are delivered.
CIP – Carriage and Insurance Paid to Seller are required to purchase minimum insurance required.
DAT- Delivered at Terminal: Seller is required to deliver goods and insure them to a defined term.
DAP- Multimodal term used for a seller to deliver goods to a particular destination.
DDP- Delivered Duty Paid: Multimodal term used for extending DAT.
FAS- Free Alongside Ship: Non-containerised term where it's acceptable to ship along with other goods.
FOB- Free on Board: Common term where the seller delivers to port but the buyer is responsible for insurance.
CFR- Cost and Freight: Seller delivers goods to the destination point and is responsible for all transport insurance.
DDU- Delivery Duty Unpaid: Consignee (the entity who is financially responsible for the receipt of a shipment, generally but not always, the receiver) takes responsibility of the cost and delivery once the shipment is signed.
CIF- Cost, Insurance, and Freight: Seller pays for transport insurance and delivery of goods.
Each incoterm is extensive in its own procedure. We shall learn more about each Incoterm in the upcoming articles.