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The different types of Incoterms

The document outlines the 11 Incoterms categorized into E, F, C, and D based on costs, risks, and delivery locations. Each category specifies the responsibilities of buyers and sellers regarding transportation, costs, and risks associated with shipping goods. It also provides a brief explanation of each Incoterm and guidance on selecting the appropriate one based on delivery methods and relationships with customers.

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Eddie Smith
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25 views4 pages

The different types of Incoterms

The document outlines the 11 Incoterms categorized into E, F, C, and D based on costs, risks, and delivery locations. Each category specifies the responsibilities of buyers and sellers regarding transportation, costs, and risks associated with shipping goods. It also provides a brief explanation of each Incoterm and guidance on selecting the appropriate one based on delivery methods and relationships with customers.

Uploaded by

Eddie Smith
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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The different types of Incoterms

There are 11 Incoterms, these Incoterms are divided into different categories. The categories are
based on costs, risks, and delivery location. Different situations are also examined per category,
for example when freight is transported by sea. The categories are E, F, C and D.

Category E (EXW)

The buyer bears the responsibility within category E (EXW). The seller’s sole responsibility is to
ensure that the products arrive at the agreed delivery address.

Category F (FCA, FAS and FOB)

In category F, the method of delivery and shipment agreed in advance with the customer, is the
responsibility of the seller. After that, the buyer takes over the responsibility.

Category C (CFR, CIF, CPT, and CIP)

The seller is responsible for all costs until the goods arrive at an agreed destination, within
category C. When the goods are ready to be transported, the buyer bears the responsibility for the
risks.

Category D (DPU, DAP and DDP)

All obligations within category D depend on the destination(s).

The Incoterms

EXW – Ex Works

With the iIncoterms EXW, the buyer bears almost all costs and risks of the entire shipping
process. That the buyer has access to the goods is the main task of the seller. Once the buyer has
access to goods, the buyer is responsible for transporting the goods.

FCA – Free Carrier

FCA is a very flexible condition. With FCA, it is the buyer’s responsibility to arrange the main
transport. The seller only needs to deliver the goods to the buyer’s carrier.

CPT – Carriage Paid To

The same buyer responsibilities apply to CPT as to FCA. However, there is one difference; the
seller pays the delivery costs. However, it is still the seller’s responsibility to deliver the goods to
the buyer’s carrier.
CIP – Carriage and Insurance Paid To

CIP again has the same seller responsibilities as CPT, with one difference. With CIP, in addition
to the delivery costs of the goods, the seller also pays for the insurance. This only needs to be the
minimum coverage, however. Does the buyer want an extensive insurance? Then the buyer must
pay for this themself.

DAP – Delivered at Place

With DAP, the seller bears the costs and risks of transporting the goods. The goods must be
transported to a pre-agreed address. When the goods have arrived at the address and are ready for
unloading, the goods will be classified as delivered.

DPU – Delivered at Place Unloaded

The Incoterm Delivered at Place states that all costs and risks are the responsibility of the seller.
The unloading of the goods is also the responsibility of the seller, in contrast to the Incoterm
DAP.

DDP – Delivery Duty Paid

In addition to being responsible for the transport of the goods, the seller must also ensure that the
goods are cleared for shipment and that import duties have been paid. The seller is not
responsible for unloading the goods, the buyer is.

Incoterms for sea transport

FAS – Free Alongside Ship

With the Incoterm Free Alongside Ship, the seller delivers the goods to the ship’s quay at the
port. The goods must be cleared for export. Until the goods are delivered to the quay next to the
ship, the seller bears all costs and risks of transport. Loading the ship is the buyer’s
responsibility, who then bears the risk. The buyer is also responsible for the import clearance and
export clearance of the goods.

FOB – Free on Board

Free On Board is an Incoterm that states that the seller is responsible for transporting and loading
the goods onto the ship. Until all goods are on board the ship, the seller bears all costs and risks
of transport. The seller must also arrange the export clearance under this Incoterm. Once the
goods are on board of the ship, the buyer bears all responsibilities.

CFR – Cost and Freight


Under the Incoterm CFR, the seller is responsible for transporting the goods and for loading
these goods onto the ship. Responsibility is transferred to the buyer once all goods have been
loaded onto the ship, the seller is only responsible for transporting the goods to the port of
destination. As with FOB, the responsibilities are for the buyer once the goods are on board of
the ship. The seller essentially has the same responsibilities as with FOB but must also pay the
costs for the transport.

CIF – Cost Insurance and Freight

Cost Insurance and Freight works the same as CFR, the difference is that with CIF the seller
must also insure the goods and must therefore also pay these costs. However, the seller is again
only obliged to pay the minimum coverage, just as with the Incoterm CIP. Does the buyer want a
more extensive insurance with maximum coverage? Then the buyer has to pay for this themself.

What is the difference between all Incoterms?

The distinction between the above circumstances is based on who is responsible for the
expenditure and who bears the risk. Export papers, transport to and from the port, loading and
unloading trucks or ships and import costs are all examples of this.

As you move lower in the list of Incoterms, the costs slowly shift from the buyer to the seller.
For example, in category E, the buyer is fully responsible for all costs and in category D, under
Incoterm DDP, the seller is. This also applies to the risk of transporting the goods. With category
E the full risk of transport lies with the buyer and with Incoterm DDP the risk again lies entirely
with the seller.

If you want to know which Incoterm best suits your situation, it is useful to answer these
questions for yourself:

• Which method is used to deliver the goods? Will the cargo be transported by land, air, or sea?
• What is the nature of my relationship with the other party or customer? For one-off or
incidental transactions, it is recommended to use category F Incoterms.
• What level of control do you want to maintain yourself? If you don’t find control that important,
go for category E.

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