Utility INCOTermsIndex

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What are INCO terms?

The terms of sale for International business are more complex than those used in domestic contracts so in the 1920's international traders developed a set of trade terms to describe their rights and obligations with regard to the sale and transport of goods. These terms consisted of short abbreviations for lengthy contract provisions. Unfortunately there was no uniform interpretation of these terms so to improve this the International Chamber of Commerce (ICC) developed INCO terms (INternational COmmercial Terms). First published in 1936 these rules have been periodically revised to account for changing modes of transport, document delivery and security.

The latest revision INCO terms 2020 came into force on January 1st 2020

INCO term Groups

There are 4 groups

• E- Departure – Seller merely makes goods available to the buyer and the seller is not responsible for the carriage, risks or cost of transportation. The only INCO term in this group is EXW.

• F- Main Carriage Unpaid – Seller has full responsibility (carriage, risk and cost) to get the goods to the point where the main transportation starts. Typically this means to a ship or a port. In SkySuite transport chains we call this the handover point. INCO terms in this group are FCA, FAS and FOB.

• C- Main Carriage Paid – that strange breed of Incoterms whereby delivery and transportation occur at two different points. INCO terms in this group are CPT, CIP, CFR and CIF.

• D- Arrival – Seller is responsible for some elements beyond the completion of the main transportation. INCO terms in this group are DAP, DPU and DDP.

A common feature of the E and F groups is that delivery takes place for sure at origin, i.e. the transfer of risk shifts from the seller to the buyer before the goods are loaded on the ship, airplane, train, etc. On the contrary, if the sale contract is regulated by a D-group Incoterm, we know for sure that the place of delivery will happen at destination, i.e. the seller will not be relieved from bearing the risk of loss or damage to the goods, nor of the other obligations (such as export clearance), until the goods are delivered to the buyer at destination. The C-group Incoterms mix up these distinctive principles and make up a situation whereby risk and obligations shift from the seller to the buyer at two different physical places. For this reason, they are sometimes referred as C-group: Contradictory and Confusing group of Incoterms.

EXW - Ex Works

Under EXW terms the seller merely makes the goods available to the buyer at the "named place of delivery". This is commonly, but not necessarily the seller's place of business. With EXW the seller has no responsibility to load the goods onto a truck or other transport vehicle or to clear the goods for export. This term places the greatest responsibility on the buyer and the least on the seller.

In SkySuite the transport chain for EXW Inco terms would likely have a handover point matching the place where the supplier is warehousing his goods and the transport time to that handover point will be zero.

FCA - Free Carrier

Under FCA terms the seller clears the goods for export and delivers them to the carrier specified by the buyer at the "named place of delivery" If the named place of delivery is where the supplier is warehousing his goods, the seller is responsible for loading the goods onto the transport vehicle. If the named place of delivery is any other location, the seller delivers by making the goods available for unloading from the sellers means of transport at the named place of delivery.

In SkySuite the transport chain for FCA INCO terms would have a handover point matching the named place of delivery and the transport time to that handover point will be the time it takes the seller to load and transport the goods to that location.

FAS - Free Alongside Ship

Under FAS terms the seller clears the goods for export and places them alongside the ship (as on a quay or barge) at the named port of shipment. FAS terms only apply if the mode of transport is Sea or Inland Waterway and not to other modes such as Air, Rail, Road or Multimodal.

In SkySuite the transport chain for FAS INCO terms would have a handover point matching the named port and the transport time to that handover point will be the time it takes the seller to load and transport the goods to that location plus the time to place them alongside the ship.

FOB - Free On Board

Under FOB terms the seller clears the goods for export and delivers them on board the vessel at the named port of shipment. FOB terms only apply if the mode of transport is Sea or Inland Waterway and not to other modes such as Air, Rail, Road or Multimodal.

In SkySuite the transport chain for FOB INCO terms would have a handover point matching the named vessel and port and the transport time to that handover point will be the time it takes the seller to load and transport the goods to that location plus the time to load the vessel.

CPT - Carriage paid To

Under CPT terms the seller clears the goods for export and delivers them to the carrier for transport and this is where the risk passes from seller to buyer. The seller is however, responsible for contracting and paying the costs associated with the transportation (but not insurance) to the named place of destination. It is important to note that the transfer of risk from seller to buyer happens at a different point than the transfer of costs

In SkySuite the transport chain for CPT INCO terms would have a handover point matching the named place of destination and the transport time to that handover point will be the time it takes the seller to load and transport the goods to that location. Any Transport order raised in SkySuite would be to move the goods from the named place of destination to the final (ultimate destination. plus the time to load the vessel.

CIP - Carriage and Insurance paid To

Essentially CIP terms are the same as CPT except that the Seller is responsible for insurance as well as transportation cost to the named place of destination.

CFR - Carriage and Freight To

CFR terms are very similar to CPT terms. Notwithstanding the similarities, CPT and CFR have four major differences that are important to know for both buyers and sellers involved in international transactions.

• The first difference is quite straightforward and entails the fact that while CPT can be used with any mode of transport, CFR is eligible only for waterway shipments. This is because CFR is one of the original Incoterms published by the ICC back in 1936; at the time, waterway transport was basically the only way to move goods around the globe.

• CFR was devised in the 1930s, before the invention of the container, which occurred in the 1950s. As such, the entire Incoterms rule is designed for goods that cannot be stored in a container, such as commodities or out of gauge (OOG) cargo. In fact, delivery takes place when the goods are placed on board of the ship contracted by the seller for transport. But that cannot happen with containerized cargo, because in that case it is the container, not the goods, that is delivered! CPT instead identifies any place of delivery: therefore, goods are delivered when they are presented to the carrier at the container yard of the port (in the case of waterway transport).

• Apart from the case of goods that cannot fit into a container, the allure of CFR stems from the fact that the place of delivery is straightforward: delivery takes place when the goods are placed onboard the ship. With CPT the story is more complicated, essentially, delivery, i.e. transfer of risk, can take place anywhere at origin: it can be a port, an airport, but also a warehouse, or the seller’s premises.

• A similar issue applies to the point of destination. Under the Incoterms of the C-Group, delivery as per transfer of risk and delivery as per physical transportation at destination occur at two different points. Under CFR, the point of destination can be one place only: the port of arrival. No issue of “what is delivered” occurs with CPT, therefore it can be used with containerized cargo.

CIF - Carriage Insurance and Freight

Essentially CIF terms are the same as CFR except that the Seller is responsible for insurance as well as transportation cost to the named place of destination.