You can now book more incoterms on cargo.one 🎉
What are incoterms and why are they important?
Short for “International Commercial Terms”, the Incoterms are a set of globally recognized trade rules organized into 11 abbreviated terms. First published in Paris in 1936, by the International Chamber of Commerce (ICC), the Incoterms rules provide:
Uniform interpretation of common contract clauses primarily found in export and import transactions
Illustration of the timing and division of costs and risks between buyers and sellers
Instructions to carriers, forwarders, customs brokers, banks and other financial institutions involved in shipping goods
The Incoterms rules are not mandatory. They are not laws enacted by governments, but rather, guidelines agreed to by parties to a contract. Ultimately, it’s up to the buyer and the seller to agree to each party’s responsibilities, as well as the cost and risk of a shipment before it takes place.
Simply put
Incoterms are commonly used to define the commercial relationship between:
a buyer (importer, consignee) and a seller (exporter, shipper) or
an import forwarder and export forwarder
In simple terms, Incoterms define who is responsible for the cargo at each stage of the journey. Responsibility includes:
Arranging the movement of the cargo and operational execution,
Paying the associated costs (transportation, duties, taxes, etc.) and
Taking on the risk of the value of the goods (insurance)
What are the Incoterms and What does each one mean?
All 11 of the Incoterms rules require one of the four named places:
Named Place | What does that really mean? | Example |
Place of Delivery | This is where the goods start their journey | Retail Store Manufacturer Warehouse or Distribution Center |
Place of Destination | This is where the goods end their journey | Retail Store Commercial Business Warehouse or Distribution Center |
Port of Shipment | Airport or Ocean port where cargo is first loaded at the start of the journey | LAX - Airport Port of Los Angeles |
Port of Destination | Airport or Ocean port where cargo is finally offloaded at the end of the journey | AMS - Airport Port of Amsterdam |
But why do I always hear people use terms like door and airport when describing responsibility and what they are quoting to their customer?
In airfreight, in lieu of the named places in Incoterm definitions, you will commonly hear the term “door” or “airport” used to define responsibility for the cargo at different parts of the journey. These are synonymous to the incoterm named places as seen below:
Door to Door = Place of Delivery to Place of Destination
Door to Airport = Place of Delivery to Port of Destination
Airport to Airport = Port of Shipment to Port of Destination
Airport to Door = Port of Shipment to Place of Destination
E terms - departure
EXW
Ex Works (Place of Delivery, Usually Seller’s Premises)
Applicable for Air ✈️, Ocean 🚢, Rail 🚂, Truck 🚚
EXW, short for “Ex Works,” places most responsibility with the buyer. The seller is expected to have the goods ready for collection at the agreed place of delivery (commonly the seller’s factory, mill, plant or warehouse). The buyer is accountable for all subsequent costs and risk, including all export procedures, starting with loading the goods onto a transport vehicle at the seller’s premises
In practice, it is not uncommon for a seller to load goods onto the vehicle instead, at the risk and cost of the buyer—or even free of charge. However, such an agreement must be made within the contract of sales.
If the buyer cannot handle the export processes and procedures, use FCA instead of EXW shipping.
Simply put
This is when an Import Agent reaches out to an Export Agent to quote the movement of cargo from Shipper Door to Airport of Destination.
An Import Agent is contacted by a Buyer (Importer/Consignee) to move cargo from the Seller (Exporter/Shipper) to the Buyer. The Import Agent has the information to quote and the infrastructure to provide the services to move the cargo from the airport of arrival (port of destination) to the buyer's door (place of destination), but they need an Export Agent partner to provide a quote and the infrastructure to provide the services to move the cargo from the seller's door (place of delivery) to the airport of arrival (port of destination).
The Export Agent partner will arrange:
pick up from the seller door (place of delivery),
carriage to the airport (port of shipment),
flights from the airport of origin (port of shipment) to the airport of destination (port of destination) and
export clearance, including paying any duties and taxes.
F terms - Main Carriage Unpaid
FCA
Free Carrier (Place of Delivery)
Applicable for Air ✈️, Ocean 🚢, Rail 🚂, Truck 🚚
Under FCA Incoterms, short for “Free Carrier”, the seller is responsible for export clearance and delivery of goods to the carrier at the named place of delivery.
Unless otherwise agreed upon, the seller is only responsible for loading the goods if the seller’s place of business is the named place of delivery.
A carrier is any person or company who undertakes the carriage, such as a shipping line, airline, trucking company, railway or freight forwarder.
cargo.one now offers two FCA options:
FCA (Airport): Goods delivered to the airport.
FCA (Factory): Goods to be picked up at factory but shipper is doing the export customs filing.
Simply put
This is when an Import Agent reaches out to an Export Agent to quote the movement of cargo from the Airport of Departure to the Airport of Destination.
An Import Agent is contacted by a Buyer (Importer/Consignee) to move cargo from the Airport of Departure, as indicated by the Seller (Exporter/Shipper), to the Buyer. The Import Agent has the information to quote and the infrastructure to provide the services to move the cargo from the airport of arrival (port of destination) to the buyer's door (place of destination), but they need an Export Agent partner to provide a quote and the infrastructure to provide the services to move the cargo from the Airport of Departure to the Airport of Arrival.
The Export Agent partner will arrange:
flights from the airport of origin (port of shipment) to the airport of destination (port of destination)
The Seller will arrange:
delivery to the airport of origin (place of delivery = port of shipment),
export clearance, including paying any duties and taxes.
FOB
Free On Board (Port of Shipment)
Applicable for Ocean 🚢
Forwarders who work with both Ocean and Air freight will frequently use this term to apply to Air freight, even though as per the ICC definition it applies to Ocean freight only.
FOB, short for "Free on Board", is similar to FCA in that the cost to move the goods from the place of delivery to the port of shipment is the responsibility of the seller.
cargo.one has decided to include FOB as an incoterm option for Air Freight in our selection, following feedback received from our customers that agents request it for Air Freight.
FAS
Free Alongside Ship (Port of Shipment)
Applicable for Ocean 🚢
C terms - Main carriage paid
CFR
Cost and Freight (Port of Destination)
Applicable for Ocean 🚢
CIF
Cost, Insurance and Freight (Port of Destination)
Applicable for Ocean 🚢
CPT
Carriage Paid To (Place of Destination)
Applicable for Air ✈️, Ocean 🚢, Rail 🚂, Truck 🚚
CIP
Carriage and Insurance Paid To (Place of Destination)
Applicable for Air ✈️, Ocean 🚢, Rail 🚂, Truck 🚚
Simply put
Both CPT and CIP are terms that describe a commercial scenario where the responsibility for the arrangement of the movement of the cargo and operational execution, as well as paying the associated costs (transportation, duties, taxes, etc.) shifts from the Seller to the Buyer at a different part of the journey of the cargo.
With most Incoterms the transfer of risk and physical movement happen at the same time at agreed milestones of the journey, whereas with CPT or CIP the transfer of physical movement may occur at one milestone, and the transfer of risk at a different milestone.
D terms - Arrival
DPU
Delivered at Place Unloaded (Place of Destination, Where Seller Unloads)
Applicable for Air ✈️, Ocean 🚢, Rail 🚂, Truck 🚚
DPU (formerly referred to as DAT “Delivered at Terminal”) requires the seller to deliver the goods at the disposal of the buyer, after they’ve been unloaded from the arriving means of transport.
DPU is the only Incoterms rule that requires the seller to unload goods at the place of destination.
DPU can apply to any—and more than one—mode of transport. The buyer and seller should specify and agree upon a named place of destination.
DPU requires the seller to clear goods for export, where applicable, without any obligation to clear the goods for import, pay import duty or carry out import customs formalities.
Simply put
This is when an Export Agent reaches out to an Import Agent or Terminal Handler, to quote the Terminal Handling Charges at the Airport of Destination.
An Export Agent is contacted by a Seller (Exporter/Shipper) to move cargo from the Seller's Door to the Airport of Destination. The Export Agent will be responsible for Terminal Handling Charges at the Airport, but beyond that the Buyer (Importer/Consignee) is responsible to move the cargo from the Airport of Destination to the Buyer.
The Import Agent or Terminal Handler will:
Arrange deconsolidation and make shipment ready for pick up
The Buyer will arrange:
Import Clearance,
Payment of Duties and Taxes,
Delivery to Consignee Door
DAP
Delivered At Place (Place of Destination)
Applicable for Air ✈️, Ocean 🚢, Rail 🚂, Truck 🚚
Under DAP, short for "Delivered at Place", the seller is responsible for the delivery of the goods, ready for unloading, at the named place of destination.
The seller assumes all risks involved up to unloading. Unloading is at the buyer’s risk and cost.
DAP can apply to any—and more than one—mode of transport. The buyer and seller should specify and agree upon the precise unloading spot at the named place of destination.
Unless otherwise agreed between both parties, the seller cannot request renumeration for unloading costs incurred under the contract of carriage.
DAP rules require the seller to clear goods for export, where applicable, without any obligation to clear the goods for import, pay import duty or carry out import customs formalities.
Simply put
This is when an Export Agent reaches out to an Import Agent to quote the movement of cargo from the Airport of Destination to the Buyer’s Door, excluding import clearance and payment of duties and taxes.
An Export Agent is contacted by a Seller (Exporter/Shipper) to move cargo from the Seller's Door to the Buyer (Importer/Consignee) Door. The Export Agent has the information to quote and the infrastructure to provide the services to move the cargo from the Seller's Door (place of delivery) to the airport of arrival (port of destination), but they need an Import Agent partner to provide a quote and the infrastructure to provide the services to move the cargo from the Airport of Destination to the Buyer’s Door, excluding import clearance and payment of duties and taxes.
The Import Agent will arrange
Making the shipment ready for recovery
Carriage from the airport of destination to the buyer’s door
The Buyer will arrange:
Import Clearance and
Payment of Duties and Taxes
DDP
Delivered Duty Paid (Place of Destination)
Applicable for Air ✈️, Ocean 🚢, Rail 🚂, Truck 🚚
Under DDP, short for "Delivered Duty paid", the seller assumes all responsibilities and costs for delivering the goods to the named place of destination. The seller must pay both export and import formalities, fees, duties and taxes.
The seller is not obligated to insure the goods for pre-carriage or main carriage.
The buyer is free of any risk or cost until the goods are unloaded from the vehicle at the named place of destination, usually the buyer’s place of business.
DDP is the only Incoterms rule that places responsibility for import clearance and payment of taxes and/or import duty on the seller.
These last requirements can be problematic for the seller. In countries with complex or bureaucratic import clearance procedures a seller with local knowledge may prefer to take on these responsibilities.
Simply put
This is when an Export Agent reaches out to an Import Agent to quote the movement of cargo from the Airport of Destination to the Buyer’s Door, including import clearance and payment of duties and taxes.
An Export Agent is contacted by a Seller (Exporter/Shipper) to move cargo from the Seller's Door to the Buyer's (Importer/Consignee) Door. The Export Agent has the information to quote and the infrastructure to provide the services to move the cargo from the Seller's Door (place of delivery) to the airport of arrival (port of destination), but they need an Import Agent partner to provide a quote and the infrastructure to provide the services to move the cargo from the Airport of Destination to the Buyer’s Door, including import clearance and payment of duties and taxes.
The Import Agent will arrange
Making the shipment ready for recovery
Carriage from the airport of destination to the buyer’s door
Import Clearance and
Payment of Duties and Taxes