Incoterms 2021
Incoterms 2021 defines 11 rules, down from the 13 rules defined by Incoterms 2000. Four rules of the 2000 version (“Delivered at Frontier”, DAF; “Delivered Ex Ship”, DES; “Delivered Ex Quay”, DEQ; “Delivered Duty Unpaid”, DDU) are replaced by two new rules (“Delivered at Terminal”, DAT; “Delivered at Place”, DAP) in the 2010 rules.
In the prior version, the rules were divided into four categories, but the 11 pre-defined terms of Incoterms 2021 are subdivided into two categories based only on method of delivery. The larger group of seven rules may be used regardless of the method of transport, with the smaller group of four being applicable only to sales that solely involve transportation by water where the condition of the goods can be verified at the point of loading on board ship. They are therefore not to be used for containerized freight.
Incoterms in Government Regulations
In some jurisdictions, the duty costs of the goods may be calculated against a specific term (for example in India, duty is calculated against the CIF value of the goods, and in South Africa the duty is calculated against the FOB value of the goods). Because of this it is common for contracts for exports to these countries to use these Incoterms, even when they are not suitable for the chosen mode of transport. Care must be exercised to ensure that the liability issues are addressed by negotiation with the customer.
Incoterms and the exporter
International Commercial Terms, known as “Incoterms”, are internationally accepted terms defining the responsibilities of exporters and importers in the arrangement of shipments and the transfer of liability involved at various stages of the transaction. Incoterms do not cover ownership or the transfer of title of goods. It is crucial to agree on an term at the start of a negotiation/ quotation of a sale, as it will affect the costs and responsibilities involved in shipping, insurance and tariffs.
In any sales transaction, it is important for the seller and buyer to agree on the terms of sale and know precisely what is included in the sale price. Exporters should choose the term that works best for their company, but also be prepared to quote on other Incoterms.
Shipping
After purchasing, goods need to be delivered and transported to buyers. This will require:
- Proof of delivery by supplier in good order
- Risk management through insurance
- Adequate package or container for full container loads (FCL)
- Provide shipping instructions to shippers
- Receive from seller, all necessary documentation for export and import goods
Incoterms explained
Essentially, Incoterms rules are used for communicate and delimit tasks, cost and risk linked with transportation and delivery of goods.
EXW – Ex Works
Places greater obligation on the buyer who is responsible for the delivery of goods from door to door. While the seller needs to ensure freight is available for shipping, beyond collection they have no legal liability for anything that occurs to the goods while in transit.
FCA – Free Carrier
Requires the seller to transport goods from origin to a nominated carrier of the buyer’s choice. At such time, costs and associated risks are transferred from the seller to the buyer who is then responsible for onward shipping to destination.
FAS – Free Alongside Ship
Used exclusively for sea freight transport, responsibility is passed to the buyer following delivery of goods alongside a ship.
FOB – Free On Board
The buyer takes over responsibility for the delivery of goods to destination following transport of freight on board a vessel at the port of origin (sea freight only).
CFR – Cost & Freight
It is the seller’s responsibility to nominate a freight forwarder and arrange for the transportation of cargo from origin to destination port (sea freight only). Risks transfer to the buyer for insurance cover once the goods are delivered on board a vessel at the port of origin. The buyer is additionally liable for all destination charges.
CIF – Cost Insurance & Freight
Similar to CFR, but the seller is responsible for the insuring of goods during the maritime leg of the voyage. All risks and costs pass to the buyer following delivery of goods at the port of destination.
CPT – Carriage Paid To
While the seller is responsible for freight and clearance to destination, the buyer must cover any costs arising after the goods are delivered to the carrier including loss and damage.
CIP – Carriage & Insurance Paid To
Similar to CPT, but risk of loss and damage to goods during carriage resides with the seller.
DAT – Delivered At Terminal
The seller assumes all risks and costs of transport to destination port or terminal. The buyer must pay all destination charges including relevant duties and taxes, customs clearances and onward delivery.
DAP – Delivered At Place
The seller is responsible for all risks and costs of delivery to the buyer’s facility. Import duties and taxes must be paid by the buyer.
DDP – Delivered Duty Paid
This term places minimal obligation on the buyer and greater responsibility on the seller who is liable for all risks and costs up to the destination facility, including import duties and taxes.
Incoterms 2021
Incoterms 2021 defines 11 rules, down from the 13 rules defined by Incoterms 2000. Four rules of the 2000 version (“Delivered at Frontier”, DAF; “Delivered Ex Ship”, DES; “Delivered Ex Quay”, DEQ; “Delivered Duty Unpaid”, DDU) are replaced by two new rules (“Delivered at Terminal”, DAT; “Delivered at Place”, DAP) in the 2010 rules.
In the prior version, the rules were divided into four categories, but the 11 pre-defined terms of Incoterms 2021 are subdivided into two categories based only on method of delivery. The larger group of seven rules may be used regardless of the method of transport, with the smaller group of four being applicable only to sales that solely involve transportation by water where the condition of the goods can be verified at the point of loading on board ship. They are therefore not to be used for containerized freight.
Incoterms in Government Regulations
In some jurisdictions, the duty costs of the goods may be calculated against a specific term (for example in India, duty is calculated against the CIF value of the goods, and in South Africa the duty is calculated against the FOB value of the goods). Because of this it is common for contracts for exports to these countries to use these Incoterms, even when they are not suitable for the chosen mode of transport. Care must be exercised to ensure that the liability issues are addressed by negotiation with the customer.
Incoterms and the exporter
International Commercial Terms, known as “Incoterms”, are internationally accepted terms defining the responsibilities of exporters and importers in the arrangement of shipments and the transfer of liability involved at various stages of the transaction. Incoterms do not cover ownership or the transfer of title of goods. It is crucial to agree on an term at the start of a negotiation/ quotation of a sale, as it will affect the costs and responsibilities involved in shipping, insurance and tariffs.
In any sales transaction, it is important for the seller and buyer to agree on the terms of sale and know precisely what is included in the sale price. Exporters should choose the term that works best for their company, but also be prepared to quote on other Incoterms.
Shipping
After purchasing, goods need to be delivered and transported to buyers. This will require:
- Proof of delivery by supplier in good order
- Risk management through insurance
- Adequate package or container for full container loads (FCL)
- Provide shipping instructions to shippers
- Receive from seller, all necessary documentation for export and import goods
Incoterms explained
Essentially, Incoterms rules are used for communicate and delimit tasks, cost and risk linked with transportation and delivery of goods.
EXW – Ex Works
Places greater obligation on the buyer who is responsible for the delivery of goods from door to door. While the seller needs to ensure freight is available for shipping, beyond collection they have no legal liability for anything that occurs to the goods while in transit.
FCA – Free Carrier
Requires the seller to transport goods from origin to a nominated carrier of the buyer’s choice. At such time, costs and associated risks are transferred from the seller to the buyer who is then responsible for onward shipping to destination.
FAS – Free Alongside Ship
Used exclusively for sea freight transport, responsibility is passed to the buyer following delivery of goods alongside a ship.
FOB – Free On Board
The buyer takes over responsibility for the delivery of goods to destination following transport of freight on board a vessel at the port of origin (sea freight only).
CFR – Cost & Freight
It is the seller’s responsibility to nominate a freight forwarder and arrange for the transportation of cargo from origin to destination port (sea freight only). Risks transfer to the buyer for insurance cover once the goods are delivered on board a vessel at the port of origin. The buyer is additionally liable for all destination charges.
CIF – Cost Insurance & Freight
Similar to CFR, but the seller is responsible for the insuring of goods during the maritime leg of the voyage. All risks and costs pass to the buyer following delivery of goods at the port of destination.
CPT – Carriage Paid To
While the seller is responsible for freight and clearance to destination, the buyer must cover any costs arising after the goods are delivered to the carrier including loss and damage.
CIP – Carriage & Insurance Paid To
Similar to CPT, but risk of loss and damage to goods during carriage resides with the seller.
DAT – Delivered At Terminal
The seller assumes all risks and costs of transport to destination port or terminal. The buyer must pay all destination charges including relevant duties and taxes, customs clearances and onward delivery.
DAP – Delivered At Place
The seller is responsible for all risks and costs of delivery to the buyer’s facility. Import duties and taxes must be paid by the buyer.
DDP – Delivered Duty Paid
This term places minimal obligation on the buyer and greater responsibility on the seller who is liable for all risks and costs up to the destination facility, including import duties and taxes.
