The 11 incoterms explained: A comprehensive overview

Understanding how incoterms shape your shipping responsibilities

Incoterms are international trade rules that define who is responsible for various aspects of shipping, including costs, risks, and logistics. Whether you are importing or exporting, selecting the right incoterm can significantly impact your supply chain and cost management. Did you know there are 11 official incoterms in use worldwide? Here’s a clear breakdown of each one and their key differences.

The 11 incoterms defined

1. EXW: Ex Works

EXW, or "Ex Works," places minimal responsibility on the seller. The seller prepares the goods and makes them available at their premises. From there, the buyer is responsible for all transportation, including costs and risks. This incoterm is often used when the buyer has established logistics arrangements in place.

2. FCA: Free Carrier

Under FCA, the seller delivers the goods to a carrier or another party chosen by the buyer at a specified location. The seller is responsible for export clearance and documentation. Risk transfers to the buyer once the goods are handed over to the carrier.

3. CPT: Carriage Paid To

CPT means the seller covers the transportation costs to a designated location. However, the risk passes to the buyer once the goods are handed over to the first carrier. The buyer is responsible for subsequent risks and additional transport arrangements.

4. CIP: Carriage and Insurance Paid To

Similar to CPT, CIP requires the seller to pay for transportation and provide minimal insurance coverage for the goods up to the agreed destination. Risk transfers to the buyer when the goods are handed over to the first carrier.

5. DAT: Delivered at Terminal

DAT (Delivered at Terminal) requires the seller to deliver the goods to a terminal at the destination. The seller bears all costs and risks up to the unloading point, after which the buyer assumes responsibility for customs clearance and further transportation.

6. DAP: Delivered at Place

With DAP, the seller delivers the goods to the buyer’s specified location. The seller bears the risk and cost until the goods are ready for unloading. The buyer is responsible for customs clearance and any associated duties or taxes.

7. DDP: Delivered Duty Paid

DDP offers maximum convenience for the buyer, as the seller handles all transportation, customs clearance, duties, and taxes until the goods reach the final destination. This incoterm is ideal for buyers who want minimal involvement in the shipping process.

Incoterms for maritime and inland waterway transport

The following incoterms are specifically designed for sea and inland waterway transport.

8. FAS: Free Alongside Ship

Under FAS, the seller delivers the goods alongside the ship at the port of departure. The buyer is responsible for loading the goods, as well as all subsequent costs and risks, including customs clearance at the destination.

9. FOB: Free on Board

FOB requires the seller to deliver the goods on board the vessel at the port of shipment. The seller is responsible for loading costs, while the buyer assumes all subsequent risks and costs once the goods are loaded.

10. CFR: Cost and Freight

CFR specifies that the seller pays for transportation to the destination port. However, the buyer assumes the risk as soon as the goods pass the ship’s rail at the port of departure.

11. CIF: Cost, Insurance and Freight

CIF is similar to CFR but includes insurance coverage provided by the seller until the goods reach the destination port. Risk transfers to the buyer once the goods are loaded onto the ship.

Why are incoterms important?

Choosing the right incoterm determines who is responsible for shipping costs, customs duties, and risks during transit. For example:

• EXW: Maximum responsibility for the buyer.
• DDP: Minimal buyer involvement but higher costs.
• FOB and CIF: Commonly used in maritime trade with varying risk transfers.

Understanding these nuances helps streamline operations and manage costs effectively.

How to choose the right incoterm

The ideal incoterm depends on your specific trade requirements, logistics capabilities, and risk tolerance. Factors to consider include:

• Who handles customs clearance?
• What are the associated costs and responsibilities?
• What level of control do you want over the shipping process?

Need Help?

If you’re unsure which incoterm is best for your shipment or how to use them to optimize your logistics, Cargoplot is here to assist. Contact us via email, or call us at +31 (0)85-0608426 for tailored advice.