Is the seller or buyer responsible for paying the loading charges? Who controls the shipment and is responsible for the risk? If you know the incoterm that was chosen when negotiating the terms of sale, then you already have these answers.
Incoterms stands for "International Commercial Terms" which are overseen by the International Chamber of Commerce (ICC). These terms define the responsibilities of the shipper and buyer in regards to the delivery of goods.
There are currently 11 incoterms as listed below:
Ex Works (EXW): Buyer is responsible for all costs and risk associated with the shipment. Thus, the buyer also chooses the company that handles the freight.
Free Carrier (FCA): Seller is responsible for all costs and risk associated with the shipment until the cargo has been delivered to the carrier at the agreed destination. Responsibility then transfers to the buyer.
Free Alongside Ship (FAS): Seller is responsible for all costs and risk associated with delivering the shipment alongside the ship at the loading dock.
Free On Board (FOB): Seller is responsible for all costs and risk associated with delivering the shipment until the cargo passes the transport vessel's rail.
Cost & Freight (CFR): Seller is responsible for all costs associated with delivering the goods to the destination port. However, the risk of loss or damage transfers to the buyer when the the cargo passes the ships rails.
Cost, Insurance & Freight (CIF): Same as CFR, but seller is also responsible for purchasing insurance to protect the shipment.
Carriage Paid To (CPT): Seller is responsible for all costs associated with delivering the goods to the named destination port. However, the risk of loss or damage to the cargo transfers to the buyer once the shipment is delivered to the first carrier.
Carriage, Insurance Paid To (CIP): Same as CPT, but the seller is also responsible for purchasing insurance to protect the shipment.
Delivery At Terminal (DAT): Seller is responsible for all costs and risk until the shipment is delivered to the port terminal of the agreed destination.
Delivered At Place (DAP): Seller is responsible for all costs and risk associated with delivering the shipment to the buyer's door.
Delivered Duty Paid (DDP): Same as DAP, but the seller is also responsible for paying the import duties & taxes at the country of destination.
In September of 2019 the ICC published Incoterms 2020 which are the new rules scheduled to take effect on January 1st, 2020. You can click here to read about the newest changes.
The most obvious change is that the term DAT is being replaced with the term DPU (Delivered at Place Unloaded). Below is Outer Seaways' updated Incoterms chart which reflects the change.
Still have questions about Incoterms? Sign-up to comment below or email joe@outerseaways.com.