Key Incoterm of Transaction
Different incoterms appear frequently when you are in international trade. So what exactly do they mean? We list 13 common used of them today to talk about.
EXW, i.e. Ex Works, which means the seller has the responsibility to deliver the prepared goods to the buyer at the place where the workshop, factory, warehouse, etc. But it is usually not responsible for loading the goods on the vehicle prepared by the buyer or for customs clearance. The buyer bears all costs and risks of transporting the goods to the intended destination from the seller’s location. This term means that the seller bears the least amount of trading. If the buyer cannot handle the exit of the goods, this method should not be used.
FCA in English is “Free Carrier “, i.e. “cargo carrier”. It refers that the seller is responsible for handing over the goods to the buyer at the designated place after export clearance. According to business practice, when the seller is required to cooperate with the carrier by signing a contract, the seller can do so in the condition of the buyer bears the risks and expenses. This incoterm applies to any mode of transport. It should be noted that the choice of delivery location will have an impact on the obligation to load and unload at that location. If the seller delivers at its location, the seller shall be responsible for loading the goods and is not responsible for unloading the goods at any other location.
FAS in English is “Free Alongside ship”, which means that the seller delivers the goods to the ship at the designated port of shipment or barge. From then on, the buyer shall bear the full cost and risk of loss or damage of the goods, and the buyer shall go through the export clearance procedures. This incoterm applies to maritime transport or inland water transport. If the ship sent by the buyer cannot be docked, the seller is responsible for transporting the goods to the ship by barge and still delivering at the ship. The responsibility and cost of loading shall be borne by the buyer.
FOB in English is “Free on Board“. It means that the seller delivers the goods to the ship’s side at the designated port. After the goods have been shipped, the buyer shall bear the full cost, risk, loss or damage of the goods, and the seller shall be required to handle the export customs clearance of the goods. That is to say, the buyer is responsible for dispatching the ship to pick up the goods, and the seller shall install the goods on the ship designated by the buyer within the specified port of shipment and the prescribed time limit, and notify the buyer in time. When the goods are loaded onto the designated ship at the port of shipment, the risk is transferred from the seller to the buyer. This term also applies to maritime transport or inland water transport.
CFR or C&F in English is “Cost and Freight”. It means that the seller must pay the expenses and freight charges required to transport the goods to the designated port of destination. But after the goods are delivered to the deck of the ship, the risk, loss or damage of the goods and the additional expenses incurred shall be borne by the buyer while the seller shall be required to handle the export clearance of the goods. In a word, when the seller is required to deliver the goods on board, he shall bear the cost of transporting the goods to the designated destination port. However, the risk is transferred at the time of delivering on board at the port of shipment. This incoterm applies to maritime transport or inland water transport.
CIF in English is “Cost, Insurance and Freight”. It means that in addition to the obligation of the seller to have the same term as “cost plus freight”, the seller must also handle the maritime insurance in which the goods are lost or damaged by the buyer during the transportation and pay the insurance premium. Therefore, in addition to the same obligations as the CFR terminology, the seller must also handle the cargo insurance for the buyer and pay the insurance premium. Based on the general international trade practice, the insurance amount insured by the seller should be increased by 10% based on the CIF price. If the buyer and the seller have not agreed on specific risks, the seller only needs to obtain the minimum insurance coverage. If the buyer requests to increase the insurance for war, the seller shall be insured under the premise that the insurance premium is borne by the buyer. When the seller is insured, if it can be done, it must be insured in the contract currency. This incoterm applies to maritime transport or inland water transport.