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What are incoterms? Have you ever heard of them? In this article I will explain what each kind of incoterm consists in. There are 13 incoterms that are used by many international companies but I will mention only some of them.

Incoterm is an abbreviation of “International commercial terms”. These incoterms give the seller and the buyer rights and duties concerning the transportation of goods. These terms were drafted and published in the International Chamber of Commerce (ICC).

These terms show you up to which place the seller will be responsible for the transportation. They also establish what kind of costs and risks are linked to which party and when they switch to the other party. These terms are mentioned in the general terms of the invoices. When both companies give a green light to the incoterm, they should keep their word. If they do not, consequences will occur since laws protect the parties in these situations.

EXW = exworks

The seller takes the most advantages from this situation because he only has to provide the goods in the invoice. The buyer takes all the risks and costs, which means he has to organize everything (packaging, loading, documents, transport). This kind of incoterm is not common, it is mostly used with niche products or when the buyer really wants the product and he is ready to take any risk.

FCA = free carrier

The seller takes the costs of transport from his company to the carrier and has to provide invoices, packaging, loading and export documents. The buyer takes responsibilities for the route from the carrier to the place he chose. This incoterm is mostly used when the vehicle of transport is a truck.

FAS = free alongside ship

The seller has to provide the invoice, the packaging and the export documents. He is also responsible for the transport from his company to the harbour. From there the buyer gets all the responsibilities, thus he needs to have a transport agreement. There are many risks for both the parties, like product damaging or loss of items. For this reason, insuring these risks is the best choice for both.

FOB = free on board

The seller provides the invoice, the packaging and the exporting permission. He is responsible for the goods until they are loaded on the ship.  Anything that happens to the items during this process is a risk for him. As soon as they are on the ship, the responsibility gets transferred to the buyer. This is one of the most used incoterms when a ship is involved.

CFR = cost and freight

The transport costs are in charge of the seller from his company to the destination harbour. From there it is the buyer who gets the responsibility. CIF is similar to this incoterm with the difference that you have to pay for an extra insurance with CFR.

CPT= Carriage Paid To

The price of the transport to the agreed destination (by truck) is paid by the seller. Even the goods’ costs and risks are in charge of the seller. He has to draft the invoice and all the documents.

CIP, DAT, DAP, DDP are other incoterms that you need to take a look at. If you are starting an international business you have to know that every company uses these incoterms.



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