Incoterms

EXW

In EX WORKS, the seller delivers the goods to the buyer when it places the goods at the disposal of the buyer at a named place, leaving it to the buyer to collect the goods from that place. The named place, say, a factory or a warehouse, does not have to be the seller’s own premises: it could, for example, be at a forwarder’s warehouse agreed by the seller and the buyer. Moreover, delivery – in the sense of risk transferring to the buyer – does not happen when the buyer collects the goods, but when the seller places them at the disposal of the buyer for collection.

At that early stage of the goods being at the disposal of the buyer for collection, the seller will not have loaded the goods onto the buyer’s collecting vehicle: indeed, even when that collecting vehicle arrives, the seller is under no obligation to load the goods. Neither, finally, does the seller owe the buyer any duty to clear the goods for export.

FCA

In FCA, the seller delivers the goods either at the seller’s premises when they are loaded on the buyer’s means of transport; or at another place when the goods arrive at that other place, loaded on the seller’s means of transport and ready for unloading onto and at the disposal of the buyer’s carrier or other person nominated by the buyer. Whether the place named in an FCA contract is the seller’s premises or another place, it is at that place that delivery happens, risk passes to and costs fall on the buyer.

There are two big differences between EXW and FCA, a truly international sale as opposed to EXW. Unlike EXW, FCA envisages delivery of loaded goods; and again unlike EXW, FCA obliges the buyer to make arrangements for the carriage of the goods from the seller’s country to a destination.

CPT

As with FCA, the seller delivers goods – and transfers risk and costs – when the goods are shipped onto a carrier’s vehicle. Unlike FCA, however, in CPT, the carrier to whom the goods are delivered is here the seller’s carrier rather than the buyer’s. Once the goods have been handed over to the seller’s carrier and delivered to the buyer in this way, the seller has performed its obligation to deliver the goods. The seller, therefore, performs that duty to deliver even if the goods so delivered do not reach the place of destination, in sound condition, in the stated quantity or indeed at all.

This is because risk passes from seller to buyer when the goods are delivered to the buyer when the goods are handed over to the carrier. Apart from delivery, however, the seller has another duty to perform – and that is to make a contract for the carriage of the goods to the agreed destination.

CIP

The CIP rule largely mimics the CPT rule: here too delivery to the carrier marks delivery to the buyer and it is at that point that the seller transfers risk to the buyer; here too the seller promises to ship the goods to the buyer, not that they will necessarily arrive at their destination; here too the seller must make a contract of carriage for the contract destination; here too it is important that both the delivery place or point and the destination place or point are clearly identified; here too the rule can be used irrespective of the mean or means of transport used; and finally here too it makes little sense to use CIP where the only means of transport used is a sea-going vessel where both the points of delivery and destination are ports.

There is, however, one critical difference between CPT and CIP – and that has to do with insurance. Let's take a look at what this is.

DPU

We have seen that the only difference between the DPU rule and the DAP rule is that with DPU, delivery only occurs once the goods are actually unloaded off the arriving means of transport at the named point or place of destination and are at the disposal of the buyer. This means that with DPU, the risk of something happening during unloading lies with the seller, as does the cost of the unloading operation.

This is the only Incoterms® rule that requires the seller to unload the goods at destination. The DPU seller should therefore make sure that it is physically in a position to organise unloading at destination, typically in the buyer’s country. Should the seller envisage difficulty with so doing, then it may consider whether DAP is a more appropriate rule to use.

DAP

The first two of the three D rules are very similar to the one to the other, the only difference made obvious in the name of the two rules, i.e. in the first delivery happens before unloading from the arriving means of transport, in the second only after unloading.

Thus in DAP, delivery happens when the goods are placed at the disposal of the buyer at the named place of destination (or at the agreed point within that place, if any) ready for unloading. We shall see presently that where the DPU rule is used, delivery only happens once the goods have been unloaded from the arriving means of transport.

DDP

In the two D terms covered so far, we have seen that the seller is responsible for clearing the goods for export but not for import. The DDP term, however, envisages the seller delivering the goods not unloaded on the arriving means of transport (as in DAP) but (unlike DAP and DPU) cleared for import. This makes DDP the term that imposes (bar unloading) the absolute maximum burden of responsibility on the seller. The risk and cost of unloading the goods at destination lies on the buyer, but, on the other hand, if the goods are not cleared for import, typically in the buyer’s country, the seller will not have delivered.

The consequence is that the seller is not entitled to payment, and were something to happen to the goods while awaiting import clearance, the risk of any loss lies with the seller. A seller who is not confident with organising import clearance far from its own country may therefore feel more comfortable with selling on DAP or DPU terms rather than DDP.

FAS

The two maritime F rules are broadly similar, the main difference being in the moment of delivery. In FAS, the seller delivers the goods to the buyer when the goods are placed alongside the ship (e.g. on a quay or a barge) nominated by the buyer at the named port of shipment.

The risk of loss of or damage to the goods transfers from seller to buyer when the goods are alongside the ship, and the buyer bears all costs from that moment onwards.

FOB

In FAS, the seller delivers the goods alongside the vessel, while with FOB the seller delivers to the buyer when the goods are on board the vessel nominated by the buyer at the named port of shipment. The risk of loss of or damage to the goods transfers from the seller to the buyer when the goods are actually on board the vessel, and the buyer bears all costs from that moment onward.

CFR

Like the maritime F terms, delivery in the maritime C terms occurs at the seller’s end, when the goods are shipped on board the vessel at the shipment port. Unlike the F terms, however, the carriage arrangements here are always made by the seller. The two maritime C terms are largely similar, the only difference between the two being that in CFR the seller is under no obligation to insure the goods while in transit, while in CIF the seller must not only make carriage arrangements, but also insurance arrangements.

The CFR seller delivers the goods to the buyer on board the vessel at the shipment port. The risk of loss of or damage to the goods transfers from seller to buyer when the goods are on board the vessel, such that the seller is taken to have performed its obligation to deliver the goods whether or not the goods actually arrive at their destination in sound condition, like quantity or, indeed, at all. Because, as we have seen, the CFR seller is under no duty to organise insurance cover, the CFR buyer would be well-advised to organise its own insurance cover.

CIF

As with CFR, in CIF the seller delivers the goods to the buyer on board the vessel. The risk of loss of or damage to the goods transfers when the goods are on board the vessel: consequently, the seller is taken to have performed its obligation to deliver the goods whether or not the goods actually arrive at their destination in sound condition, like quantity or, indeed, at all.

Once again, however, as we have seen, the CIF seller must contract for the carriage of the goods from delivery to the agreed destination.