{"id":9189,"date":"2022-04-12T07:14:37","date_gmt":"2022-04-12T07:14:37","guid":{"rendered":"https:\/\/www.mrpeasy.com\/blog\/?p=9189"},"modified":"2022-12-20T14:02:55","modified_gmt":"2022-12-20T14:02:55","slug":"incoterms","status":"publish","type":"post","link":"https:\/\/www.mrpeasy.com\/blog\/incoterms\/","title":{"rendered":"Incoterms \u2013 A Simple Guide"},"content":{"rendered":"\n<p>Incoterms or International Commercial Terms are used to facilitate and standardize trade processes, especially logistics and shipping. As of today, there are 11 different Incoterms that all allocate different responsibilities to both parties of a transaction.<\/p>\n\n\n\n<figure class=\"wp-block-image\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"571\" src=\"https:\/\/www.mrpeasy.com\/blog\/wp-content\/uploads\/2022\/04\/incoterms-1024x571.jpg\" alt=\"incoterms\" class=\"wp-image-9190\" srcset=\"https:\/\/www.mrpeasy.com\/blog\/wp-content\/uploads\/2022\/04\/incoterms-1024x571.jpg 1024w, https:\/\/www.mrpeasy.com\/blog\/wp-content\/uploads\/2022\/04\/incoterms-300x167.jpg 300w, https:\/\/www.mrpeasy.com\/blog\/wp-content\/uploads\/2022\/04\/incoterms-768x428.jpg 768w, https:\/\/www.mrpeasy.com\/blog\/wp-content\/uploads\/2022\/04\/incoterms.jpg 1502w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<!--more-->\n\n\n\n<p><em>You can also listen to this article: <\/em><\/p>\n\n\n\n<iframe loading=\"lazy\" title=\"Incoterms \u2013 A Simple Guide\" allowtransparency=\"true\" height=\"150\" width=\"100%\" style=\"border: none; min-width: min(100%, 430px);\" scrolling=\"no\" data-name=\"pb-iframe-player\" src=\"https:\/\/www.podbean.com\/player-v2\/?i=ryxxa-1245c1c-pb&amp;from=pb6admin&amp;share=1&amp;download=1&amp;rtl=0&amp;fonts=Arial&amp;skin=1&amp;font-color=&amp;logo_link=episode_page&amp;btn-skin=3\"><\/iframe>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_80 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #343333;color:#343333\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #343333;color:#343333\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.mrpeasy.com\/blog\/incoterms\/#What_are_Incoterms\" >What are Incoterms?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.mrpeasy.com\/blog\/incoterms\/#Classification_of_Incoterms\" >Classification of Incoterms<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.mrpeasy.com\/blog\/incoterms\/#Basic_features_of_Incoterms\" >Basic features of Incoterms<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.mrpeasy.com\/blog\/incoterms\/#EXW_Incoterm\" >EXW Incoterm<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.mrpeasy.com\/blog\/incoterms\/#FCA_Incoterm\" >FCA Incoterm<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.mrpeasy.com\/blog\/incoterms\/#CPT_and_CIP_Incoterms\" >CPT and CIP Incoterms<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/www.mrpeasy.com\/blog\/incoterms\/#DAP_DPU_and_DDP_Incoterms\" >DAP, DPU, and DDP Incoterms<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/www.mrpeasy.com\/blog\/incoterms\/#FAS_and_FOB_Incoterms\" >FAS and FOB Incoterms<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/www.mrpeasy.com\/blog\/incoterms\/#CFR_and_CIF_Incoterms\" >CFR and CIF Incoterms<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/www.mrpeasy.com\/blog\/incoterms\/#Key_takeaways\" >Key takeaways<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_are_Incoterms\"><\/span>What are Incoterms?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Incoterms or International Commercial Terms are an industry standard that is used to regulate international trade. They provide a legal framework for commercial transactions and <a href=\"https:\/\/www.mrpeasy.com\/blog\/procurement-management\/\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\">procurement<\/a> processes, defining the responsibilities and obligations of the sellers and buyers, mainly in the logistics and shipping phase of a transaction.<\/p>\n\n\n\n<p>There are 11 Incoterms today that define some of the aspects\nand processes of a transaction so that the tasks, costs, risks, and\nresponsibilities would be well understood by both parties. Some of the terms\ndefined in Incoterms are:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Delivery. This specifies the point where the legal risk of loss or damage is transferred from seller to buyer.<\/li><li>Transportation costs. This specifies which party pays for any of the transportation necessary for delivering the goods.<\/li><li>Export\/import documentation. This specifies which party deals with the formalities and documentation related to import\/export.<\/li><li>Insurance costs. This specifies the party that takes care of the insurance costs.<\/li><\/ul>\n\n\n\n<p>They do not, however, include information about the products, <a rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\" href=\"https:\/\/www.mrpeasy.com\/blog\/lead-time\/\" target=\"_blank\">lead times<\/a>, their price, or payment terms, nor do they provide dispute resolution mechanisms. That is why Incoterms need to be complemented with separate terms that address other conditions of the sale while the terms should be managed within a <a href=\"https:\/\/www.mrpeasy.com\/procurement-software\/\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\"procurement software (opens in a new tab)\">procurement software<\/a>.<\/p>\n\n\n\n<p>The first set of Incoterms was published by the International Chamber of Commerce in 1936 and since then they have been periodically reviewed and amended. The current version \u2013 Incoterms 2020 \u2013 is the ninth edition of Incoterms and it was published on September 10, 2019.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Classification_of_Incoterms\"><\/span>Classification of Incoterms<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>There are two basic methods for categorizing Incoterms: the\nfirst is by the nature of the terms, the other by the means of transportation\nused. In the case of the latter, the differentiation is made between Incoterms\nfor any mode of transport and Incoterms only for sea and inland waterway\ntransport. The other distinction divides the Incoterms into four categories:<\/p>\n\n\n\n<ol class=\"wp-block-list\"><li>Category E contains only one term: EXW (Ex Works).<\/li><li>Category F contains three terms: FCA (Free Carrier), FAS (Free Alongside Ship), and FOB (Free on Board).<\/li><li>Category C contains four terms: CPT (Carriage Paid To), CIP (Carriage and Insurance Paid to), CFR (Cost and Freight), CIF (Cost, Insurance and Freight).<\/li><li>Category D contains three terms: DAP (Delivered at Place), DPU (Delivered at Place Unloaded), DDP (Delivered Duty Paid).<\/li><\/ol>\n\n\n\n<p>These categories relate to how the responsibilities and risks are allocated between the two parties of the transaction. While category E imposes a minimum set of obligations on the supplier, category D indicates the opposite: most of the responsibilities and risks are put on the supplier while the buyer has little to worry about.<\/p>\n\n\n<div class=\"banner-v1\">\n    <div class=\"banner__text\">\n        <div class=\"banner-v1__title\">Get complete control over your company<\/div>\n        <div class=\"banner-v1__desc\">Use MRPeasy to manage production, inventory, sales, purchases, finances, and shipping all in one place.<\/div>\n        <div><a class=\"banner-v1__link\" href=\"https:\/\/www.mrpeasy.com\/sign-up\/\" target=\"_blank\" data-ga-event=\"blog_signup_banner_white\">Try for free<\/a><\/div>\n    <\/div>\n    <div class=\"banner__img\">\n        <img decoding=\"async\" src=\"https:\/\/www.mrpeasy.com\/blog\/wp-content\/themes\/mrpeasy\/assets\/images\/banner.svg\" alt=\"banner\">\n    <\/div>\n<\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Basic_features_of_Incoterms\"><\/span>Basic features of Incoterms<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>As previously mentioned, one of the general distinctions\nmade between different types of Incoterms refers to the mode of transport. Let\nus take a look at the Incoterms by dividing them into those two groups.<\/p>\n\n\n\n<p><strong>Incoterms used for\nall modes of transport:<\/strong><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"EXW_Incoterm\"><\/span>EXW Incoterm<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>The EXW or the Ex Works Incoterm makes the buyer responsible for the whole journey. The seller only has to make the products available at an agreed-upon time at an agreed-upon location (usually the seller\u2019s place of business). If the location is not specified in the contract, the seller can choose a suitable location themselves. The buyer has to organize the loading and <a href=\"https:\/\/www.crowley.com\/all-about-customs-clearance\/\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\">clear the goods for export<\/a>, if necessary. The buyer also assumes all risk of loss or damage as well as the costs as soon as the goods are delivered, i.e. made available at the seller\u2019s location. No insurance is required within the EXW framework.<\/p>\n\n\n\n<p>A good example of the use of EXW Incoterm is a courier\nshipment where the buyer pays a courier company to pick up the goods from the\npremises of the seller. EXW is mostly used for domestic trade.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"FCA_Incoterm\"><\/span>FCA Incoterm<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>FCA or the Free Carrier Incoterm either makes the seller responsible for loading the goods onto the buyer\u2019s transportation or for transporting the goods to a predetermined place of delivery where the goods are given over to a carrier arranged by the buyer. In the latter case, the seller does have to load the goods to their vehicle and take them to the agreed-upon location but is not responsible for unloading the items there. However, the FCA Incoterm requires the seller to clear the goods for export, if necessary. Clearing for import remains the responsibility of the buyer. In the case of the FCA Incoterm, insurance is not required.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"CPT_and_CIP_Incoterms\"><\/span>CPT and CIP Incoterms<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>CPT or the Carriage Paid To Incoterm specifies that the\nseller has to pay for the delivery of goods to a specified location, usually\nthe buyer\u2019s facility or a port of destination. However, the buyer assumes all\nrisk of loss or damage as soon as the goods are loaded onto the first carrier\u2019s\ntransportation vehicle at the seller\u2019s facility.<\/p>\n\n\n\n<p>The CPT Incoterm also obliges the seller to clear the goods\nfor export while the buyer needs to clear them for import. No insurance\ncontract is required within the CPT framework.<\/p>\n\n\n\n<p>CIP or Carriage and Insurance Paid To Incoterm retains the\nfeatures present in the CPT, but with the additional requirement of insurance.\nAfter the 2020 revision, the insurance has to cover the contractual price plus\n10%, if not agreed upon otherwise. The seller has to provide the insurance.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"DAP_DPU_and_DDP_Incoterms\"><\/span>DAP, DPU, and DDP Incoterms<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>DAP or the Delivered At Place Incoterm is mostly used in situations where the parties do not want the seller to be responsible for the unloading of goods at the destination. In this case, goods are considered delivered when the vehicle arrives at the buyer\u2019s facility. Until then, the seller assumes risk of loss or damage.<\/p>\n\n\n\n<p>DPU or the Delivered At Place Unloaded Incoterm, however,\nspecifies that the seller is also responsible for the unloading of the goods at\nthe place of destination.<\/p>\n\n\n\n<p>In both cases, the seller is responsible for the export\nformalities and the buyer for the import formalities.<\/p>\n\n\n\n<p>DDP or the Delivered Duty Paid Incoterm, however, specifies\nthat the buyer is obligated to unload the goods, but the seller has to clear\nthe merchandise for both export and import.<\/p>\n\n\n\n<p>No insurance is required within any of the three D-category\nincoterms.<\/p>\n\n\n\n<p><strong>Incoterms for sea and\ninland waterway transport:<\/strong><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"FAS_and_FOB_Incoterms\"><\/span>FAS and FOB Incoterms<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>FAS or the Free Alongside Ship specifies that the buyer has\nto organize and pay for the transportation from port to port. The goods are\nconsidered delivered when they are placed alongside the buyer\u2019s vessel at the\nport. From that moment on, the buyer has to bear all costs and risks. Within\nthe FAS Incoterm framework, the seller has to clear the goods for export and\nthe buyer has to clear the goods for import, if not agreed otherwise. FAS\nshould be used only for non-containerized seafreight and inland waterway\ntransport.<\/p>\n\n\n\n<p>Under the FOB or the Free On Board Incoterm, the seller also has to load the goods onto the vessel of the buyer. That means the risk of loss or damage is transferred to the buyer only when the goods are on board the ship. Like with the FAS, the seller has to clear the goods for export and the buyer for import.<\/p>\n\n\n\n<p>No insurance is required from either party under either of the\nIncoterms.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"CFR_and_CIF_Incoterms\"><\/span>CFR and CIF Incoterms<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>CFR or the Cost and Freight Incoterm specifies that it is\nthe obligation of the seller to load the goods onto the ship, after which the\nrisk of loss or damage is shifted onto the buyer. However, the seller still has\nto organize and pay for the transport to the destination port. The seller has\nto clear the goods for export and the buyer for import. In the case of the CFR\nIncoterm, no insurance is needed.<\/p>\n\n\n\n<p>CIF or the Cost, Insurance, and Freight Incoterm retains the\nbasic features of the CFR Incoterm, but adds the requirement of insurance for\nthe journey from the port of shipment to at least the port of destination.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Key_takeaways\"><\/span>Key takeaways<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul class=\"wp-block-list\"><li>Incoterms or International Commercial Terms are an industry standard that is used to regulate international trade, defining the responsibilities and obligations of the sellers and buyers, mainly in the logistics and shipping phase of a transaction.<\/li><li>There are 11 Incoterms today that define some of the aspects and processes of a transaction, including delivery, transportation costs, import\/export formalities, and insurance costs.<\/li><li>Incoterms do not include information about the products, their price, or payment terms, nor do they provide dispute resolution mechanisms. That is why they need to be complemented by separate terms that address other conditions of the sale.<\/li><li>Incoterms are categorized either by the nature of the terms or the mode of transport used (all modes of transport vs. sea and inland waterway transport).<\/li><li>Under the Ex Works (EXW) Incoterm, the buyer picks up the goods at the location of the seller, taking over all transportation costs as well as the risk of loss or damage.<\/li><li>The Free Carrier (FCA) Incoterm specifies that the seller loads the goods onto the vehicle of the carrier, the risk and costs pass onto the buyer when that is done.<\/li><li>Under the Carriage Paid To (CPT) Incoterm, the seller has to pay for the transport while the buyer assumes the risk for any loss or damage incurred. In the Carrier and Insurance Paid to (CIP) Incoterm, the seller also has to pay for insurance.<\/li><li>Under the Delivered At Place (DAP) Incoterm, the seller is responsible for delivering the goods to the facility of the buyer, without having to unload the goods. The Delivered at Place Unloaded (DPU) Incoterm also requires the seller to unload the goods, with the risk being transferred to the buyer once the goods have been unloaded.<\/li><li>The Delivered Duty Paid (DDP) Incoterm puts the responsibility for clearing the goods both for export and import onto the seller, who also has to organize the delivery to the facility of the buyer, without unloading the items.<\/li><li>Under the Free Alongside Ship (FAS) Incoterm, the seller has to place the goods alongside the carrier ship, after which the risk and costs are transferred to the buyer.<\/li><li>The Free On Board (FOB) Incoterm specifies that the seller is also responsible for loading the goods onto the carrier vessel.<\/li><li>Under the Cost and Freight (CFR) Incoterm, the seller has to deliver the goods to the port of destination while the risk of loss or damage shifts to the buyer when the goods are loaded onto the vessel. The Cost, Insurance, and Freight (CIF) Incoterm adds the requirement of insurance, paid for by the seller.<\/li><\/ul>\n\n\n\n<p><em>You may also like: <a href=\"https:\/\/www.mrpeasy.com\/blog\/supply-chain-planning\/\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\">Supply Chain Planning \u2013 A Quick Guide<\/a><\/em><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Incoterms or International Commercial Terms are used to facilitate and standardize trade processes, especially logistics and shipping. As of today, there are 11 different Incoterms that all allocate different responsibilities to both parties of a transaction.<\/p>\n","protected":false},"author":7,"featured_media":9190,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[384],"tags":[1089,1088,1090,235,66,374,1092,1091,1093],"class_list":["post-9189","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-supply-chain-management","tag-incoterm","tag-incoterms","tag-international-trade","tag-logistics","tag-mrpeasy","tag-procurement","tag-shipping","tag-trade","tag-trade-terms"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.7 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Incoterms \u2013 A Simple Guide - Blog for Manufacturers and Distributors<\/title>\n<meta name=\"description\" content=\"The 11 Incoterms are used to standardize trade processes, especially logistics and shipping, dividing the responsibilities between sellers and buyers.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.mrpeasy.com\/blog\/incoterms\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Incoterms \u2013 A Simple Guide - 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