INCOTERMs
11 Incoterms acronyms (last modified 2020)
In the current version of Incoterms®, with its latest 2020 amendment, the rules are represented by 11 terms or acronyms. These terms are divided into terms applicable to any mode of transport (EXW, FCA, CPT, CIP, DAP, DPU, and DDP) and terms applicable to maritime and inland waterway transport (FAS, FOB, CFR, and CIF). Taking into account the bases and modifications in the update explained in the previous Incoterms 2020 article, below we briefly explain each of the 11 terms.
Incoterms valid for any type of transport
EXW Ex Works / En Fábrica
- The seller/exporter's obligations are to make the goods available to the buyer at their facilities or warehouses, releasing them from all liability from that moment on.
- The buyer/importer subsequently assumes the costs and responsibilities for loading the merchandise and for customs procedures or documents such as insurance, as they assume the risk.
FCA Free Carrier / Libre transportista
You can use FCA Factory or FCA Terminal (referring to ports, airports, etc.)
FCA Factory or Warehouse (seller’s location):
- The seller must deliver and load the goods onto the means of transport provided by the buyer, who assumes the costs and risks of transportation. This would replace the term EXW.
- The seller, who assumes the costs and risks during inland transport and customs procedures, may only deliver the goods at the agreed-upon location, so that the buyer is subsequently responsible for unloading and handling them to another transport.
CPT Carriage Paid To / Transporte pagado hasta
- The seller must cover all expenses, such as primary transportation, that arise until the goods are delivered to the agreed-upon location.
- The buyer is responsible for insurance (optional) and import procedures. Once the goods are loaded onto the carrier contracted by the seller, it must be taken into account that the risk during transit rests with the buyer.
CIP Carriage and Insurance Paid / Transporte y seguro pagados hasta
The changes to this Incoterm 2020 address insurance coverage, which has become mandatory for the seller and is linked to Clause A of the Institute Cargo Clauses, where the goods must be insured until they are delivered to the carrier at the agreed location.
- The seller is responsible for all costs up to delivery at the destination, such as origin, freight, primary transportation, export clearance, and insurance coverage (the buyer must be named as the beneficiary of the insurance).
- The buyer assumes import procedures and risks during the journey, from the moment the merchandise leaves the country of origin until delivery to the main carrier.
DAP Delivered At Place/ Entregado en punto de destino
- During the transaction, the seller is responsible for all costs and risks, except for import clearance and unloading at the designated location.
- The buyer is responsible only for import clearance and unloading.
This Incoterm does not require insurance, but if it does, the costs would be borne by the seller.
DPU Delivered at place Unloaded/ Entregado en el lugar de descarga
This new Incoterm replaces the previous DAT, expanding the options for delivery by terminal or any other agreed-upon location.
- The seller assumes the risks and costs of origin, packaging, loading, export clearance, freight, unloading, and delivery to the designated place. This is the only Incoterms rule where the seller must unload at the destination.
- The buyer is solely responsible for import clearance procedures.
* This Incoterm is primarily used by companies to control logistics from origin to destination; however, given the seller’s extensive responsibilities (as with the DAP Incoterm), it is not recommended to use this rule in countries with developing infrastructure, as they are more likely to experience any type of setback.
DDP Delivered Duty Paid/ Entregado con derechos pagados
- The seller assumes all risks and expenses, including packaging and freight, export and import clearance, and insurance coverage if purchased.
- The buyer is only responsible for receiving the goods.
This rule is recommended for low-value goods, where the service provided can be fast and efficient for the customer. The urgency of the shipment would be more important than the cost.
Incoterms valid for maritime and river transport
FAS Free Alongside Ship/ Libre al costado del buque
- The seller assumes all costs, including customs clearance, until the goods are delivered to the loading dock at the port of origin. Their responsibilities do not include loading the goods on board the vessel.
- The buyer manages the cargo on board, stowage, freight, and expenses until delivery at the agreed location. They also assume the risks when the goods are placed on the loading dock for subsequent loading onto the vessel.
FOB Free On Board/ Libre a bordo
- The seller is responsible for all costs and risks, as well as export clearance, until the goods are loaded on board.
- The buyer must be responsible for contracting the means of transport, import procedures, freight costs, unloading, and delivery at the designated destination, as well as insurance, if purchased. The risks fall to the buyer once the goods are on board the vessel.
CFR Cost and Freight/ Coste y Flete
- The seller assumes all costs until the goods arrive at the designated port, including primary transportation and unloading costs.
- The buyer assumes the risks as soon as the goods are on board and during their journey, and handles import and transportation procedures. Therefore, insurance is recommended.
CIF Cost, Insurance and Freight/ Coste, Seguro y Flete
As with the CIP Incoterm, changes were made to this rule regarding insurance coverage, which is now mandatory for the seller. Clauses C of the Institute Cargo Clauses must be taken into account, which stipulate that insurance must cover the goods until they arrive at the port of destination.
- As with the CFR rule, the seller assumes all costs until arrival at the assigned port. Additionally, insurance must be purchased, although the buyer is responsible for all risks when the goods are on board the vessel.
- The buyer assumes all risks during transit and all import and transportation costs.
