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What is Incoterms?

When goods cross borders, businesses florish and that when the larger development happens!

And, thanks to globalisation, more and more people are looking for international trade opportunities. People engaged in global trade often have questions like:

·       Where to deliver the goods?

·       Who bears the risk?

·       Who pays for transportation?

·       Who covers the handling expenses?

International Chamber of Commerce (ICC) has come up with Incoterms (International Commercial Terms) rules to answer these questions. These rules include the risk, expenses, and tasks associated with the delivery and transportation of goods. These terms are widely used in international transactions, deliveries, and procurements. 

Terms for any transport mode

EXW – Ex Works

Sellers only need to make the goods available at their premises. The buyer will take care of the transportation of goods, along with the expenses and risks.

FCA – Free Carrier

In this case, the seller will deliver the goods to the carrier approved by the buyer. The seller will load the goods into the carrier’s pickup. From that point onwards, the buyer will bear the risk of loss or damage to the goods.

CPT - Carriage Paid To

The seller will pay the expenses for moving the cargo to its destination. Once the cargo reaches the first carrier, the buyer will bear the risk of loss or damage.

CIP - Carriage And Insurance Paid To

The seller will pay the expenses for moving the cargo to its destination. Once the cargo reaches the first carrier, the buyer will bear the risk of loss or damage. However, the seller must purchase the cargo insurance.

DAT - Delivered At Terminal

The seller will deliver the goods to a terminal. This terminal can be a port terminal, railway terminal, container terminal, airport, or any other hub. Once the cargo is unloaded at the terminal, the buyer must bear the risk of damage or loss.

DAP - Delivered At Place

The seller delivers the goods to the Buyer’s location. The seller bears all expenses and risks of transporting the cargo to the destination.

DDP - Delivered Duty Paid

The seller delivers the goods to the buyer’s location. The seller bears all expenses and risks of transporting the cargo to the destination. The seller must also pay the custom duty and taxes.

Maritime-only Terms

FAS - Free Alongside Ship

The seller will deliver the cargo to the origin port. From that point onwards, the buyer must bear all the expenses and risks.

FOB - Free On Board

The seller will load the cargo on the ship and clear it for export. From that point onwards, the buyer must bear all the expenses and risks.

CFR - Cost And Freight

The seller will clear the goods for export and pay the transportation costs. Once the goods are loaded on the ship, the buyer must bear all the expenses and risks.

CFI – Cost Insurance and Freight

The seller will clear the goods for export and pay the transportation costs. The seller must also purchase the cargo insurance. Once the goods are loaded on the ship, the buyer must bear all the expenses and risks. 

Relevance of Incoterms in Marine Cargo Insurance

Generally, people aren’t aware of the INCOTERMS when they buy insurance. Most people think that insurance covers their cargo throughout the journey. To their surprise, when their cargo gets lost or damaged, the insurance doesn’t cover it.

Hence, it’s essential to know how much risk you bear based on the INCOTERM you have chosen. By understanding the terms, you can insure your cargo for your part of the transit. Also, by being aware of the terms, you can ask the other party to insure their part of the transit.

Things to know about INCOTERMS
  • INCOTERMS are not a contract
  • INCOTERMS do not replace the law of contract
  • INCOTERMS do not define where the title transfers
  • INCOTERMS only apply to the contract of goods and not services
  • INCOTERMS do not explain how to resolve problems related to breach of contract
  • INCOTERMS do not address the price payable, currency, or credit terms

Disclaimer: For complete details of Policy coverage, terms, conditions and exclusions, please refer the policy wordings.