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- [Narrator] Understanding Incoterms®

is a vital part of International Trade.

When exporting products internationally

you must agree to sell your goods based on 11 Incoterms®.

Incoterms® is short for International Commercial Terms,

which are published by the International Chamber of Commerce

and relate to International Commercial Law.

They are accepted by governments and legal authorities

around the world.

The International Chamber of Commerce have published

the latest version of Incoterms®, Incoterms® 2020

which have come into effect on the 1st of January 2020.

Put simply, Incoterms® are the selling terms

that the buyer and seller of goods both agree to

for the International sale and supply of goods.

Incoterms® clearly states which tasks, costs and risks

are associated with the buyer

and which are associated with the seller.

The Incoterm® states when the seller's costs and risks

are transferred onto the buyer.

This chart displays Incoterms® 2020

in an easy to understand format.

Note this chart should be used as a guide only,

for a full and complete description,

you should refer to the full version of Incoterms®

published by the ICC.

The blue section displays the different types

of Incoterms® beginning from left to right.

The green section shows the groups,

Any Mode or modes of transport,

and Sea and Inland Waterway Transport.

The yellow section shows the Freight Collect Terms

and the Freight Prepaid Terms.

Starting from the left side is the exporter

or the seller of the goods,

beginning at the seller's location or warehouse.

As you move along to the right,

the products leave the warehouse,

get loaded on board a vessel or aircraft

at the port of loading, get shipped through

to the port of destination,

pass through customs at the arriving country,

and then get delivered further through

to the buyer's location.

Along the way there are set Incoterms®

to establish which risks and costs are agreed

to be paid by the seller and which are

to be transferred to the buyer.

The left side of the chart displays

the different obligations and charges,

and displays which are covered by the seller,

and which are covered by the buyer.

So starting from the left is the first Incoterm® EXW,

which means Ex-Works, or Ex-Warehouse.

If the buyer and seller agree

to sell goods on Ex-Works terms,

then then seller's obligations are simple.

The seller will only cover the cost of the goods

and the export packaging Ex warehouse.

So the seller will manufacture the goods

and have them packaged and ready

for collection from their warehouse.

From then on all additional costs and risks

involved in transport away from the warehouse

is covered by the buyer.

Moving further along the supply chain,

there are FCA, FAS and FOB Incoterms®.

Under FCA, Free-To-Carrier the seller

will cover export duties, taxes and customs clearance

to get the products prepared for export.

Under FAS, Free-Alongside-Ship,

the seller will cover the origin terminal

port handling charges.

Then it moves onto FOB, Free-On-Board.

FOB is generally the most popular Incoterm®

that is used for containerized trade.

When FOB terms are agreed upon,

the seller's obligation is to supply the goods

and also to pay for all of the additional charges

involved to get the goods actually

loaded on board the vessel for export.

That means the seller will cover

all previously mentioned charges

and pay for the loading charges

to get the goods loaded on board the vessel for export.

As soon as the goods are loaded on board,

all further associated costs and risks are transferred

onto the buyer.

The buyer will pay for the international freight

and all charges thereafter.

If the seller agrees to pay

for the cost of freight and carriage,

then they can choose to sell the goods

on CFR, CIF, CPT or CIP Incoterms®.

Note that CFR and CIF are similar Incoterms®

that cover Sea and inland waterway transport.

If the seller agrees to cover the cost of insurance

during international sea freight,

then they can sell on the CIF Incoterm®.

CPT and CIP are similar Incoterms®

that relate to any mode or modes of transport,

where the seller will agree to pay

for the destination terminal/port handling charges.

If the seller agrees to cover the cost of insurance

during transport, they can sell goods

under the CIP Incoterm®.

Moving further along, DAP, DPU and DDP

are Incoterms® involved with getting goods delivered,

unloaded and customs cleared at the country of destination.

Under DAP, Delivered-At-Place,

the seller will cover the costs of delivery to destination.

If DPU, Delivered-at-Place-Unloaded is agreed,

then the seller will also pay for the unloading costs

at the destination.

Finally, if DDP, Delivered-Duty-Paid is agreed

then the seller will also pay

for the import duties, taxes & customs clearance

at the country of destination.

If you have any detailed questions

relating to Incoterms® you should refer

to your freight forwarder,

the International Chamber of Commerce

or other professional advice.

Before products can be shipped internationally,

the buyer and seller must agree

on the Incoterm® that the goods are sold under.

The Incoterm® must be cleared stated in sales contracts

and counter-signed by both parties

to avoid any misunderstandings.

Should any disputes arise

then the details included in the documentation

will be referred to.

IncoDocs is documentation software

used by importers and exporters all over the world.

It allows importers and exporters

to connect to easily create all of the sales

and shipping documentation required for global trade.

Join the future of global trade.

Try it yourself at incodocs.com

Please choose the correct answer for each question below: