Overview of Commonly Used Terms of Delivery in Manufacturing (Incoterms)
responsibilities of purchasers and sellers for the delivery of goods
The International Chamber of Commerce (ICC), through its International Commercial Terms (Incoterms), provides a set of international rules for the interpretation of the most commonly used trade terms in international transactions. Incoterms define the responsibilities of purchasers and sellers for the delivery of goods, including the costs and risks associated with the transfer of goods from the seller to the purchaser in different locations.
For example, the Incoterm CIP (Carriage and Insurance Paid to) requires the seller to arrange and pay for transportation and insurance up to the delivery point, while the Incoterm FOB (Free on Board) requires the buyer to arrange and pay for transportation and insurance from the delivery point to the final destination.
Using Incoterms helps avoid misunderstandings and disputes between purchasers and sellers regarding the delivery of goods. It is important for businesses engaging in international trade to familiarise themselves with the Incoterms and to ensure that the agreed Incoterm is stated clearly in the contract of sale.
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Ex Works (EXW) is an Incoterm that requires the seller to make goods available for pickup at their factory or warehouse. The purchaser is responsible for all transportation costs and other costs from the seller's premises to the desired destination. It is the simplest and most basic Incoterm, transferring the minimum obligation to the seller.
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Free on Board (FOB) ensures that the seller is responsible for delivering goods to the purchaser’s chosen port of departure. The seller is responsible for the cost of loading and transporting the goods to the port, as well as the risk of loss or damage to the goods until they leave the port. The purchaser is then responsible for the cost of insurance, freight and delivery to their final destination.
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Cost, Insurance and Freight (CIF) is an Incoterm in which the seller is responsible for the costs, insurance, and freight for the goods to be shipped to the buyer. The seller is responsible for the goods until they reach the purchaser’s designated port of arrival.
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Carriage and Insurance Paid To (CIP) is an Incoterm that requires the seller to pay the freight and insurance costs up to the destination point specified in the contract. The risk of loss or damage to the goods is transferred to the purchaser upon delivery to the specified destination.
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Delivered Duty Paid (DDP) is an Incoterm that requires the seller to bear all of the costs and risks associated with delivering goods to the purchaser's designated place of destination. This includes customs clearance, insurance, and all other applicable costs. The seller is also responsible for paying any applicable duties, taxes, and other fees.