An Introduction to Incoterms

Shipping has become a very important industry. Almost everything depends on it nowadays. Because of that, there are certain rules that both the shipper and the buyer need to obey. The same goes for all shipping and logistics companies. Incoterms are an internationally used set of instructions that divide the responsibility between the shipper and the buyer. These rules define who is responsible for the liabilities, costs, and risks associated with the shipment at each stage of the process. Because they are so important, we have created an introduction to incoterms.

An introduction to Incoterms

Since they are so important, if you are sending air cargo from USA to Saudi Arabia, you need to know about them. There are 11 different ones that we will make an introduction to incoterms for:

  • CPT
  • CIP
  • CFR
  • CIF
  • CIF Felixstowe
  • DAT
  • DAP
  • DDP
  • EXW
  • FAS
  • FCA
  • FOB

We will describe the most commonly used below.

Carriage Paid To – CPT

This term indicates that the seller pays all the costs of transporting the goods to the port. The seller’s responsibility ends once he delivers the goods to the carrier. This can be used for all cargo transport services, including sea and air.

Picture of grey ropes
CPT is one of the most used Incoterms

Cost, insurance, and freight – CIF

Even if container shipping is mostly used in the world, this is not used for this type of transportation. And yet, it is the incoterm that is used the most. This one is beneficial to both seller and buyer when using some cold chain logistics services. The seller does not carry the risk of the goods getting damaged or lost, because they shift to the buyer at the origin. Even though the buyer carries all the risks, the seller needs to provide a minimum level of insurance.

Delivered Duty Paid – DDP

The growth of this incoterm happened with the expansion of the e-tailers. Companies use DDP every time they sell something online. The seller pays if something happens and you don’t get your goods. They even entitled you to get new goods. This provides maximum comfort for the clients.

Free Alongside Ship – FAS

In ordinary large cargo does best with this incoterm. Under FAS, the seller’s responsibility is to put the goods alongside the buyer’s ship. After collecting them, the transport costs shift to the buyer.

Free Carrier – FCA

This is the best incoterm for a seller that doesn’t want to carry additional risks and doesn’t want to get involved in transport costs. FCA is very flexible, meaning that the place of delivery can be everything from a port to a seller’s premise. Because of the flexibility, it is so widely popular.

Free On Board – FOB

Companies mostly use FOB for commodities, even though they misunderstand it and use it where it shouldn’t be. Even though people primarily intended it for water transport, they also use it for truck shipments. FOB is similar to FAS, the only difference being that it is the seller’s responsibility to load the goods on the buyer’s ship.

Ships on the sea
FOB was intended for water transportation first

An introduction to incoterms

We hope that our introduction to incoterms has made the most common ones clearer. You can always investigate all the incoterms further if you are interested. They change from time to time, so it is better to keep up.

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