Incoterms are a series of pre-defined, internationally recognised commercial terms that are used to communicate the sellers and the purchasers’ tasks, costs and responsibilities associated with the transportation and delivery of goods. They are represented as a series of three letter codes. The most common Incoterms include:
EXW (Ex Works) – All costs and responsibility lie with the buyer. These include but are not limited to arranging collection from the supplier, transport to port, export clearance, freight charges, insurance, import customs clearance and delivery.
CFR (Cost and Freight) – Ownership transfers from the seller to the buyer at the specified port. The seller pays the freight costs to the port. The buyer is responsible for arrival charges, clearance and domestic transport.
CIF (Cost Insurance and Freight) – Ownership transfers from the seller to the buyer at the specified port. The seller pays the freight costs and bears the insurance risk to that location. The buyer is responsible for arrival charges, clearance and transport from the port to destination.
FOB (Free on Board) – The seller is responsible for delivery to the wharf or airport, export clearance and loading onto the vessel or aircraft. The buyer pays the cost of freight from that point on. Ownership and risk is transferred at ‘the shipper’s rail’. This literally means that if the container is damaged on the wharf it is at the seller’s risk, if it is damaged on the vessel, it’s the buyer’s risk.