Incoterms: Understanding International Trade Rules

Posted on Dec 1, 2024 in Economy

Incoterms are rules for the interpretation of trade terms, establishing international standards to define the responsibilities of buyers and sellers in overseas contracts.

International commercial contracts use abbreviations that outline duties, financial obligations, and responsibilities, aiming to avoid discrepancies and misunderstandings in global trade.

First published in 1936 by the International Chamber of Commerce (ICC), Incoterms are regularly revised to reflect the evolution of international trade.

These standard commercial terms determine when the seller fulfills their obligations, signifying lawful delivery of merchandise to the purchaser.

EXW (Ex Works): In Fabrica

The seller delivers when the goods are available to the buyer at the seller’s facility or another named place (factory, workshop, warehouse, etc.).

The Vendor Shall:
  • Send the goods and required documents as per the contract, ensuring compliance testing.
  • Make the goods available to the buyer at the agreed place and date.
  • Cover necessary packing costs for the buyer to take delivery.
  • Inform the buyer in advance when goods are available.
  • Pay for verification operations (quality control, measurements, weight).
  • Assist the buyer, at their request and expense, in obtaining necessary documents for export/import.
The Purchaser Shall:
  • Choose transport from the seller’s factory or warehouse.
  • Assume all costs and risks of receiving goods at the seller’s premises.
  • Cover domestic and international freight and transport costs.
  • Arrange domestic and international transit insurance.
  • Assume customs costs at the shipment point (agent fees, permissions, taxes).
  • Handle unloading, loading, and stowage at the embarkation point.
  • Cover expenses from the destination port to their named place (factory, workshop, or warehouse).

FCA (Free Carrier At…): Free Carrier…

The seller delivers the goods, cleared for export, to the carrier nominated by the buyer at the named place in the sales contract.

The Vendor Shall:
  • Cover domestic freight and transport costs.
  • Arrange internal transit insurance.
  • Assume customs charges at the embarkation point (agent fees, permissions, taxes).
The Purchaser Shall:
  • Choose transport from the seller’s factory or warehouse.
  • Handle unloading, loading, and stowage at the embarkation point.
  • Cover primary freight and international transit insurance costs.
  • Cover expenses from the destination port to their named place (factory, workshop, or warehouse).

FAS (Free Alongside Ship…): Free Alongside Ship…

The seller delivers when the goods are placed alongside the vessel at the port of shipment.

The Vendor Shall:
  • Send the goods and required documents as per the contract, ensuring compliance testing.
  • Deliver goods alongside the vessel at the named loading place and time, notifying the buyer promptly.
  • Provide standard packaging, unless otherwise customary.
  • Cover domestic freight and transport costs.
  • Arrange internal transit insurance.
  • Assume customs costs at the embarkation point (agent fees, permissions, taxes).
  • Cover unloading, loading, and stowage costs at the shipment point.
The Purchaser Shall:
  • Choose transport from the seller’s factory or warehouse.
  • Inform the seller of the ship’s name, loading place, and delivery dates.
  • Cover primary freight and international transit insurance costs.
  • Assume responsibility for costs and risks from the time of delivery.
  • Cover expenses from the destination port to their named place (factory, workshop, or warehouse).

FOB (Free On Board…): Free on Board…

The seller fulfills their obligation when the goods pass the ship’s rail at the port of shipment.

The Vendor Shall:
  • Cover domestic freight and transport costs.
  • Arrange internal transit insurance.
  • Assume customs costs at the embarkation point (agent fees, permissions, export licenses, taxes).
  • Handle unloading, loading, and stowage at the embarkation point.
The Purchaser Shall:
  • Choose transport from the seller’s factory or warehouse.
  • Charter a vessel or book space, notifying the seller of the ship’s name, loading place, and delivery date.
  • Cover primary freight and international transit insurance costs.
  • Cover expenses from the destination port to their named place (factory, workshop, or warehouse).