Incotern

Incoterms are fundamental terms, as they define the responsibilities of the buyer and seller in a product negotiation between different countries and aim to standardize import and export rules.

What are Incoterms?

Incoterms (International Commercial Terms or International Trade Terms, in Portuguese) are the rules that regulate and standardize various aspects of international trade.

It is these terms that define a contract for the purchase and sale of goods, which will be the costs and obligations between the buyer and the seller.

The Incoterms clauses came into force between 1920 and 1930 and are updated every 10 years to follow the development of world trade. Therefore, in 2020 a new version appeared (However, it is important to note that a newer version does not revoke or cancel a previous one).

Therefore, the Incoterms make clear and regulate the following issues:

The person responsible for paying for the formal services involved in an export and import, such as cargo insurance and international freight, for example;
The place where the seller must deliver the goods sold;
Deadlines and time of delivery;
The limits of the risks of each of the parties involved, among others.

Check the list of updated Incoterms in 2020:

EX W – Ex Works – At Origin (named delivery place);

F CA – Free Carrier – Free On Carrier (named delivery place);

In the FCA, the obligations are of the seller only until the moment of delivery for transport. From then on, it is the buyer who assumes all responsibilities. That is, who pays the freight in the FCA is the buyer. Therefore, in the FCA the seller must deliver the goods to an agreed location which can be:

F AS – Free Alongside Ship – Free Alongside Ship (named port of shipment);

In FAS, the seller fulfills his delivery obligation when the cargo is placed alongside the vessel designated by the buyer, at the quay or on a vessel, at the indicated port of shipment. Customs procedures for export are the responsibility of the seller, when applicable. It has no obligation regarding customs formalities on importation and passage through third countries.

FOB – Free On Board – Free On Board (named port of embarkation);

CPT – Carriage Paid To – Carriage Paid To (named place of destination);

Basically, everyone is responsible for the processes in their country, however, inspection and inspection of the goods must be a process of responsibility of both the seller and the buyer. In addition, it is up to the buyer to use insurance or not, but caution must be exercised, because if you decide not to take out insurance, all responsibilities for loss or damage to the goods remain with the buyer.

CIP – Carriage And Insurance Paid To – Transport And Insurance Paid To (named place of destination);

The CIP, the main transport as well as the freight must be paid by the seller and from the moment the goods are delivered to the carrier of their destination, the responsibility for damage, loss and theft becomes entirely the buyer's, if the buyer If you want or find it necessary, you can purchase additional insurance to avoid this.

CFR – Cost And Freight – Cost And Freight (named port of destination);

CIF – Cost Insurance And Freight – Cost, Insurance And Freight (named port of destination);

D AP – Delivered At Place – Delivered At Place (named destination place);

Incoterm DAP means that the goods are considered delivered when they are placed at the disposal of the buyer at the destination in the means of transport of arrival, without being unloaded. According to this rule, the seller assumes the transport of the goods to the agreed delivery point in the country of destination.

D PU – Delivered At Place Unloaded – Delivered At Landed Place (Named destination place);

In the inconterm DPU, the goods are delivered clear, ready to be unloaded at the place of destination. Thus, only the costs of insurance and unloading at destination are the responsibility of the buyer, this Incoterm being the opposite of EXW (ExWorks)

D DP – Delivered Duty Paid – Delivered Duty Paid (named place of destination).

In Inconterm DDP (Delivered Duty Paid) the seller assumes above all all responsibilities and risks of transport, from origin to the destination address stipulated by the buyer. The seller must thus arrange for all clearance and payment of fees, both in the country of origin for export and in the country of destination for import.

The most used Incoterms:

EXW – Ex Works – At Origin (named place of delivery)

This is the term that guarantees the least responsibility for the seller and the most for the buyer, the Incoterm being the most used. It defines the buyer's duty to organize and bear the costs of transporting the product purchased from the factory that produced it. In addition, the buyer must bear the freight, insurance and other expenses inherent to the delivery of the product at the destination. Also, from the moment the seller makes the cargo available at the agreed place and date, the risk of loss or damage to the goods passes to the buyer.

FOB – Free On Board – Free On Board (named port of embarkation)

Incoterms FOB is also widely used because it defines that it is the responsibility of the seller to deliver the goods on board the ship indicated by the buyer. In addition, it is the seller who bears the costs of loading. From this delivery, the risk of loss or damage to the goods lies with the buyer. Already, from the port of shipment, it is the buyer's duty to contract and pay for transport and insurance.

CFR – Cost And Freight – Cost And Freight (named port of destination)

The Incoterms CFR, on the other hand, indicates that the seller must bear the costs of transport and internal movement, that is, internal freight to the port of shipment of the goods. In this way, the risks of loss are assumed until the time of delivery of the goods to the carrier. From then on, the risk rests with the buyer. When the cargo is loaded on the ship, the buyer is responsible for the transport and insurance costs.

CIF – Cost Insurance And Freight – Cost, Insurance And Freight (named port of destination)

In this term, the seller is responsible for delivering the cargo to the carrier on board the ship indicated by the buyer. The seller must contract and pay the necessary costs and freight from the point of delivery to the named port of destination. In addition, he is also responsible for contracting and paying for the insurance. Thus, the seller runs the risk of the cargo being lost or damaged until the moment of delivery to the carrier and the risk belongs to the buyer from the moment the cargo is on the ship.