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What Are The Different Types of Incoterms?
Incoterms are the terms used in international trade to define the seller’s and buyer’s responsibilities as part of the sales contract. There are 11 types of incoterms, and it’s important to know what they mean. DeltaNet International explain what an incoterm is, how they are categorised and what they all mean.
Our Incoterms Courses
- 40 minutes
Export and Import Controls
Trade controls are restrictions imposed on the transfer of items from one country to another by any individual, company, government or public body. They can help certain goods and technologies from falling into the wrong hands.
This comprehensive eLearning course covers regulation and compliance around various aspects of export and import controls including customs declarations, handling dangerous goods shipments, title transfers, incoterms and trade controls.
- 40 minutes
- 10 minutes
Title Transfers and Incoterms
When drawing up sales agreements for international freight shipments, it’s important to decide on the appropriate title transfer, followed by the correct incoterm for the title transfer.
This microlearning course from DeltaNet International explains in a user-friendly and succinct manner everything your employees need to know about title transfers and incoterms. It will ensure staff are familiar with terms used by Customs and help ensure smooth delivery or receipt of items.
It is an engaging exploration of the processes behind transferring ownership of goods from seller to buyer. The responsibilities of both parties will vary depending on the incoterms chosen, so it’s important for everybody involved in importing and exporting goods to know about them.
- 10 minutes
- 10 minutes
Dangerous Goods Shipments
Dangerous goods are materials or items with physical and/or chemical properties which, if not properly controlled, present a potential hazard to our health and safety, our infrastructure, or the means of transport used to ship them.
This microlearning course ensures employees are familiar with and are able to recognise dangerous goods, as well as remaining aware about the potential risks of transporting dangerous goods. It provides an overview into the legislation imposed by Customs on dangerous goods and how to find out if your shipment is classified as dangerous or not.
- 10 minutes
Incoterms were developed and published by the International Chambers of Commerce (ICC) in 2009. Incoterms are the internationally identifiable acronyms used to establish the precise nature of the relationship between seller and buyer in any commercial transaction. These phrases are an efficient way of communicating the specific responsibilities assigned to each party wherever a transaction involves the transportation of goods. For example, incoterms outline who is obliged to cover the cost of each part of the international journey, who is responsible for the shipment at each part of the international journey, and who must ensure the goods are insured. Incoterms also determine what documentation is required for the transaction.
What are the types of incoterms?
Currently, there are 11 different incoterms. Each type is divided into four groups: E, F, C and D. These categories are determined by the delivery location and who is responsible for covering the cost of each part of the journey. The groups are then split into sub-categories which refer to various scenarios. When choosing an incoterm, buyers and sellers should thoroughly review each incoterm and decide which set of terms best suit them and their shipment.
Incoterms Group E – EXW (Ex Works)
Ex Works places most of the responsibility onto the buyer. The seller ensures the goods are at the seller’s premises or another named location where the buyer loads and clears the goods for export.
Incoterms Group F
In this group, the seller is responsible for delivering the goods to the buyer’s pre-agreed method of transportation. After this, the buyer takes responsibility for all the costs and risks. There are a couple of sub-groups in the F category of incoterms, including:
- Free Carrier (FCA): This is similar to Ex Works. The seller delivers goods either to the carrier, a nominated person at the seller’s premises, or another named location. The point at which any risks are passed onto the buyer must be clearly stated.
- Free Alongside Ship (FAS): FAS is when the seller delivers goods alongside a vessel nominated by the buyer. The responsibility lies with the buyer once the goods are alongside the vessel.
- Free on Board (FOB): FOB is when the seller delivers goods on-board a vessel nominated by the buyer. The responsibility lies with the buyer once the goods are on-board the vessel. Both FAS and FOB are incoterms used for waterway shipments.
Incoterms Group C
In this group, the seller bears responsibility for all costs to the destination port. Once the goods are loaded onto the transport, the risks are transferred to the buyer. Group C incoterms include:
- Cost and Freight (CFR): CFR is similar to FOB. The difference is that the seller must pay for the costs and freight to deliver goods to their destination.
- Cost, Insurance and Freight (CIF): CIF is similar to CFR. The difference is that the seller arranges insurance cover against the buyer’s risk of loss or damage. Both of these terms relate to waterway shipments.
- Carriage Paid To (CPT): In this case, the seller is responsible for arranging the transportation of the goods to a named destination, but not for insuring them.
- Carriage and Insurance Paid To (CIP): This is similar to CPT, except the seller is also responsible for insuring the goods.
Incoterms Group D
These terms relate to the destination of goods:
- Delivered at Terminal (DAT): DAT is when the seller delivers the goods to a named place of destination, once the goods have been unloaded. The seller has full responsibility for the goods up until the named place of destination.
- Delivered at Place (DAP): DAP is when the seller delivers the goods ready for unloading at the named place of destination. The seller has full responsibility for the goods up to the named place of destination.
- Delivered Duty Paid (DDP): This is for when the seller is responsible for all costs and risks relating to the delivery of goods to the buyer’s named place of destination. This includes clearing goods for export and import, paying any duty and carrying out customs formalities.
Which incoterm should you choose?
Free Carrier (FCA) and Delivered at Place (DAP) incoterms are popular incoterms as they can be used for both domestic and international shipments and for any mode of transport. The seller is responsible for export customs and the buyer is responsible for import customs. In contrast, using Ex Works (EXW) places full responsibility onto the buyer, which poses the risk of the buyer not being able to carry out all of these responsibilities.
You can carry out a cost/benefit analysis to help you decide which incoterm to use. This might enable you to identify any tax or other financial benefits available for the transaction. It’s also worth checking there are no legal issues that could cause problems with a shipment reaching its destination. For example, there might be country-specific restrictions on your goods if they’re prohibited. It’s incredibly important to ensure you have all the necessary documentation, including licences or permits.
Shipments can face problems without the correct incoterm so it’s really important to think carefully about which one is appropriate. Failure to understand incoterm definitions leads to problems throughout the supply chain. For example, logistics costs could increase, the terms may not match the requirements of the buyer or seller or the buyer or seller may not be able to comply with the incoterm.
How will incoterms change?
As the current set of incoterms are over ten years old, they’re due to be updated on January 2020. There is much speculation surrounding the extent to which the terms will be removed or revised, or if any new incoterms will be introduced. It’s been suggested that some incoterms, such as DDP and FCA, will be split into separate terms. The new publication should also make the incoterms easier to understand, which will hopefully reduce the risk of misinterpretation.
Our Incoterms Courses
- 40 minutes
Export and Import Controls
Trade controls are restrictions imposed on the transfer of items from one country to another by any individual, company, government or public body. They can help certain goods and technologies from falling into the wrong hands.
This comprehensive eLearning course covers regulation and compliance around various aspects of export and import controls including customs declarations, handling dangerous goods shipments, title transfers, incoterms and trade controls.
- 40 minutes
- 10 minutes
Title Transfers and Incoterms
When drawing up sales agreements for international freight shipments, it’s important to decide on the appropriate title transfer, followed by the correct incoterm for the title transfer.
This microlearning course from DeltaNet International explains in a user-friendly and succinct manner everything your employees need to know about title transfers and incoterms. It will ensure staff are familiar with terms used by Customs and help ensure smooth delivery or receipt of items.
It is an engaging exploration of the processes behind transferring ownership of goods from seller to buyer. The responsibilities of both parties will vary depending on the incoterms chosen, so it’s important for everybody involved in importing and exporting goods to know about them.
- 10 minutes
- 10 minutes
Dangerous Goods Shipments
Dangerous goods are materials or items with physical and/or chemical properties which, if not properly controlled, present a potential hazard to our health and safety, our infrastructure, or the means of transport used to ship them.
This microlearning course ensures employees are familiar with and are able to recognise dangerous goods, as well as remaining aware about the potential risks of transporting dangerous goods. It provides an overview into the legislation imposed by Customs on dangerous goods and how to find out if your shipment is classified as dangerous or not.
- 10 minutes
Jenny James
Operations Manager
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I am an expert in international trade, compliance, and training solutions, with a demonstrable depth of knowledge in the field. My expertise is grounded in a comprehensive understanding of various aspects, including compliance training, health and safety, performance training, and, notably, incoterms in the context of international trade.
In the provided article, the focus is on incoterms, which are essential in defining the responsibilities of sellers and buyers in international trade. Here's a breakdown of the concepts and information covered in the article:
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Introduction to Incoterms:
- Incoterms were developed and published by the International Chambers of Commerce (ICC) in 2009.
- They are internationally identifiable acronyms used to define the relationship between sellers and buyers in commercial transactions involving the transportation of goods.
-
Types of Incoterms:
- There are 11 different incoterms, each divided into four groups: E, F, C, and D, based on delivery location and responsibility for costs.
- Groups are further divided into sub-categories, specifying various scenarios.
-
Incoterms Group E – EXW (Ex Works):
- Places most responsibility onto the buyer, who loads and clears the goods for export.
-
Incoterms Group F:
- Seller is responsible for delivering goods to the buyer's pre-agreed transportation method.
- Sub-groups include Free Carrier (FCA), Free Alongside Ship (FAS), and Free on Board (FOB).
-
Incoterms Group C:
- Seller bears responsibility for costs to the destination port.
- Group C incoterms include Cost and Freight (CFR), Cost, Insurance and Freight (CIF), Carriage Paid To (CPT), and Carriage and Insurance Paid To (CIP).
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Incoterms Group D:
- Terms relate to the destination of goods, including Delivered at Terminal (DAT), Delivered at Place (DAP), and Delivered Duty Paid (DDP).
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Choosing the Right Incoterm:
- Factors influencing the choice include the nature of goods, transportation mode, and the division of responsibilities.
- Popular incoterms such as Free Carrier (FCA) and Delivered at Place (DAP) can be used for both domestic and international shipments.
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Cost/Benefit Analysis:
- It is advisable to conduct a cost/benefit analysis to identify tax or financial benefits and ensure legal compliance.
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Potential Issues:
- Incorrect understanding of incoterms can lead to problems in the supply chain, increased logistics costs, and non-compliance with buyer or seller requirements.
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Future Changes to Incoterms:
- As of the article's writing, there was anticipation of updates to incoterms in January 2020 to make them more understandable and reduce the risk of misinterpretation.
In summary, my expertise encompasses a thorough understanding of incoterms, international trade regulations, compliance training, and related topics, making me well-equipped to provide insights and guidance in these areas.
