Useful Guide to exportation agreements-Incoterms

The INCOTERMS are rules which try to make the international transactions easy and avoid misunderstanding between both parts of the transaction.

The INCOTERMS are a combination of three letters used to describe the commercial terms agreed in the transaction. It includes the rights and obligations of both parts of contract of sale.

The differences between them are : the part of the contract that assume the risks and the place where the cargo is unload.

• EXW ( Ex-work): The seller  completes the delivery when the cargo is available to ship at his premises ( factory, workshop etc.) or in the place agreed in the contract. This method does not imply the cargo loading in the mean of transport. The buyers have the obligation of pay in the terms agreed and transport the cargo and assume all the costs involved. By this way, the buyer will take the risk of loss or damage of the cargo. The seller has the minimum obligation with this kind of agreement.

•   FCA ( Free-carrier): The seller  deliver the cargo to the carrier  and the place agreed between both parts. The buyer decides the delivery conditions and the risk and fees are paid by the buyer since the cargo is delivered in the place agreed.

• FAS ( Free alongside ship):  The seller deliver the cargo alongside the ship in the agreed port. Then , the delivery obligations (fees and risk) are in charge of the buyer. This Incoterm implies that the seller has to take care of obtaining customs clearance.
• FOB (Free on board):  The seller completes the delivery on board. This kind of agreement only can be used in shipments. The buyer pays maritime duties. The risk and the duties are transferred to the buyer when the boat is set sail.

•   CFR (Cost and freight): The seller finish the delivery when the cargo exceed the gunwale during unload. The seller must decide the ship, pay for fees and freight costs.

• CIF (Cost, Insurance and Freight): The seller and the buyer have the same obligations than CFR method but the seller has to pay the insurance to avoid the risk of loss or damage. 
•  CPT (Carrier paid to): The delivery is done by the seller and the risks are transferred when the cargo is handed out to the carrier agreed. The seller pays the duties for the transport and he chooses the mean of transport.                                                             

•   CIP (Carrier and Insurance Paid to): Obligations of the seller are exactly the same as CPT but insurance has to be paid by the seller.