INCOTERMS - EXW, FCA, CPT, CIP, DAP, DPU, DDP

 Introduction 

                     INCOTERMS rules have provided guidance to importers, exporters, lawyers, transporters, insures and others involved in international trade.  They are published by the ICC (International Chamber Of Commerce). 

The Core functions of  INCOTERMS used in international trade :- 

(a) Outline the obligations of the buyer and the seller in a trade transaction.

(b) Clarify when risk passes from seller to buyer under each of these rules. 

( Outline how costs are allocated between the buyer and the seller. 

INCOTERMS rules are divided into two classes. They are given below:-

(1) Rules for any mode of transport:- 

(a) EXW (Ex Works)

(b) FCA (Free Carrier)

(c) CPT (Carriage Paid To)

(d) CIP (Carriage And Insurance Paid To) 

(e) DAT (Delivered At Terminal) or DPU (Delivered At Place                         Unloaded)  

(f) DAP (Delivered At Place) 

(g) DDP (Delivered Duty Paid)

(2) Rules for Sea and Inland waterway transport :- 

(a) FAS (Free Alongside Ship)

(b) FOB (Free On Board)

(c) CFR (Cost And Freight) 

(d) CIF (Cost Insurance Freight)   

Rules for any mode of transport : -

(A) EXW (Ex - Works)  

                               Ex - Works means that the seller delivers when it places the goods at the disposal of the buyer at the seller's premises or at another named place i.e. works , factory, warehouse, etc. The seller does not need to load the goods on any  collecting vehicle, or does it need to clear the goods for for export where such clearance is applicable. This rule may be used irrespective of the mode of transport selected and may also be used where more than one mode of transport is employed. EXW is mostly suitable for domestic trade. 

          Explanation -  In simple terms, if you are the buyer and you are buying the goods from the seller or EXW terms, you will need to send your truck to the seller's premises and collect the cargo from there and take care of all the other shipping requirements to get it to your destination. Officially the shipper is not obliged to do anything other than provide you access to the cargo. As the EXW term places all the responsibility on you as the buyer and there is no obligation on the part of the seller to do anything other than provide the cargo. It may be prudent for you as the buyer to have a reliable fright forwarder at the origin port to take care of your best interest.        

(B) FCA (Free Carrier) 

                               Free carriers means that the seller delivers the goods to the carrier or another person nominated by the buyer at the seller's premises or another named place. This rule may be used irrespective of the mode of transport selected and may also be used where more than one mode of transport is employed. 

            Explanation -  In an FCA transaction, the seller could be involved in the actual movement of the cargo upto a certain point. This point could be the warehouse of the carrier, the warehouse of the buyer's agent, the port or a terminal in the port or any other location agreed between the buyer and seller. In an FCA transaction, the seller must take care off:- (1) All the pre-export documentation relating to the shipment such as port, customs, transport documentation till the point of delivery. (2) Export customs clearance where required. (3) Loading formalities if the delivery point is agreed to be the seller's warehouse / premises. 

The buyer on the other hand, must take care of :  (1) The Transportation of the goods from the point of  delivery by the seller till cargo reaches the destination. (2) This could include the ocean legs as well which includes negotiating the rates with the shipping lines. (3) The risk of such movements from the point of delivery by the seller till the final point of rest. (4) The clearance of the goods at destination and movement / risk till the final point of rest.   

(C) CPT (Carriage Paid To) 

                                    Carriage paid to means that the seller delivers the goods to the carrier or another person nominated by the seller at an agreed place and that the seller must contact for and pay the costs of carriage necessary to bring the goods to the named place of destination. 

                  Explanation - In a CPT transaction, the seller is obliged to deliver the goods to the agreed destination. This agreed destination in CPT term could be any place expressly agreed between the buyer and seller and will most commonly be an overseas destination. As part of fulfilling this obligation, the seller must : - (1) Do  the export clearance formalities. (2) Pay for the transportation from his door to the named and agreed destination and enter into the relevant contract of carriage with the various carriers. (3) Take care of any and all export permits, quotas, special documentation, etc. relating to the cargo.

The buyer takes care of : - (1) Any transport movement from the agreed place of destination. (2) The risk from the time the seller hands over the cargo to the 1st carrier as mentioned above. (3) The full cargo insurance portion from origin to destination. (4) Any and all import permits, quotas, special documentation, etc. relating to the cargo. (5) Import customs clearance and all related formalities. 

(D) CIP (Carriage And Insurance Paid To)     

                       Carriage And Insurance Paid To, means that the seller delivers the goods to the carrier or another person nominated by the seller at an agreed place and that the seller must contact for and pay the costs of carriage necessary to bring the goods to the named place of destination. 

                  Explanation - In an CIP transaction, as the name suggests, apart from the delivery of goods to the named destination, the seller is also obliged to arrange for insurance to cover the buyer's risk of loss of or damaged to the goods during carriage.  This agreed destination in CIP  term could be any place expressly agreed between the buyer and seller and will most commonly be an overseas destination. As part of fulfilling this obligation, the seller must :- (1) Do the export clearance formalities. (2) Pay for the transportation from his door to the named and agreed destination and enter into the relevant contract of carriage with the various carriers. (3) Arrange and pay for the insurance to cover the buyer's risk. (4) Take care of any and all export permits, quotas, special documentation, etc. relating to the cargo. 

The seller must ensure that the buyer has paid for the goods either before delivering the goods physically or before issuing the bill of lading and other release documents to the buyer. Irrespective of whether the risk has passed from seller to buyer or not, the buyer needs to ensure that the goods are fully and properly insured as that totally the buyer's obligation under CIP. 

(E) DAP (Delivered At Place)     

                        Delivered At Place means that the seller delivers when the goods are placed at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination. The seller bears all risks involved in bringing the goods to the named place. This rule may be used irrespective of the mode of transport selected and may also be used where more than one mode of transport is employed. As part of fulfilling this obligation the seller must : - (1) Do  the export clearance formalities. (2) Pay for transportation from his door to the agreed destination. (3) Take care of any and all export permits, quotas, special documentation, etc. relating to the cargo. (4) All risk upto the agreed point of delivery. (5) Must ensure that the goods actually arrive at the destination. 

DAP transaction the buyer take care of : - (1) Any transport movement from the agreed place of destination. (2) Any risk after cargo has been delivered at the agreed destination. (3) Any and all import permits, quotas, special documentation, etc. relating to the cargo at destination. 

The seller needs to be aware that under DAP terms, the seller is responsible sure that the goods are delivered at the agreed place. So apart from ensuring that the goods are loaded from the origin, the seller also has to taken care to ensure that there are no transshipment or on carriage issues and the cargo reaches the agreed destination. 

(F) DPU (Delivered To Place Unload) 

                         Delivered at place unload, means that the seller delivers the goods while transferring the risk to the buyer when the goods are unloaded from the arriving means of transport at the disposal of the buyer at the named place of destination or any other agreed point within the place. This rule may be used irrespective of the mode of transport selected and may also be used where more than one mode of transport is employed. As part of fulfilling this obligation, the seller must :- (1) Do the export clearance formalities. (2) Pay for the transportation from his door to the named terminal. (3) Enter into relevant contracts of carriage with the various carriers upto the named terminal. (4) Take care of any and all export permits, quotas, special documentation, etc. relating to the cargo. (5) All risk upto the agreed point of delivery. (6) Must ensure that the goods arrive at the destination. (7) 

The buyer takes care of : - (1) Any transport movement from the agreed place of destination. (2) Any risk after cargo has been unloaded at the agreed destination. (3) Import customs clearance and all related formalities. 

(G) DDP (Delivered Duty Paid)

                                                 Delivered duty paid means that the seller delivers the goods when the goods are placed at the disposal of the buyer, cleared for import on the arriving means of transport ready for unloading at the named place of destination. The seller bears all the costs and risks involved in bringing the goods to the place of destination and has an obligation to clear the goods not only for export but also for import, to pay any duty for both export and import and to carry out all customs formalities. This rule may be used irrespective of the mode of transport selected and may also be used where more than one one mode of transport is employed. 

                                   DDP may be considered as a term at the other end of the trade spectrum in terms of  obligations as compared to EXW where the buyer has the maximum obligations. In, DDP, the seller has the maximum obligation as it   involves the delivery of the goods to the buyer at the agreed destination. So, if you are the buyer buying on DDP basis, you can take a seat and relax while the seller will : (1) Do the export clearance formalities. (2) Pay for the transportation from his door to the agreed destination.  (3) Take care of any and all export permits, quotas, special documentation, etc. relating to the cargo. (4) Cover all risk upto the agreed point of delivery. (5) Ensures that the goods actually arrive at the destination. (6) Take care of customs clearance formalities at the destination port, pay for the duty, taxes and other local charges applicable. 

                    The buyer only need to take care of : - (1) Any further transport movement from the agreed place of destination. (2) Any risk after the cargo has been been delivered at the agreed destination. 

DDP terms could generally end at buyer's premises or warehouse. 

Conclusion 

                   The INCOTERMS plays a very vital role for international business or trading. In here we can easily divide the rolls and responsibilities of importer and exporter as per INCOTERMS norm.