Top 5 Incoterms

What are incoterms?

Incoterms is an acronym for International Commercial Terms. They are a set of 11 rules that define who is responsible for a shipment throughout the shipping process. Naturally, there are some preferred choices from either the buyer's or seller's point of view. The top five incoterms (ExWorks, FOB, DPU, DAP, DDP) have pros and cons for each party, let's examine them.

DAP (Delivered At Place)

Important things to think about:

The seller fulfills his obligation to deliver when he hands over the goods, not cleared, to the buyer at the named place at the agreed time

Obligations seller

Transportation costs to the specified location, excluding unloading costs, risks, and costs up to delivery at the specified location. Documentation, commercial invoice, and goods. Cooperation (at the buyer's risk and expense) in obtaining documents for importation into the country of destination

Obligations buyer

Unless otherwise stated, unloading takes place at the agreed-upon place, followed by transport from the agreed-upon location. This also carries the risk of damage. Last but not least, customs clearance, taxes in the country of destination.

Ex Works

Important things to think about

The seller doesn’t arrange the transport so important for the seller to know how it’s being transported by buyer, so packaging can be adapted to mode of transport. In order to complete customs buyer has to have VAT-number in country of export. The VAT-numbers are through customs agent or have an office in country of export.

Obligations seller

When the Seller delivers the goods to the buyer packed and segregated at his premises (or other agreed location) at the agreed time, he fulfills his obligation to deliver. Therefore, the goods need to be ready on time (properly packaged, commercial invoice). Additionally, if necessary, assisting the buyer with acquiring export licenses, at the expense and risk of the buyer. The seller only has to package and label the products and make them ready for shipment at a predetermined location, which is usually a port.

Obligations buyer

There are more responsibilities for the buyer, including organizing the entire transportation, bearing the costs and risks associated with the transportation, ensuring the clearance of the goods, regardless of whether it is customs clearance or taxes in the country of destination.

Advantages

It's advantageous to the seller to use this incoterm, because they only cover the minimum scope of responsibilities and costs. ExWorks is usually chosen by sellers since they do not have an export license because the buyer must pay for the export license.

As a buyer, you control the entire shipping process so you know your products will arrive safely. You can also forecast the costs and avoid paying for higher shipping fees

Disadvantages

In the buyer's case, the disadvantage is that the seller is required to provide paperwork for export clearance. If the seller's information is inaccurate, the buyer is still liable for additional costs and delays

DDP (Delivered Duty Paid)

Classified as the opposite of Ex works. The seller fulfills his obligation to deliver when he hands over the goods, cleared and at the agreed time, to the buyer at the named place. Usually this is the final destination.

Obligations seller

Transportation costs and risks to specified locations are among their responsibilities. They must also adhere to export license requirements. In addition, they must clear customs and pay taxes in the country of destination. Documentation, commercial invoices, and main carriage. Packaging and marking for export, as well as loading fees.

Obligations buyer

Further transport, including risks, from the specified place to the final destination, if it is not identical. To assist the seller in obtaining any documents or information necessary for export or import clearances

DPU (Delivered at Place Unloaded)

The seller fulfills his obligation to deliver when the goods are available to the buyer at their destination. The goods must have been unloaded from the arriving vehicle.

Obligations seller

It includes transport costs to a named place of destination, as well as unloading costs and risks up until delivery. Item, commercial invoice and documentation, export packaging and labeling, main carriage, and informing the buyer

Obligations buyer

Further transport from named place of destination the risk of damage once unloaded at named place of destination. Customs clearance, taxes in country of destination

FOB (Free on Board)

Only for goods transported by sea or inland waterway. The seller fulfills his obligation to deliver when the goods are delivered to and loaded onto the vessel at the agreed time. The ship is chosen by the buyer and is at the named port of shipment. From the point at which the goods pass the rail, the buyer bears all costs and risks of loss of or damage to the goods.

Obligations seller

It is the seller's responsibility and cost to deliver the goods to the vessel at the port of shipment. They are also responsible for export licenses and customs formalities. Additionally, at the request of the buyer (and at the risk of the buyer), obtain documents issued in the country of departure. A proof of delivery of goods and a commercial invoice must be provided.

Obligations buyer

Transport from the agreed departure port is the responsibility of the buyer. Moreover, they must accept the risk of damage resulting from delivery on board the vessel at the port of loading. Then accept the customs clearance, taxes in the country of destination, and discharge and onward transportation