Article 7 – Incoterms

Incoterms® 2000 have been updated by Incoterms® 2010 and therefore the old post below is now redundant..

Please read the analysis about Incoterms® 2010 here..

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Incoterms®  – a term that is very often heard and circulated among many in the corridors of shipping.. But what does this actually mean and how does it work..

Here is a simplified version in LAYMAN’s ([láymen] – noun – somebody without specialist knowledge: somebody, especially a man, who is not trained or expert in a specific area) terms..

Incoterms®  SIMPLIFIED

Incoterms® which since being published first in 1936, has become the accepted and commonly used terms of trade in international trade accepted by governments, intergovernmental agencies including the United Nations, legal authorities and practitioners worldwide..

The terms are :

  • Terms at place of Origin – EXW
  • Cost of carriage paid by the Buyer – FCA, FOB, FAS
  • Cost of carriage paid by the Seller – CFR, CIF, CPT, CIP
  • Terms at place of Destination – DAF, DES, DEQ, DDU, DDP

Terms at place of Origin

EXW – EX WORKS – the buyer (person buying the goods) pays for all the costs from the time the goods leaves the sellers (person selling the goods) premises till it reaches the buyer.. Example : If the seller is based in Benoni and the buyer is in Timbuktu – all the costs of moving the container from the warehouse in Benoni till the warehouse in Timbuktu will be to the buyers account and he will negotiate his price based on the same..

Costs for the buyer includes, but not limited to,

  • customs clearance for export
  • pre-carriage landside transportation by either road or rail ,
  • port handling costs (example Terminal Handling Charges) at both ends ,
  • ocean freight costs including all surcharges
  • on-carriage landside transportation by either road or rail

Costs for the seller includes, but not limited to,

  • cost of packing the cargo

Cost of carriage paid by the Buyer

FCA – FREE CARRIER – the seller delivers the goods customs cleared for export to the carrier nominated by the buyer at the place it is required to be delivered to the carrier (example a container yard or CFS) in order for it to be shipped.. This becomes more pertinent when the carrier is doing the landside movement on behalf of the client.. Example : If the seller is based in Benoni and the buyer is in Timbuktu – all the costs of packing the container, moving the container from the sellers warehouse and customs clearance for export and handing over to the carrier, will be to the sellers account..

Cost for the buyer includes but not limited to,

  • port handling costs (example Terminal Handling Charges) at both ends ,
  • ocean freight costs including all surcharges
  • on-carriage landside transportation by either road or rail

Cost for the seller includes but not limited to,

  • packing of container
  • customs clearance for export
  • pre-carriage landside transportation by either road or rail
  • off-loading costs at named place of the carrier

The buyers responsibility begins from the point that the cargo is handed over from the seller to the carrier..


FAS – FREE ALONGSIDE SHIP – the seller is obliged to deliver the goods customs cleared for export, to an area usually a shed, warehouse or berth where the vessel is expected to berth.. This term is generally used in transactions that are mainly by sea and is one of the old terms that are used and is usually used for conventional (uncontainerised) cargo.. From here all costs are for the buyers account.. Example : If the seller is based in Benoni and the buyer is in Timbuktu – all the costs of packing the container, moving the container from the sellers warehouse and customs clearance for export till the shed, warehouse or berth where the vessel is expected to berth, will be to the sellers account..

Cost for the buyer includes but not limited to,

  • ocean freight costs including all surcharges
  • on-carriage landside transportation by either road or rail

Cost for the seller includes but not limited to,

  • packing of container
  • customs clearance for export
  • pre-carriage landside transportation by either road or rail
  • off-loading costs at the shed, warehouse or berth where the vessel is expected to berth

The buyers responsibility begins from the point that the cargo is handed over from the seller to the carrier when the goods are placed alongside a named ship at a named area within a named port..


FOB – FREE ON BOARD – the seller is obliged to deliver the goods customs cleared for export, port dues & taxes paid, on board the named ship.. Example : If the seller is based in Benoni and the buyer is in Timbuktu – all the costs of packing the container, moving the container from the sellers warehouse and customs clearance for export till loading of the cargo onto a named ship, will be to the sellers account..

Cost for the buyer includes but not limited to,

  • ocean freight costs including all surcharges
  • on-carriage landside transportation by either road or rail

Cost for the seller includes but not limited to,

  • packing of container
  • customs clearance for export
  • pre-carriage landside transportation by either road or rail
  • port handling costs (example Terminal Handling Charges) at port of loading

The buyers responsibility begins from the point that the cargo has been loaded on board the named ship..


Cost of carriage paid by the Seller

CFR – COST AND FREIGHT – the seller is obliged to take responsibility/risk for all costs and freight till the cargo is loaded on board the ship at the port of loading, but the cost factor only passes from the seller to the buyer at the named discharge port.. Example : If the seller is based in Benoni and the buyer is in Timbuktu – all the costs of packing the container, moving the container from the sellers warehouse and customs clearance for export till the cargo reaches the discharge port (for Timbuktu), will be to the sellers account.. This term is generally used in port to port shipments..

Cost for the buyer includes but not limited to,

  • port handling costs (example Terminal Handling Charges) at port of discharge
  • on-carriage landside transportation by either road or rail

Cost for the seller includes but not limited to,

  • packing of container
  • customs clearance for export
  • pre-carriage landside transportation by either road or rail
  • port handling costs (example Terminal Handling Charges) at port of loading
  • ocean freight costs including all surcharges

The buyers responsibility begins from the point that the cargo passes the ships rail at the port of discharge..


CIF – COST, INSURANCE, FREIGHT – essentially the same as CFR with the exception that the responsibility of insurance of the cargo during transit is the sellers..


CPT – CARRIAGE PAID TO – the seller is obliged to take responsibility/risk for all costs, and freight till the cargo is loaded on board the ship at the port of loading, but the cost factor only passes from the seller to the buyer at the named place till which the charges have been paid.. This place could be any inland destination.. However, if the carrier is performing carrier haulage function, then the risk/responsibility passes to the buyer at that stage.. Example : If the seller is based in Benoni and the buyer is in Timbuktu – all the costs of packing the container, moving the container from the sellers warehouse and customs clearance for export till the cargo reaches the place of delivery (Timbuktu) shown on the bill of lading, will be to the sellers account.. This term is generally used in multi-modal shipments on through bills of lading..

Cost for the seller includes but not limited to,

  • packing of container
  • customs clearance for export
  • pre-carriage landside transportation by either road or rail
  • port handling costs (example Terminal Handling Charges) at port of loading and port of discharge
  • ocean freight costs including all surcharges
  • on-carriage landside transportation by either road or rail

CIP – CARRIAGE AND INSURANCE PAID TO – essentially the same as CPT with the exception that the responsibility of insurance of the cargo during transit is the sellers, right upto the place of delivery..


Terms at place of Destination

DAF – DELIVERED AT FRONTIER – mostly used for cargo moving on land between two bordering countries.. The seller is obliged to deliver the cargo at the named border post with the seller clearing customs on his side for exports and the buyer doing the same on his side of the border.. If there are many borders, then the seller can terminate his contract at the first border and the buyer will have to carry on from there.. Example : if the seller in Benoni is selling cargo to a buyer in Lubumbashi – the seller will be responsible for packing of the cargo, customs clearance on the SA side till the named border post..

Cost for the buyer includes but not limited to,

  • customs clearance charges at his side of the border
  • landside transportation by either road or rail on his side

Cost for the seller includes but not limited to,

  • packing of container
  • customs clearance for export
  • landside transportation by either road or rail on his side

The buyers responsibility begins from the point that the cargo passes from the sellers border to his border..


DES – DELIVERED EX SHIP – the seller is responsible to deliver the cargo right upto the point when the ship arrives alongside the named port of discharge.. Mostly used in port to port shipments.. Under this term the buyer has full control of the carriage and the shipper takes all the risk and cost till it is delivered at the named port of discharge.. Example : If the seller is based in Benoni and the buyer is in Timbuktu – all the costs of packing the container, moving the container from the sellers warehouse and customs clearance for export till the cargo reaches the discharge port (for Timbuktu), will be to the sellers account..

Cost for the buyer includes but not limited to,

  • port handling costs (example Terminal Handling Charges) at port of discharge
  • on-carriage landside transportation by either road or rail

Cost for the seller includes but not limited to,

  • packing of container
  • customs clearance for export
  • pre-carriage landside transportation by either road or rail
  • port handling costs (example Terminal Handling Charges) at port of loading
  • ocean freight costs including all surcharges

The buyers responsibility begins from the point that the cargo passes the ships rail at the port of discharge..


DEQ – DELIVERED EX QUAY – essentially similar to DES except that in DEQ the seller also pays for the discharge costs from ship to shore at the named port of discharge..


DDU – DELIVERED DUTY UNPAID – the seller is obliged to deliver the cargo at the named place of delivery excluding the payment of customs duty, however at the same time, being dependent on the buyer to be able to arrange for customs clearance at the first port of entry for that named destination.. Example : If the seller is based in Benoni and the buyer is in Timbuktu – all the costs of packing the container, moving the container from the sellers warehouse and customs clearance for export till the cargo reaches the place of delivery (Timbuktu), will be to the sellers account..

Cost for the buyer includes but not limited to,

  • customs clearance, duties, taxes etc
  • on-carriage landside transportation by either road or rail

Cost for the seller includes but not limited to,

  • packing of container
  • customs clearance for export
  • pre-carriage landside transportation by either road or rail
  • port handling costs (example Terminal Handling Charges) at port of loading and port of discharge
  • ocean freight costs including all surcharges

The buyers responsibility begins from the point that the cargo reaches the place of delivery..


DDP – DELIVERED DUTY PAID – essentially the same terms as DDU except that in DDP, the seller also undertakes to pay the customs duties, vat etc as per the local regulations in force..


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What did you think of the above article..?? Comment below..

5 comments on “Article 7 – Incoterms

  1. Titi says:

    Very informative. thank you. do you have the updated inco terms for 2010?

  2. Mohammed says:

    How do incoterms affect the shipping line?

  3. Rodger says:

    Thanks for this wonderful information. It explains everything clearly to a person with absolutely no understanding of Inco terms.

    1. manaadiar says:

      Thanks Rodger.. Glad to be of help..

(Estimated reading time: 11 minutes)
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