Glossary of Incoterms

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Incoterms is an abbreviation of ‘International Commercial Terms’. They are terms that represent a universal and easily understandable method of communication between importers and exporters in countries around the world. Incoterms define the responsibilities and obligations of the buyer and seller in a transaction so both parties understand the costs, the risks and the tasks they are responsible for. There are a number of commonly used Incoterms in the shipping industry. They include:

FAS (Free Alongside Ship)

The seller is responsible for placing the goods to be exported alongside the ship at the named port. The risk for the loss or damage of those goods then passes to the buyer who also bears all the costs from that moment on.

FOB (Free on Board)

The seller is responsible for loading the goods on board the ship that has been nominated by the buyer. Once the goods are on board the ship, the cost and risk for the goods are then divided between the two parties.

CFR (Cost and Freight)

The seller pays the costs and freight to transport the goods to the port of destination. The risk is transferred to the buyer once the goods have been loaded onto the ship.

CIF (Cost, Insurance and Freight)

Just as the above, except in this case, the seller is also responsible for arranging and paying for the insurance.

CIP (Carrier and Insurance Paid)

The seller pays for the carriage and insurance to the named destination port, but the risk passes to the buyer when the goods are handed to the first carrier.

DDP (Delivered Duty Paid)

The seller is responsible for all the costs and risks associated with delivering the goods to the named destination in the country of the buyer.