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Ex Works (EXW)

Can be used for any transport mode, or where there is more than one transport mode

This rule places minimum responsibility on the seller, who merely has to make the goods available,
suitably packaged, at the specified place, usually the sellers factory or depot.
The buyer is responsible for loading the goods onto a vehicle (even though the seller may be better
placed to do this); for all export procedures; for onward transport and for all costs arising after
collection of the goods.
In many cross-border transactions, this rule can present practical difficulties.
Specifically, the exporter may still need to be involved in export reporting and clearance processes, and
cannot realistically leave these to the buyer. Consider Free Carrier (sellers premises) instead.
Other things to watch for. Although the seller is not obliged to load the goods, if the seller does so, this
is at the buyers risk!
In spite of its apparent simplicity, this rule presents many pitfalls for both parties when used for crossborder transactions.
Ex Works obliges the buyer to undertake export procedures (obtaining of licenses, security clearances
and so on.) The buyer may be poorly placed to do this. In any event the seller is only obliged to
provide assistance, at the buyers risk and expense.
From the sellers perspective, there is the problem of obtaining evidence that the goods are to be
exported where VAT or sales tax is charged on domestic sales, the tax authorities may require
this.
The obvious alternative for cross-border transactions is Free Carrier (FCA) sellers premises.

Free Carrier (FCA)


Can be used for any transport mode, or where there is more than one transport mode.
A very flexible rule that is suitable for all situations where the buyer arranges the main carriage

For example:

Seller arranges pre-carriage from sellers depot to the named place, which can be a terminal or
transport hub, forwarders warehouse etc. Delivery and transfer of risk takes place when
the truck or other vehicle arrives at this place, ready for unloading in other words, the
carrier is responsible for unloading the goods. (If there is more than one carrier, then risk
transfers on delivery to the first carrier.)
Where the named place is the sellers premises, then the seller is responsible for loading the
goods onto the truck etc. NB this is an important difference from Ex Works EXW

In all cases, the seller is responsible for export clearance; the buyer assumes all risks and costs
after the goods have been delivered at the named place.
FCA is the rule of choice for containerized goods where the buyer arranges for the main carriage.
For cross-border transactions, Free Carrier (sellers premises) is usually a better option than Ex Works.
As with Ex Works, the sellers responsibilities end once the consignment has been collected from their
premises by the buyers carrier.
However the seller is required to undertake export procedures, and to load the goods onto the vehicle if
necessary something the seller is probably better placed to do anyway

Carriage Paid To (CPT)


Can be used for any transport mode, or where there is more than one transport mode.

The seller is responsible for arranging carriage to the named place, but not for insuring the goods
to the named place. However delivery of the goods takes place, and risk transfers from seller to
buyer, at the point where the goods are taken in charge by a carrier.
Terminal Handling Charges (THC) are charges made by the terminal operator. These charges may or
may not be included by the carrier in their freight rates the buyer should enquire whether the CPT
Price includes THC, so as to avoid surprises.
The buyer may wish to arrange insurance cover for the main carriage, starting from the point where the
goods are taken in charge by the carrier NB this will not be the place referred to in the Incoterms rule,
but will be specified elsewhere within the commercial agreement
See also Carriage and Insurance Paid to CIP
As with the other C rules, a good choice for transactions involving letters of credit.

Carriage and Insurance Paid To (CIP)

As with CPT, delivery of the goods takes place, and risk transfers from seller to buyer, at the point
where the goods are taken in charge by a carrier see delivery.
Things to watch for. Terminal Handling Charges (THC) are charges made by the terminal operator.
These charges may or may not be included by the carrier in their freight rates the buyer should
enquire whether the CPT price includes THC, so as to avoid surprises.
Although the seller is obliged to arrange for insurance for the journey, the rule only requires a
minimum level of cover, which may be commercially unrealistic. Therefore the level of cover may
need to be addressed elsewhere in the commercial agreement
This rule and CIF (Cost Insurance and Freight) are the only two rules that place an obligation on the
seller to arrange insurance for the consignment.
Note that this insurance covers the buyers risk, because risk will pass from the seller to the buyer
before the main carriage.
As with the other C rules, a good choice for transactions involving letters of credit.

Delivered at Terminal (DAT)


Can be used for any transport mode, or where there is more than one transport mode. The seller is
responsible for arranging carriage and for delivering the goods, unloaded from the arriving conveyance,
at the named place.

Risk transfers from seller to buyer when the goods have been unloaded.
Terminal can be any place a quay, container yard, warehouse or transport hub.
The buyer is responsible for import clearance and any applicable local taxes or import duties.

Things to watch for:


The place for delivery should be specified as precisely as possible, as many ports and transport hubs are
very large.
A useful rule, well suited to container operations where the seller bears responsibility for the main
carriage.
A common scenario is for delivery to a container yard (CY), in which case there will usually be
Terminal Handling Charges (THC) for the account of the buyer.
If the specified terminal is a clearance depot or similar, then use of this rule is straightforward the
goods can be delivered uncleared.
If customs procedures take place pre-delivery at a border, then the goods can often be
given a pre-clearance (transit) status and delivered uncleared.
However complications can arise if the goods have to go through a clearance point before
delivery. Clearance of the goods may require close liaison between the carrier and the buyer, and
where this goes wrong, there can be delays and disputes about demurrage.

Delivered at Place (DAP)


Can be used for any transport mode, or where there is more than one transport mode.
The seller is responsible for arranging carriage and for delivering the goods, ready for unloading from
the arriving conveyance, at the named place. (An important difference from Delivered At Terminal
DAT, where the seller is responsible for unloading.)

Risk transfers from seller to buyer when the goods are available for unloading; so unloading is at the
buyers risk.
The buyer is responsible for import clearance and any applicable local taxes or import duties.

This rule can often be used to replace the Incoterms 2000 rules Delivered At Frontier (DAF), Delivered
Ex Ship (DES) and Delivered Duty Unpaid (DDU)

Delivered Duty Paid (DDP)


Can be used for any transport mode, or where there is more than one transport mode.
The seller is responsible for arranging carriage and delivering the goods at the named place,
cleared for import and all applicable taxes and duties paid (e.g. VAT, GST)

Risk transfers from seller to buyer when the goods are made available to the buyer, ready for
unloading from the arriving conveyance
This rule places the maximum obligation on the seller, and is the only rule that requires the seller to
take responsibility for import clearance and payment of taxes and/or import duty.
These last requirements can be highly problematical for the seller. In some countries, import
clearance procedures are complex and bureaucratic, and so best left to the buyer who has local
knowledge.

Free Alongside Ship (FAS)


Use of this rule is restricted to goods transported by sea or inland waterway.
In practice it should be used for situations where the seller has direct access to the vessel for loading,
e.g. bulk cargos or non-containerised goods.
For containerised goods, consider Free Carrier FCA instead.

Seller delivers goods, cleared for export, alongside the vessel at a named port, at which point risk
transfers to the buyer.
The buyer is responsible for loading the goods and all costs thereafter.

Free On Board (FOB)


Use of this rule is restricted to goods transported by sea or inland waterway.
In practice it should be used for situations where the seller has direct access to the vessel for loading,
e.g. bulk cargos or non-containerised goods.
For containerised goods, consider Free Carrier FCA instead.

Seller delivers goods, cleared for export, loaded on board the vessel at the named port.
Once the goods have been loaded on board, risk transfers to the buyer, who bears all costs thereafter.

Cost and Freight (CFR)


Use of this rule is restricted to goods transported by sea or inland waterway.
In practice it should be used for situations where the seller has direct access to the vessel for loading,
e.g. bulk cargos or non-containerised goods.

For containerised goods, consider Carriage Paid To CPT instead.

Seller arranges and pays for transport to named port. Seller delivers goods, cleared for export, loaded
on board the vessel.
However risk transfers from seller to buyer once the goods have been loaded on board, i.e. before the
main carriage takes place.
NB seller is not responsible for insuring the goods for the main carriage.

Cost Insurance and Freight (CIF)


Use of this rule is restricted to goods transported by sea or inland waterway.
In practice it should be used for situations where the seller has direct access to the vessel for loading,
e.g. bulk cargos or non-containerised goods.
For containerised goods, consider Carriage and Insurance Paid CIP instead.

Seller arranges and pays for transport to named port. Seller delivers goods, cleared for export, loaded
on board the vessel.
However risk transfers from seller to buyer once the goods have been loaded on board, i.e. before the
main carriage takes place.

Seller also arranges and pays for insurance for the goods for carriage to the named port.
However as with Carriage and Insurance Paid To, the rule only require a minimum level of cover,
which may be commercially unrealistic. Therefore the level of cover may need to be addressed
elsewhere in the commercial agreement.
This rule and CIP (Carriage & Insurance Paid to) are the only two rules that place an obligation on the
seller to arrange insurance for the consignment.
Note that this insurance covers the buyers risk, because risk will pass from the seller to the buyer
before the main carriage.
As with the other C rules, a good choice for transactions involving letters of credit.

-----------------------

EXW Ex Works (named place of loading)


The seller makes the goods available at their premises. This term places the maximum obligation on the
buyer and minimum obligations on the seller. The Ex Works term is often used when making an initial
quotation for the sale of goods without any costs included. EXW means that a buyer incurs the risks for
bringing the goods to their final destination. Either the seller does not load the goods on collecting
vehicles and does not clear them for export, or if the seller does load the goods, he does so at buyer's
risk and cost. If parties wish seller to be responsible for the loading of the goods on departure and to
bear the risk and all costs of such loading, this must be made clear by adding explicit wording to this
effect in the contract of sale.
The buyer arranges the pickup of the freight from the supplier's designated ship site, owns the in-transit
freight, and is responsible for clearing the goods through Customs. The buyer is also responsible for
completing all the export documentation.
These documentary requirements may cause two principal issues. Firstly, the stipulation for the buyer
to complete the export declaration can be an issue in certain jurisdictions (not least the European
Union) where the customs regulations require the declarant to be either an individual or corporation
resident within the jurisdiction. Secondly, most jurisdictions require companies to provide proof of
export for tax purposes. In an Ex Works shipment, the buyer is under no obligation to provide such
proof, or indeed to even export the goods. It is therefore of utmost importance that these matters are
discussed with the buyer before the contract is agreed. It may well be that another Incoterm, such as
FCA seller's premises, may be more suitable.
FCA Free Carrier (named place of delivery)
The seller delivers the goods, cleared for export, at a named place. This can be to a carrier nominated
by the buyer, or to another party nominated by the buyer.

It should be noted that the chosen place of delivery has an impact on the obligations of loading and
unloading the goods at that place. If delivery occurs at the seller's premises, the seller is responsible for
loading the goods on to the buyer's carrier. However, if delivery occurs at any other place, the seller is
deemed to have delivered the goods once their transport has arrived at the named place; the buyer is
responsible for both unloading the goods and loading them onto their own carrier.
CPT Carriage Paid To (named place of destination)
CPT replaces the venerable C&F (cost and freight) and CFR terms for all shipping modes outside of
non-containerised seafreight.
The seller pays for the carriage of the goods up to the named place of destination. Risk transfers to
buyer upon handing goods over to the first carrier at the place of shipment in the country of Export. The
seller is responsible for origin costs including export clearance and freight costs for carriage to named
place of destination (either final destination such as buyer's facilities or port of destination has to be
agreed by seller and buyer, however, named place of destination is generally picked due to cost
impacts). If the buyer does require the seller to obtain insurance, the Incoterm CIP should be
considered.
CIP Carriage and Insurance Paid to (named place of destination)
This term is broadly similar to the above CPT term, with the exception that the seller is required to
obtain insurance for the goods while in transit. CIP requires the seller to insure the goods for 110% of
their value under at least the minimum cover of the Institute Cargo Clauses of the Institute of London
Underwriters (which would be Institute Cargo Clauses (C)), or any similar set of clauses. The policy
should be in the same currency as the contract.
CIP can be used for all modes of transport, whereas the equivalent term CIF can only be used for noncontainerised seafreight.
DAT Delivered at Terminal (named terminal at port or place of destination)
This term means that the seller covers all the costs of transport (export fees, carriage, unloading from
main carrier at destination port and destination port charges) and assumes all risk until destination port
or terminal. The terminal can be a Port, Airport, or inland freight interchange. Import
duty/taxes/customs costs are to be borne by Buyer.
DAP Delivered at Place (named place of destination)
DDP Delivered Duty Paid (named place of destination)
Seller is responsible for delivering the goods to the named place in the country of the buyer, and pays
all costs in bringing the goods to the destination including import duties and taxes. The seller is not
responsible for unloading. This term is often used in place of the non-Incoterm "Free In Store (FIS)".
This term places the maximum obligations on the seller and minimum obligations on the buyer. With

the delivery at the named place of destination all the risks and responsibilities are transferred to the
buyer and it is considered that the seller has completed his obligations [5]

Rules for sea and inland waterway transport


To determine if a location qualifies for these four rules, please refer to 'United Nations Code for Trade
and Transport Locations (UN/LOCODE)'.[6]
The four rules defined by Incoterms 2010 for international trade where transportation is entirely
conducted by water are as per the below. It is important to note that these terms are generally not
suitable for shipments in shipping containers; the point at which risk and responsibility for the goods
passes is when the goods are loaded on board the ship, and if the goods are sealed into a shipping
container it is impossible to verify the condition of the goods at this point.
Also of note is that the point at which risk passes under these terms has shifted from previous editions
of Incoterms, where the risk passed at the ship's rail.
FAS Free Alongside Ship (named port of shipment)
The seller delivers when the goods are placed alongside the buyer's vessel at the named port of
shipment. This means that the buyer has to bear all costs and risks of loss of or damage to the goods
from that moment. The FAS term requires the seller to clear the goods for export, which is a reversal
from previous Incoterms versions that required the buyer to arrange for export clearance. However, if
the parties wish the buyer to clear the goods for export, this should be made clear by adding explicit
wording to this effect in the contract of sale. This term can be used only for sea or inland waterway
transport [7]
FOB Free on Board (named port of shipment)
See also: FOB (Shipping)

FOB means that the seller pays for delivery of goods to the vessel including loading. The seller must
also arrange for export clearance. The buyer pays cost of marine freight transportation, bill of lading
fees, insurance, unloading and transportation cost from the arrival port to destination. The buyer
arranges for the vessel, and the shipper must load the goods onto the named vessel at the named port of
shipment according to the dates stipulated in the contract of sale as informed by the buyer. Risk passes
from the seller to the buyer when the goods are loaded aboard the vessel.
CFR Cost and Freight (named port of destination)
The seller pays for the carriage of the goods up to the named port of destination. Risk transfers to buyer
when the goods have been loaded on board the ship in the country of Export. The Shipper is
responsible for origin costs including export clearance and freight costs for carriage to named port. The
shipper is not responsible for delivery to the final destination from the port (generally the buyer's
facilities), or for buying insurance. If the buyer does require the seller to obtain insurance, the Incoterm
CIF should be considered. CFR should only be used for non-containerized seafreight; for all other
modes of transport it should be replaced with CPT.

CIF Cost, Insurance & Freight (named port of destination)


This term is broadly similar to the above CFR term, with the exception that the seller is required to
obtain insurance for the goods while in transit to the named port of destination. CIF requires the seller
to insure the goods for 110% of their value under at least the minimum cover of the Institute Cargo
Clauses of the Institute of London Underwriters (which would be Institute Cargo Clauses (C)), or any
similar set of clauses. The policy should be in the same currency as the contract. CIF should only be
used for non-containerized seafreight; for all other modes of transport it should be replaced with CIP.

Allocations of costs to buyer/seller according to Incoterms 2010


Carria
Export
ge to
Incoter customs
port
m 2010 declarati
of
on
export

Carriag
Unloadi
Carriage Import
Loading on
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Loading
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Unloadin
to place custom Impo
vessel/airpl (Sea/Ai Insuran
on truck
truck in
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of
s
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in port of
port of
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destinati clearan taxes
of export port of
import
export
on
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import

EXW

Buyer

Buyer

Buyer

Buyer

Buyer

Buyer

Buyer

Buyer

Buyer

Buyer

Buye
r

FCA

Seller

Seller

Buyer

Buyer

Buyer

Buyer

Buyer

Buyer

Buyer

Buyer

Buye
r

FAS

Seller

Seller

Seller

Buyer

Buyer

Buyer

Buyer

Buyer

Buyer

Buyer

Buye
r

FOB

Seller

Seller

Seller

Seller

Buyer

Buyer

Buyer

Buyer

Buyer

Buyer

Buye
r

CPT

Seller

Seller

Seller

Seller

Seller

Buyer

Seller

Buyer/Sel
ler

Seller

Buyer

Buye
r

CFR(CN
F)

Seller

Seller

Seller

Seller

Seller

Buyer

Buyer/Sel
ler

Buyer

Buyer

Buyer

Buye
r

CIF

Seller

Seller

Seller

Seller

Seller

Seller

Buyer/Sel
ler

Buyer

Buyer

Buyer

Buye
r

CIP

Seller

Seller

Seller

Seller

Seller

Seller

Seller

Buyer/Sel
ler

Seller

Buyer

Buye
r

DAT

Seller

Seller

Seller

Seller

Seller

Seller

Seller

Buyer

Buyer

Buyer

Buye
r

DAP

Seller

Seller

Seller

Seller

Seller

Seller

Seller

Seller

Seller

Buyer

Buye
r

Carria
Export
ge to
Incoter customs
port
m 2010 declarati
of
on
export
DDP

Seller

Carriag
Unloadi
Carriage Import
Loading on
e
Loading
ng of
Unloadin
to place custom Impo
vessel/airpl (Sea/Ai Insuran
on truck
truck in
g in port
of
s
rt
ane in port r) to
ce
in port of
port of
of import
destinati clearan taxes
of export port of
import
export
on
ce
import

Seller

Seller

Seller

Seller

Seller

Seller

Seller

Seller

Seller Seller

-----------------------------------Protection against credit risk

Many analysts believe that the global economy is entering a period of strong new growth, especially in
emerging markets.
1. Thoroughly check a new customers credit record.
Finding foreign corporate information can be tricky, especially for emerging markets. Local
consulting firms may be able to help, and you can also get assistance from the Trade
Commissioner Service office.
2.
3. Use that first sale to start building the customer relationship.
Your number-one tool for managing a customers credit risk is building a long-term, trusted
relationship. This can obviously take years to fully achieve. But start laying the groundwork by
discussing your credit terms with a new customer before you extend credit. This will help you
gauge the customers attitudes to credit, and ensure that they clearly understand what you
expect of them. Also consider using a master sales agreement with a new customer, rather
than relying on purchase orders to set out credit terms.
4. Establish credit limits.
To set a credit limit for a new customer, you can use tools such as: Credit-agency reports, which
can provide comprehensive information about a companys financial history. Bank reports,
which should give details of the banks relationship with the company, the companys
borrowing capacity and its level of debt. Audited financial statements, which can provide a
good view of the businesss liquidity, profitability and cash flow.
5. Make sure the credit terms of your sales agreements are clear.
A sales agreement that includes well-worded, comprehensive terms of credit will minimize the
risk of disputes and improve your chances of getting paid in full and on time.
6. Use credit and/or political risk insurance.
7. Use factoring.
To do this, you sell your receivable to a factoring company for its cash value, minus a discount.
This gives you your money immediately because you dont have to wait for paymentthe

customer will pay the factoring company instead of you. But make sure the factoring is on a
non-recourse basis, which means youre not liable if the customer defaults.
8. Develop a standard process for handling overdue accounts.
Your chances of collecting on a delinquent account are highest in the first 90 days after the due
date.

Political risk
The political stability of a foreign country into which a company is exporting is of the utmost
importance. Exporters must be constantly aware of the policies of foreign governments in order that
they can change their marketing tactics accordingly and take the necessary steps to prevent loss of
business and investment.
Instability in the target market could lead to losses resulting from war, civil strife and political
instability. It is essential to warn exporters to be aware of government intervention in the target market.
Most countries world-wide operate under a capitalist system within which the volumes and values of
goods and services whether provided locally or by way of imports, are set by the forces of supply and
demand.
There are, however, still a number of countries in which the government plays an interventionist role.
Examples of such economies include North Korea, Cuba and Vietnam. In certain other countries,
partial liberalisation of trade has been achieved but the extent of this liberalisation still has to be
investigated by any exporter wishing to enter these markets.
Furthermore, while there are certain countries that appear to have advanced towards a more open
market, there may be constraints upon their foreign currency reserves. In such countries the Reserve or
Central bank of that country may not have enough foreign exchange to allow payments to progress
thereby again resulting in the risk of non-payment for the exporter.
Transportation and logistics risks
With the movement of goods from one continent to another, or even within the same continent, goods
face many hazards. There is the risk of theft, damage and possibly the goods not even arriving at all.
The exporter must understand all aspects of international logistics, in particular the contract of carriage.
This contract is drawn up between a shipper and a carrier (transport operator). Exporters and importers
must understand their legal rights to claim against carriers. The "shipper", would be the party that pays
the main carrier of freight and this could be either the exporter or the importer, dependant upon the
Incoterm (see section on Incoterms 2000, ICC publication) under which that particular transaction was
effected.

Insuring goods in transit


Cargo insurance covers loss of or damage to goods while in transit by land, sea and air.

Insurance for exports


Many exporters arrange insurance and freight but pass on the cost to the buyer. Where this is the case,
your agreed terms are likely to be Cost Insurance Freight to a named destination port - in other words
you are charging your customer for the cost of goods as well as insurance and freight to the port or
airport of their choice.
Foreign buyers often insist on this service, because insurance rates in the UK are relatively cheap.
The benefits:

you have greater control over the risk as the UK insurance industry is highly regulated
you could win business from competitors who do not offer insurance

Remember that if you leave your buyer to arrange insurance, they will do so before paying for the
goods. You may not be paid in full if there's a problem and they're not adequately insured. In addition,
if the goods are rejected when they get to the port of entry or to the customer's premises, they won't be
covered by insurance, and the responsibility will be back with you.
Insurance for imports
You will minimise your risks if you arrange insurance of goods that you import. You'll know how
much you are paying and what's included. Your supplier might not be able to give you full details of
insurance cover they arrange, or if they do, the information may not be entirely reliable.
The following types of cover are available:

open cover - for all journeys


specific (voyage) policy - for one-off shipments
seller's interest contingency - back-up for physical loss or damage where you have not arranged the
cargo insurance

Economic Risk
Port activities form part of national and international transport chains. The volume of trade moving through
these chains depends to a large extent on macroeconomic factors, namely population, consumption,
production, exports, and so forth. Consequently, the macroeconomic situation and its expected evolution have
a strong impact on the level of activity in a port. It is essential to take this element into account in the market
survey conducted to estimate the traffic and throughput risk. The principles of traffic and throughput risk
sharing are analyzed in a later section devoted to this topic.