TRADE INCOTERMS
Ex Works (EXW):
Ex-Works refers to a trade condition in which our company hand the goods to buyers at our factory exporting location. Buyers are responsible for all transportation costs from the factory exporting location to the delivery site and assume full responsibility for the cargo once loaded onto containers.
Free On Board (FOB):
Free On Board signifies that our company bear responsibility for the goods until they are loaded onto vessels at the exporting site. Our company covers local transportation fees in the exporting country, while buyers assume responsibility for ocean freight charges as well as any additional costs incurred during delivery in importing countries.
Cost & Freight (CFR):
Cost & Freight entails that our company pays all freight expenses from our factory or exporting location to ports in importing countries. Importers then take charge of shipping fees and transportation costs needed beyond import ports until final delivery destinations.
Cost Insurance & Freight (CIF):
CIF requires exporters to cover all freight costs up till port arrival in importing countries; however, an essential distinction lies within insurance coverage included by exporters. Ensuring added protection throughout the cargo’s journey. Importers are responsible for costs beyond port arrival, including transportation fees and insurance for the cargo.
Delivered At Place (DAP):
Delivered At Place states that our company bear all costs and assumes responsibility for goods until they reach a specific delivery location in importing countries. DAP is often referred to as “door-to-door” because it encompasses logistics management from the factory or exporting site to designated delivery points in the importer’s country.
Delivered Duty Paid (DDP):
Delivered Duty Paid places complete logistical responsibility on exporters, involving not only delivering cargo to specified locations but also covering import taxes such as customs duties and consumption taxes.
Understanding Cost vs Responsibility:
- EXW shifts most of the burden onto buyers, who handle all aspects of logistics while assuming full liability.
- FOB divides responsibilities between sellers (pre-vessel loading) and buyers (post-vessel loading).
- CFR/CIF transfers liability from our company to buyers upon vessel loading but handles costs differently: CFR requires importers to cover expenses after unloading at ports; CIF includes insurance arrangements by exporters.
- DAP/DDP place more obligations on our company by managing logistics throughout the entire journey until final delivery destinations within importing countries.
Importance of Cargo Insurance:
Given the uncertainties inherent in international trade, securing insurance coverage for shipments is highly recommended. Unforeseen events like fires aboard vessels or accidents during handling can lead to significant losses if cargos are uninsured. Therefore, obtaining comprehensive cargo insurance provides peace of mind and safeguards against potential financial setbacks caused by unforeseeable circumstances. Navigating international trade requires a firm knowledge of Incoterms—trade terms that define responsibilities and liabilities between sellers and buyers during different stages of cargo movement. While there are 11 Incoterms in total, understanding the basics of six commonly used terms (EXW, FOB, CFR, CIF, DAP, and DDP).
