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INCOTERMS
Incoterms, which are also known by their long name of International Commercial Terms, are a set of 11 rules that define who is responsible for what during international transactions. These terms cover every task that is involved in international transactions as well as the risks and costs involved with the transaction of good from seller to buyer.
Incoterms are extremely important as they are known and accepted throughout the world as a requirement on all commercial invoices. These terms are important in reducing the risk of misunderstandings which could turn out to be costly.
EXW: Ex-Works
This is when the buyer of the product assumes almost all of the costs and risk associated with the shipping process
The seller only has to make sure that the buyer has access to the goods
Once the buyer has access to the goods, all responsibility falls on to them
DAP: Delivery At Place
This is when the seller covers all the costs and risks associated with transporting goods to an agreed address
When the goods are delivered, they are classed as delivered and unloaded
The seller will organise all customs clearance while the buyer deals with any import clearance and related duties
DDP: Delivered Duty Paid
This is when the seller takes almost all responsibility throughout the whole shipping process, covering all costs and risks of transporting goods to the delivery address
The seller fulfils all export and import responsibilities as well as paying any duties that are due
CIP: Carriage and Insurance Paid To
The seller is responsible for all risks until the goods are delivered to the first carrier at the place of shipping
Once the goods are delivered to the first carrier, the responsibility shifts to the buyer
The seller is required to purchase the maximum level of insurance for the goods for the buyer’s risk
DPU: Delivered At Place Unloaded
In previous Incoterm publications, this was known as DAT (Delivery At Terminal)
The seller is responsible for all the costs and risks of delivering the goods to an agreed place of unloading
The seller organises all customs clearance and the unloading of the goods at the place of delivery
The buyer is responsible of sorting import clearance and any duties that are related
FCA: Free Carrier
The seller is responsible to get the goods to the buyer’s carrier
The seller also needs to clear goods for export
CPT: Carriage Paid To
The responsibilities of the seller are the same here as with FCA Incoterms, however with CPT, the seller also covers all delivery costs
It is also the seller’s responsibility to clear all the goods for export
FAS: Free Alongside Ship
The seller is responsible for all costs and all risks until the goods have been delivered next to the ship
The buyer takes over responsibility for costs and risk once goods have been delivered next to ship
The buyer is in charge of all export and import clearances
FOB: Free On Board
The seller is responsible for all costs and risks until all the goods have been delivered on board the ship
The seller is responsible for sorting out the export clearance
Once the goods are delivered on board, the buyer then assumes all responsibilities of the goods
CFR: Cost and Freight
The seller has the same responsibilities as with the FOB Incoterms, however the seller is also responsible for paying the cost of bringing the goods to the port
The buyer assumes all responsibility once the goods are on board the ship
CIF: Cost, Insurance, and Freight
The seller has all the same responsibilities as with CFR Incoterms, however they are also responsible for covering all insurance costs
The seller is required to purchase the minimum amount of insurance cover which is 110% of the invoice value. This has to be in the currency of the invoice and contract
If the buyer wants different insurance, the seller is responsible for arranging this but at the cost of the buyer