INCOTERMS

We are a member of CIFFA – The Canadian International Freight Forwarders Association. All our business is transacted based on the latest edition of the CIFFA Standard Trading Conditions a copy of which can be made available upon request or can be downloaded from www.ciffa.com.

What are Incoterms® rules?

The Incoterms® rules are the world’s essential terms of trade for the sale of goods. Whether you are filing a purchase order, packaging and labelling a shipment for freight transport, or preparing a certificate of origin at a port, the Incoterms® rules are there to guide you. The Incoterms® rules provide specific guidance to individuals participating in the import and export of global trade on a daily basis.

When were ICC’s Incoterms® rules last updated?

ICC last updated the Incoterms® rules in 2019. While Incoterms® 2020 is the most current version of the trade terms, Incoterms® 2010 is still in effect today and can be accessed under our resources for business.

Incoterms in Government Regulations

In some jurisdictions, the duty costs of the goods may be calculated against a specific term (for example in India, duty is calculated against the CIF value of the goods, and in South Africa the duty is calculated against the FOB value of the goods). Because of this it is common for contracts for exports to these countries to use these Incoterms, even when they are not suitable for the chosen mode of transport. Care must be exercised to ensure that the liability issues are addressed by negotiation with the customer.

Incoterms and the exporter

International Commercial Terms, known as “Incoterms”, are internationally accepted terms defining the responsibilities of exporters and importers in the arrangement of shipments and the transfer of liability involved at various stages of the transaction. Incoterms do not cover ownership or the transfer of title of goods. It is crucial to agree on an term at the start of a negotiation/ quotation of a sale, as it will affect the costs and responsibilities involved in shipping, insurance and tariffs. The new Incoterms 2010 rules were revised by the International Chamber of Commerce and are effective since January 1, 2011.

In any sales transaction, it is important for the seller and buyer to agree on the terms of sale and know precisely what is included in the sale price. Exporters should choose the term that works best for their company, but also be prepared to quote on other Incoterms.

After purchasing, goods need to be delivered and transported to buyers. This will require:

Shipping

• Proof of delivery by supplier in good order
• Risk management through insurance
• Adequate package or container for full container loads (FCL)
• Provide shipping instructions to shippers
• Receive from seller, all necessary documentation for export and import goods

Incoterms Explained

Essentially, Incoterms rules are used for communicate and delimit tasks, cost and risk linked with transportation and delivery of goods. The latest version is Incoterms 2020 published by ICC. There are 11 Incoterms divided into 4 groups.

EXW – Ex Works

Places greater obligation on the buyer who is responsible for the delivery of goods from door to door. While the seller needs to ensure freight is available for shipping, beyond collection they have no legal liability for anything that occurs to the goods while in transit.

FCA – Free Carrier

Requires the seller to transport goods from origin to a nominated carrier of the buyer’s choice. At such time, costs and associated risks are transferred from the seller to the buyer who is then responsible for onward shipping to destination.

FAS – Free Alongside Ship

Used exclusively for sea freight transport, responsibility is passed to the buyer following delivery of goods alongside a ship.

FOB – Free On Board

The buyer takes over responsibility for the delivery of goods to destination following transport of freight on board a vessel at the port of origin (sea freight only).

CFR – Cost & Freight

It is the seller’s responsibility to nominate a freight forwarder and arrange for the transportation of cargo from origin to destination port (sea freight only). Risks transfer to the buyer for insurance cover once the goods are delivered on board a vessel at the port of origin. The buyer is additionally liable for all destination charges.

CIF – Cost Insurance & Freight

Similar to CFR, but the seller is responsible for the insuring of goods during the maritime leg of the voyage. All risks and costs pass to the buyer following delivery of goods at the port of destination.

CPT – Carriage Paid To

While the seller is responsible for freight and clearance to destination, the buyer must cover any costs arising after the goods are delivered to the carrier including loss and damage.

CIP – Carriage & Insurance Paid To

Similar to CPT, but risk of loss and damage to goods during carriage resides with the seller.

DAT – Delivered At Terminal

The seller assumes all risks and costs of transport to destination port or terminal. The buyer must pay all destination charges including relevant duties and taxes, customs clearances and onward delivery.

DAP – Delivered At Place

The seller is responsible for all risks and costs of delivery to the buyer’s facility. Import duties and taxes must be paid by the buyer.

DDP – Delivered Duty Paid

This term places minimal obligation on the buyer and greater responsibility on the seller who is liable for all risks and costs up to the destination facility, including import duties and taxes.

Helpful links

Cargo Pallets Containers
CFIA
IATA
FIATA
Transport Canada
CBSA
HS Customs Tariff codes