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Before we get into the incoterms, there are a few words that need to be defined:
Seller: Typically, the manufacturer, trading company, or wholesaler supplying the goods for sale.
Buyer: The person purchasing the goods will receive them upon final delivery.
Delivery: The point at which the risk is transferred from seller to buyer.
Arrival: The point when the delivery has been paid. The seller should name the place.
Carrier: The company that is obligated to transport the goods. This can be done by any means necessary, for instance, by ship, rail, or truck.
Freight Forwarder: A firm that is commonly contracted to make shipping arrangements.
To Clear for export: When export permission is granted.
Terminal: The shipment's final destination, such as a port termincal or warehouse.
EXWORK is the most basic shipping Incoterm that a supplier can provide. The seller makes the item available to pick up at the factory and is not responsible for the product once it leaves the factory doors. Instead, the buyer is responsible for transporting it from the factory, covering all export and import clearances and insurance costs.
Suppose you are getting initial quotes from a factory for the first time. In that case, they will almost always give you a quote for EXW unless you explicitly ask for it in another term. Factories and suppliers usually quote in EXW because it’s their lowest price, and it looks good when comparing quotes and needing the lowest price.
FOB means that the seller ships the goods to the nearest port, and the seller is responsible for everything after that. The seller will drop this off at the port of shipment, and the buyer will either pick it up themselves or, more commonly, work with a freight forwarder to ship it for them. The seller is the one to clear the goods for export, and the buyer is responsible for the goods from the port onwards. So it’s essential when getting FOB quotes to ensure you get the port’s name where they drop the goods off.
One of the big reasons this is the most popular Incoterm used is that the Export port is an excellent place to have a 3rd party inspection service inspect the goods. Further, the seller is responsible for all activities in the country of export. Simultaneously, the buyer is responsible for all activities once the goods leave the country, which makes things simple. In addition, most freight forwarders will have an office at or near the port, and it’s an easy spot for them to pick up the goods on your behalf.
It is similar to the one above, except that the buyer will require the seller to take on the risk or obtain insurance for the good until the destination port. The seller bears all shipping costs and assumes the risk of the goods until the destination port. The seller is also responsible for clearing customs, but the buyer is responsible for paying the duty. Again, this is effectively the same as CIP, except CIF is specifically for water.
With these terms, the seller pays for and is responsible for everything. The seller pays all costs and assumes all risks to the final destination. The buyer is only responsible for unloading the goods once they arrive at the final destination chosen by the buyer.
We often get asked, why not get very project DDP? While it is the easiest for the buyer, it is certainly not the cheapest. The seller picks the shipping company and will choose the one they like best, not the cheapest or most reliable for you. You are putting a ton of trust in the shipping company. We would suggest getting a quote for DDP from your supplier, a quote for DDP from GOWIN Logistic, and a quote for FOB and then comparing the final total price of the two.
FCA is just one step up from EXW, in which the seller clears the goods for export and delivers the goods to the port of export. Next, the buyer has to unload the goods in the port and is responsible for them once they reach the port. Next, the buyer arranges the carrier. The most significant difference between EXW and EXW is that the seller must load the goods on the buyer’s carrier. It should be noted that this is often confused for FOB–feel free to ask your supplier to elaborate and give details.
The seller pays for the goods shipped to the buyer’s chosen import port. The risk is transferred to the buyer once the goods arrive at the port. The buyer is responsible for unloading the vessel and arranging further transportation. Even though the seller is responsible for the export port’s cost, the buyer assumes the risk and insurance cost once the goods are unloaded at the export port. The seller is responsible for export clearance and freight costs.
Effectively the same as CPT, except the seller is required to obtain insurance for the goods during transit. CIP also covers all modes of transportation, while CIF is specifically for sea freight. We should note that CIP and CIF are the only ways risk and insurance differ. Once the goods are unloaded at the export port, The seller assumes the insurance cost but not the risk until the goods are unloaded at the import port.
The seller delivers the goods (unloaded) to the import port, and the buyer is responsible for the cost and risk of the goods from that point on. The seller takes on all risks or costs associated with the goods until they reach the import port. Then, the buyer pays for imports and customs.
The seller delivers the goods to the buyer’s final destination. The seller assumes all risks with the shipping and either loads or pays a third party to load the goods for shipment. The buyer is only responsible for paying the customs fee and clearing the goods for import. The buyer also pays to unload the goods at the final destination.
