Incoterms

The Incoterms® are a set of 11 individual rules issued by the International Chamber of Commerce (ICC) which define the responsibilities of sellers and buyers for the sale of goods in international transactions. Of primary importance is that each Incoterms rule clarifies the tasks, costs, and risks to be borne by buyers and sellers in these transactions. Familiarizing yourself with Incoterms will help improve smoother transactions by clearly defining who is responsible for what and each step of the transaction.

The Incoterms® 2020 rules are updated and grouped into two categories reflecting modes of transport. Of the 11 rules, there are seven for ANY mode(s) of transport and four for SEA or LAND or INLAND WATERWAY transport.

EXW – Ex Works (named place)

The meaning of it is that the recipient takes the goods from the premises of the supplier, it can be a store, warehouse, etc. The supplier does not bear any obligations, except for the shipment of goods. All costs are borne by the recipient. EXW is not intended for the transport of goods to the EU. EXW is not used if the recipient is not able to export independently. EXW is for domestic traffic. EXW condition is used to transport goods by any means of transport.

EXW, short for “Ex Works,” places most responsibility with the buyer. The seller is expected to have the goods ready for collection at the agreed place of delivery (commonly the seller’s factory, mill, plant or warehouse). The buyer is accountable for all subsequent costs and risk, including all export procedures, starting with loading the goods onto a transport vehicle at the seller’s premises.

In practice, it is not uncommon for a seller to load goods onto the vehicle instead, at the risk and cost of the buyer—or even free of charge. However, such an agreement must be made within the contract of sales.

Who covers the logistics charges?

Distribution of costs according to the Incoterm negotiated in the contract. Classification according to the increased level of obligations for the sell

Seller’s Obligations

• Goods, commercial invoice and documentation
• Place goods at buyer’s disposal at the named place on the agreed upon date
• Notice to the buyer to enable delivery
• Export packaging and marking

Buyer’s Obligations

• Pay the price of the goods as stated in sales contract
• Provide seller with evidence of having taken delivery
• Loading at seller’s location (unless otherwise agreed upon)
• Export licenses and customs formalities
• Pre-carriage to terminal
• Loading charges
• Main carriage
• Discharge and onward carriage
• Import formalities and duties
• Cost of pre-shipment inspection

Bottom Line

For a buyer, entering into an Ex Works shipping agreement can be risky and time-consuming, adding to the workload. However, if the buyer has adequate knowledge and suitable organization and connections, they can save money with the Ex Works arrangement. For the seller, the Ex Works agreement can be a good choice, as it saves the seller from the majority of the risk and responsibility. The only negative to this is that the seller will miss out on their commission from the shipping company.

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FCA - Free Carrier (named place of origin)

The most common term (almost 40% of international treaties are drawn up with this rule), because it is universal and easy to use. The best benefits are the use of any type of transport and any place of delivery of goods that is located in the seller’s country. There are 2 points of dispatch:

1. A point of dispatch of goods that belongs to the seller - this can be his warehouse, store, etc. Delivery is considered completed if the goods are loaded on the buyer's vehicle or transferred to the courier specified by the buyer.
2. A point that does not belong to the seller - it can be a seaport, airport, etc. Delivery is considered completed when the goods have been transferred to the carrier from the seller’s vehicle. Unloading goods from the seller’s vehicle is not the responsibility of the carrier. If the buyer instructed to give the seller a package of documents (for example, a bill of lading marked “on board” or an air waybill) then the carrier must provide all original consignment notes to the seller.

Who covers the logistics charges?

Distribution of costs according to the Incoterm negotiated in the contract. Classification according to the increased level of obligations for the seller

Seller’s Obligations

• Goods, commercial invoice and documentation
• Export packaging and marking
• Export licenses and customs formalities
• Pre-carriage to terminal
• Delivery to named place of delivery
• Cost of pre-shipment inspection
• Proof of delivery

Buyer’s Obligations

• Payment for goods at price agreed upon in sales contract
• Unloading from arriving means of transportation
• Loading charges
• Main carriage
• Discharge and onward carriage
• Import formalities and duties
• Cost of pre-shipment inspection (for import clearance)

Bottom Line

As mentioned above, FCA is generally considered the best F-group Incoterm to use. However, those same experts will usually say FCA has some definite downsides for sellers:

• There are some challenges if using a letter of credit under FCA as described above.
• The seller may not be familiar with the freight forwarder being used.
• There is potential for diversion of the goods before they leave the United States, or to another county after they leave the U.S in violation of the Export Administration Regulations (EAR).

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FAS – Free Alongside Ship

The meaning of it is that the delivery is completed for the supplier when the product is on the quay for loading on vessel hired by the recipient. FAS is intended only for transporting goods by sea or inland waterway. Supplier pays the export duty, packaging of goods and transportation of cargo to the port, as well as the possible costs of arrival at the port, and provides the relevant documentation. Recipient loads the goods onto the ship, hires and pays the ship, bears all the costs of transporting the goods to the destination, insures the goods, pays import duty, relevant certificates, licenses, etc. FAS is designed to transport goods in bulk or in containers, and also for transportation of heavy equipment.

Who covers the logistics charges?

Distribution of costs according to the Incoterm negotiated in the contract. Classification according to the increased level of obligations for the seller.

Seller’s Obligations

• Goods, commercial invoice and documentation
• Export packaging and marking
• Export licenses and customs formalities
• Pre-carriage to terminal
• Delivery alongside vessel at port of shipment
• Proof of delivery
• Cost of pre-shipment inspection

Buyer’s Obligations

• Pay the price of the goods as provided in the sales contract
• Loading charges
• Main carriage
• Discharge and onward carriage
• Import formalities and duties
• Cost of pre-shipment inspection (for import clearance)

Botton Line

The FAS Incoterm is a suitable choice for buyers who have the necessary infrastructure to move the goods from the port of departure to its destination, as the seller is not responsible for any additional costs or risks associated with the shipment. This term also implies that the seller is responsible for all export customs formalities, including the payment of export duties and taxes. However, the FAS term is not suitable for goods that require special handling or require special packing, or if the buyer requires the goods to be shipped to a specific destination. In such cases, the CIF or FOB Incoterms should be used instead.

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