How to use International Commerce Terms (Incoterms)?
You just got an offer from a supplier based abroad. And the transportation conditions mention DAP, DDP, EXW… or similar terms? What does that mean, and how to deal with it?
What are the Incoterms?
Suppose your company trades internationally or ships or receives shipments from an overseas market. In that case, you should be aware of The International Commerce Terms (Incoterms), which are standardized terms used in international trade.
Incoterms are rules of the trade that essentially dictate the exact delivery terms between two parties.
These terms include where and how the goods must be delivered, who pays for local charges, export charges, loading charges…, who is responsible for insurance, and who handles specific procedures such as unloading.
The ongoing version is the ninth – Incoterms 2020 – published on the 10th of September, 2019, by the International Chamber of Commerce.
E terms (EXW): The seller makes available its goods at their premises for the buyer to collect, which is the minimum obligation for the seller.
F terms (FCA, FOB, FAS): The seller delivers the goods to a carrier appointed by the buyer. The seller will arrange and pay for the delivery to the transporter, but the buyer pays everything after that.
C terms (CFR, CIF, CPT, CIP): The seller must contract for carriage but does not assume the risk of loss or damage after the shipment.
D terms (DPU, DAP, DDP): The seller bears all risks in bringing the goods to the buyer.
F terms air and sea freight specificities :
Of the three terms contained within the F group, two are intended for use only when the goods are carried by sea (but not containerized freight) or inland waterway transport. The other one is FCA(Free Carrier … named place) is intended for use by any mode of transportation.
If the shipper air freights a consignment of goods which have been ordered as “Free on Board Shanghai airport,” the risk which should pass from the seller to the buyer when the goods cross the ship’ rail remains with the seller as there is no ship’ rail point for the passage of risk from one party to the other.
Which incoterms does AGC usually use when shipping from China?
- DDP: We oversee everything until the goods arrive at their destination.
- DAP: We oversee export customs declarations and carriage to the destination but not the import customs clearance.
- FOB: We oversee export customs declaration and carry to the port of export. As the carriage has started, you are in charge, including paying the transportation insurance.
Use-case: DAP delivery from China to Germany
You are a German-based company, and you just got an offer from AGC to your request for producing 5000 parts. The proposal mentions DAP terms. How does it work?
As the goods are produced and out of the factory, AGC manages the delivery to the local airport and clears them for export, then, through a carrier, sends the goods to Germany by air freight. Once the goods arrive in Germany, the transporter will contact you to complete the customs clearances. AGC manages the rest of the transportation until the final destination. After the goods arrive at your place, you are responsible for unloading the goods.