What are Incoterms?

What you need to remember about incoterms

Incoterms are international standards that define the obligations between buyer and seller in a national or international commercial exchange (transfer of ownership). Depending on the incoterm chosen, the seller or buyer will have a different right or duty to pay customs, transport or insurance fees.

During a commercial exchange, the Incoterms is generally represented by a three-letter English abbreviation and preceded by the mention of the version to which reference is made. For example: Incoterms 2011 – DAP. This means that the DAP (Delivery At Place) standard defined in the 2011 version of the Incoterms standard is used.

The term Incoterms comes from the contraction of INTernational COmmerical TERMS. They are published periodically by the ICC (International Chamber of Commerce). The next version will be published in 2020, the previous one in 2011.

Which Incoterm to choose?

The Incoterms are part of the conditions negotiated at the time of the sales contract. The seller will have an interest in offering the Incoterms Ex Works (EXW), it means from the factory exit to the recipient’s address, customs, transport and insurance costs are at the charge of the buyer and must be organised by him. As for the buyer, he will prefer the Delivery Duty Paid or DDP which means that all customs, transport and insurance costs will be charged and organised by the seller.

The most commonly used Incoterms in trade, and which we recommend, is Delivery at Place pu DAP. This means that as a seller you are responsible for the transport to the buyer’s address. As for the buyer, he will take care of customs duties and perhaps insurance.

The Incoterms

EXW definition – ExWorks.

The seller has fulfilled its obligations as soon as the goods are at the buyer’s disposal, packed and stored in its own facilities. He is not responsible for organizing transport, customs formalities to leave the country (for export), not either the one in the destination country (for import), nor for any insurance. In a shipment with the EXW Incoterm, the seller does the minimum work, all risks are at the buyer’s expense.

FCA definition – Free Carrier.

The seller has fulfilled his obligations as soon as the goods are available to the buyer, already cleared for export, at an agreed location. If this place is the seller’s warehouse, the seller is responsible for loading it into the transport vehicle. If this place is elsewhere, the seller no longer has this responsibility. The buyer is responsible for the rest of the operations up to the destination.

DAP definition – Delivery At Place.

The seller takes care of the export customs clearance procedure, but not the import one, and will not pay the customs duties on import either. However, in DAP, the seller is responsible for the transport to the destination address. If the buyer is late in clearing customs on import, any storage costs and other surcharges related to this delay shall be support by the buyer.

As a standard, bookings from Expedismart.ch are made in DAP. This avoids having to pay customs fees that can be significant. In particular VAT.

CPT definition – Carriage Paid To.

The seller has fulfilled his obligations as soon as the goods are available to the chosen carrier. The transport costs to the fixed destination are at his expense. Customs clearance for export is carried out by the seller.

DDP incoterms definition – Delivery Duty Paid.

The seller is responsible and pays transport, import taxes and any insurance for the entire journey from his warehouse to the agreed destination. The seller will bear all the costs and risk of the shipment, he will also take care of customs clearance for export and import.

This Incoterm is the complete opposite of the EXW (ExWorks). In the latter case, the seller has no responsibility and pays no fees, whereas by choosing DDP he bears a maximum of risks and costs.

Although at expedismart.ch we do not recommend the use of this incoterm because of the high cost of paying customs fees (including VAT), it can be interesting when you send a gift to a customer and you do not want them to pay customs duties.

CIP definition – Carriage and Insurance Paid To.

The seller has fulfilled his obligations as soon as he has handed over the goods to the carrier he has chosen. However, the seller must also pay the transport costs for the delivery of the goods to the destination. The buyer assumes the risks and any additional costs for transport that may appear later. However, when the term CIP is chosen, the seller covers the risk of damage and loss of the goods during transport. Consequently, the seller is responsible for taking out insurance and will have to pay for it. However, the seller is only required to provide a minimum coverage. If the buyer wants better coverage, he will either have to obtain the seller’s agreement or pay for it. With the CIP Incoterm, the seller also takes care of export customs clearance.

Incoterms for river or maritime transport.

While the previous Incoterms apply to all modes of transport, the following ones apply only to maritime and river transport. They are therefore not offered by expedismart.ch, which currently only offers air and road transport.

FOB definition – Free On Board.

The seller is responsible for the risks and transport costs from his warehouse until the goods are loaded on the ship at the port of shipment agreed with the buyer. From this moment on, the buyer bears all costs and risks in the event of damage or loss of the goods. With the FOB Incoterms, the seller takes care of export customs clearance.

CIF definition – Cost, Insurance and Freight.

The seller is responsible for the risks and transport costs from his warehouse until the goods are loaded on the ship at the port of shipment agreed with the buyer. The seller shall also bear the costs of transporting the goods to the port of landing at the agreed destination. However, the risk of damage or loss to the goods shall pass to the buyer. The same applies to any costs that may arise after the seller has delivered the goods to the port of shipment. However, under the CIF terms, the seller must insure the goods for loss and damage during the entire transport. The seller may subscribe to the minimum insurance coverage.

FAS definition – Free Alongside Ship.

The seller has fulfilled his obligations as soon as the goods have been delivered to the agreed loading dock, next to the ship that will take care of the transport. The buyer, he will bear all transport costs and will also be responsible for the risks of loss or damage that the goods may suffer until delivery at destination. The seller must still handle customs clearance procedures.

Which incoterms are available on Expedismart.ch?

Expedismart.ch currently only works with air or road carriers. Then, the carriers with whom we work offer the Incoterm DAP (Delivery At Place) as standard. This solution allows the exporter to control the transport and its costs. Indeed, it is complicated to know the customs taxes to which the goods will be subject in the country of destination.

Important: if you do not have tax representation in the destination country, you will not be able to recover the VAT costs of the destination country.

On request, it is also possible to send in DDP (Delivery Duty Paid). This means that all transport costs and import taxes are at your charge. If you make this choice, you must request it from Expedismart.ch.

Once your request has been validated, you will be able to choose between the DAP or DDP incoterm for each shipment. When booking your shipment you will pay the shipping and insurance costs, and then Expedismart.ch will send you the invoice for the customs costs.

That’s why, on request, we offer our customers the possibility to use the Incoterms DDP.