What are 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.
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.