Ex Works (EXW)

Can be used for any transport mode, or where there is more than one transport mode

This rule places minimum responsibility on the seller, who merely has to make the goods available,

suitably packaged, at the specified place, usually the seller’s factory or depot.

The buyer is responsible for loading the goods onto a vehicle (even though the seller may be better

placed to do this); for all export procedures; for onward transport and for all costs arising after

collection of the goods.

In many cross-border transactions, this rule can present practical difficulties.

Specifically, the exporter may still need to be involved in export reporting and clearance processes, and

cannot realistically leave these to the buyer. Consider Free Carrier (seller’s premises) instead.

Other things to watch for. Although the seller is not obliged to load the goods, if the seller does so, this

is at the buyer’s risk!

In spite of its apparent simplicity, this rule presents many pitfalls for both parties when used for cross-

border transactions.

Ex Works obliges the buyer to undertake export procedures (obtaining of licenses, security clearances

and so on.) The buyer may be poorly placed to do this. In any event the seller is only obliged to

“provide assistance”, at the buyer’s risk and expense.

From the seller’s perspective, there is the problem of obtaining evidence that the goods are to be

exported – where VAT or sales tax is charged on domestic sales, the tax authorities may require

this.

The obvious alternative for cross-border transactions is Free Carrier (FCA) – seller’s premises.

Free Carrier (FCA)

Can be used for any transport mode, or where there is more than one transport mode.

A very flexible rule that is suitable for all situations where the buyer arranges the main carriage

For example:

Seller arranges pre-carriage from seller’s depot to the named place, which can be a terminal or

transport hub, forwarder’s warehouse etc. Delivery and transfer of risk takes place when

the truck or other vehicle arrives at this place, ready for unloading – in other words, the

carrier is responsible for unloading the goods. (If there is more than one carrier, then risk

transfers on delivery to the first carrier.)

Where the named place is the seller’s premises, then the seller is responsible for loading the

goods onto the truck etc. NB this is an important difference from Ex Works EXW

In all cases, the seller is responsible for export clearance; the buyer assumes all risks and costs

after the goods have been delivered at the named place.

FCA is the rule of choice for containerized goods where the buyer arranges for the main carriage.

For cross-border transactions, Free Carrier (seller’s premises) is usually a better option than Ex Works.

As with Ex Works, the seller’s responsibilities end once the consignment has been collected from their

premises by the buyer’s carrier.

However the seller is required to undertake export procedures, and to load the goods onto the vehicle if

necessary – something the seller is probably better placed to do anyway

Carriage Paid To (CPT)

Can be used for any transport mode, or where there is more than one transport mode.

The seller is responsible for arranging carriage to the named place, but not for insuring the goods

to the named place. However delivery of the goods takes place, and risk transfers from seller to

buyer, at the point where the goods are taken in charge by a carrier.

Terminal Handling Charges (THC) are charges made by the terminal operator. These charges may or

may not be included by the carrier in their freight rates – the buyer should enquire whether the CPT

Price includes THC, so as to avoid surprises.

The buyer may wish to arrange insurance cover for the main carriage, starting from the point where the

goods are taken in charge by the carrier – NB this will not be the place referred to in the Incoterms rule,

but will be specified elsewhere within the commercial agreement

See also “Carriage and Insurance Paid to CIP”

As with the other “C” rules, a good choice for transactions involving letters of credit.

Carriage and Insurance Paid To (CIP)

As with CPT, delivery of the goods takes place, and risk transfers from seller to buyer, at the point

where the goods are taken in charge by a carrier – see delivery.

Things to watch for. Terminal Handling Charges (THC) are charges made by the terminal operator.

These charges may or may not be included by the carrier in their freight rates – the buyer should

enquire whether the CPT price includes THC, so as to avoid surprises.

Although the seller is obliged to arrange for insurance for the journey, the rule only requires a

minimum level of cover, which may be commercially unrealistic. Therefore the level of cover may

need to be addressed elsewhere in the commercial agreement

This rule and CIF (Cost Insurance and Freight) are the only two rules that place an obligation on the

seller to arrange insurance for the consignment.

Note that this insurance covers the buyer’s risk, because risk will pass from the seller to the buyer

before the main carriage.

As with the other “C” rules, a good choice for transactions involving letters of credit.

Delivered at Terminal (DAT)

Can be used for any transport mode, or where there is more than one transport mode. The seller is

responsible for arranging carriage and for delivering the goods, unloaded from the arriving conveyance,

at the named place.

Risk transfers from seller to buyer when the goods have been unloaded.

‘Terminal’ can be any place – a quay, container yard, warehouse or transport hub.

The buyer is responsible for import clearance and any applicable local taxes or import duties.

Things to watch for:

The place for delivery should be specified as precisely as possible, as many ports and transport hubs are

very large.

A useful rule, well suited to container operations where the seller bears responsibility for the main

carriage.

A common scenario is for delivery to a container yard (CY), in which case there will usually be

Terminal Handling Charges (THC) for the account of the buyer.

If the specified terminal is a clearance depot or similar, then use of this rule is straightforward – the

goods can be delivered uncleared.

If customs procedures take place “pre-delivery” at a border, then the goods can often be

given a “pre-clearance” (transit) status and delivered uncleared.

However complications can arise if the goods have to go through a clearance point before

delivery. Clearance of the goods may require close liaison between the carrier and the buyer, and

where this goes wrong, there can be delays and disputes about demurrage.

Delivered at Place (DAP)

Can be used for any transport mode, or where there is more than one transport mode.

The seller is responsible for arranging carriage and for delivering the goods, ready for unloading from

the arriving conveyance, at the named place. (An important difference from Delivered At Terminal

DAT, where the seller is responsible for unloading.)

Risk transfers from seller to buyer when the goods are available for unloading; so unloading is at the

buyer’s risk.

The buyer is responsible for import clearance and any applicable local taxes or import duties.

This rule can often be used to replace the Incoterms 2000 rules Delivered At Frontier (DAF), Delivered

Ex Ship (DES) and Delivered Duty Unpaid (DDU)

Delivered Duty Paid (DDP)

Can be used for any transport mode, or where there is more than one transport mode.

The seller is responsible for arranging carriage and delivering the goods at the named place,

cleared for import and all applicable taxes and duties paid (e.g. VAT, GST)

Risk transfers from seller to buyer when the goods are made available to the buyer, ready for

unloading from the arriving conveyance

This rule places the maximum obligation on the seller, and is the only rule that requires the seller to

take responsibility for import clearance and payment of taxes and/or import duty.

These last requirements can be highly problematical for the seller. In some countries, import

clearance procedures are complex and bureaucratic, and so best left to the buyer who has local

knowledge.

Free Alongside Ship (FAS)

Use of this rule is restricted to goods transported by sea or inland waterway.

In practice it should be used for situations where the seller has direct access to the vessel for loading,

e.g. bulk cargos or non-containerised goods.

For containerised goods, consider “Free Carrier FCA” instead.

Seller delivers goods, cleared for export, alongside the vessel at a named port, at which point risk

transfers to the buyer.

The buyer is responsible for loading the goods and all costs thereafter.

Free On Board (FOB)

Use of this rule is restricted to goods transported by sea or inland waterway.

In practice it should be used for situations where the seller has direct access to the vessel for loading,

e.g. bulk cargos or non-containerised goods.

For containerised goods, consider “Free Carrier FCA” instead.

Seller delivers goods, cleared for export, loaded on board the vessel at the named port.

Once the goods have been loaded on board, risk transfers to the buyer, who bears all costs thereafter.

Cost and Freight (CFR)

Use of this rule is restricted to goods transported by sea or inland waterway.

In practice it should be used for situations where the seller has direct access to the vessel for loading,

e.g. bulk cargos or non-containerised goods.

For containerised goods, consider ‘Carriage Paid To CPT’ instead.

Seller arranges and pays for transport to named port. Seller delivers goods, cleared for export, loaded

on board the vessel.

However risk transfers from seller to buyer once the goods have been loaded on board, i.e. before the

main carriage takes place.

NB seller is not responsible for insuring the goods for the main carriage.

Cost Insurance and Freight (CIF)

Use of this rule is restricted to goods transported by sea or inland waterway.

In practice it should be used for situations where the seller has direct access to the vessel for loading,

e.g. bulk cargos or non-containerised goods.

For containerised goods, consider ‘Carriage and Insurance Paid CIP’ instead.

Seller arranges and pays for transport to named port. Seller delivers goods, cleared for export, loaded

on board the vessel.

However risk transfers from seller to buyer once the goods have been loaded on board, i.e. before the

main carriage takes place.

Seller also arranges and pays for insurance for the goods for carriage to the named port.

However as with “Carriage and Insurance Paid To”, the rule only require a minimum level of cover,

which may be commercially unrealistic. Therefore the level of cover may need to be addressed

elsewhere in the commercial agreement.

This rule and CIP (Carriage & Insurance Paid to) are the only two rules that place an obligation on the

seller to arrange insurance for the consignment.

Note that this insurance covers the buyer’s risk, because risk will pass from the seller to the buyer

before the main carriage.

As with the other “C” rules, a good choice for transactions involving letters of credit.

-----------------------

EXW – Ex Works (named place of loading)

The seller makes the goods available at their premises. This term places the maximum obligation on the

buyer and minimum obligations on the seller. The Ex Works term is often used when making an initial

quotation for the sale of goods without any costs included. EXW means that a buyer incurs the risks for

bringing the goods to their final destination. Either the seller does not load the goods on collecting

vehicles and does not clear them for export, or if the seller does load the goods, he does so at buyer's

risk and cost. If parties wish seller to be responsible for the loading of the goods on departure and to

bear the risk and all costs of such loading, this must be made clear by adding explicit wording to this

effect in the contract of sale.

The buyer arranges the pickup of the freight from the supplier's designated ship site, owns the in-transit

freight, and is responsible for clearing the goods through Customs. The buyer is also responsible for

completing all the export documentation.

These documentary requirements may cause two principal issues. Firstly, the stipulation for the buyer

to complete the export declaration can be an issue in certain jurisdictions (not least the European

Union) where the customs regulations require the declarant to be either an individual or corporation

resident within the jurisdiction. Secondly, most jurisdictions require companies to provide proof of

export for tax purposes. In an Ex Works shipment, the buyer is under no obligation to provide such

proof, or indeed to even export the goods. It is therefore of utmost importance that these matters are

discussed with the buyer before the contract is agreed. It may well be that another Incoterm, such as

FCA seller's premises, may be more suitable.

FCA – Free Carrier (named place of delivery)

The seller delivers the goods, cleared for export, at a named place. This can be to a carrier nominated

by the buyer, or to another party nominated by the buyer.

It should be noted that the chosen place of delivery has an impact on the obligations of loading and

unloading the goods at that place. If delivery occurs at the seller's premises, the seller is responsible for

loading the goods on to the buyer's carrier. However, if delivery occurs at any other place, the seller is

deemed to have delivered the goods once their transport has arrived at the named place; the buyer is

responsible for both unloading the goods and loading them onto their own carrier.

CPT – Carriage Paid To (named place of destination)

CPT replaces the venerable C&F (cost and freight) and CFR terms for all shipping modes outside of

non-containerised seafreight.

The seller pays for the carriage of the goods up to the named place of destination. Risk transfers to

buyer upon handing goods over to the first carrier at the place of shipment in the country of Export. The

seller is responsible for origin costs including export clearance and freight costs for carriage to named

place of destination (either final destination such as buyer's facilities or port of destination has to be

agreed by seller and buyer, however, named place of destination is generally picked due to cost

impacts). If the buyer does require the seller to obtain insurance, the Incoterm CIP should be

considered.

CIP – Carriage and Insurance Paid to (named place of destination)

This term is broadly similar to the above CPT term, with the exception that the seller is required to

obtain insurance for the goods while in transit. CIP requires the seller to insure the goods for 110% of

their value under at least the minimum cover of the Institute Cargo Clauses of the Institute of London

Underwriters (which would be Institute Cargo Clauses (C)), or any similar set of clauses. The policy

should be in the same currency as the contract.

CIP can be used for all modes of transport, whereas the equivalent term CIF can only be used for non-

containerised seafreight.

DAT – Delivered at Terminal (named terminal at port or place of destination)

This term means that the seller covers all the costs of transport (export fees, carriage, unloading from

main carrier at destination port and destination port charges) and assumes all risk until destination port

or terminal. The terminal can be a Port, Airport, or inland freight interchange. Import

duty/taxes/customs costs are to be borne by Buyer.

DAP – Delivered at Place (named place of destination)

DDP – Delivered Duty Paid (named place of destination)

Seller is responsible for delivering the goods to the named place in the country of the buyer, and pays

all costs in bringing the goods to the destination including import duties and taxes. The seller is not

responsible for unloading. This term is often used in place of the non-Incoterm "Free In Store (FIS)".

This term places the maximum obligations on the seller and minimum obligations on the buyer. With

the delivery at the named place of destination all the risks and responsibilities are transferred to the

buyer and it is considered that the seller has completed his obligations [5]

Rules for sea and inland waterway transport

To determine if a location qualifies for these four rules, please refer to 'United Nations Code for Trade

and Transport Locations (UN/LOCODE)'.[6]

The four rules defined by Incoterms 2010 for international trade where transportation is entirely

conducted by water are as per the below. It is important to note that these terms are generally not

suitable for shipments in shipping containers; the point at which risk and responsibility for the goods

passes is when the goods are loaded on board the ship, and if the goods are sealed into a shipping

container it is impossible to verify the condition of the goods at this point.

Also of note is that the point at which risk passes under these terms has shifted from previous editions

of Incoterms, where the risk passed at the ship's rail.

FAS – Free Alongside Ship (named port of shipment)

The seller delivers when the goods are placed alongside the buyer's vessel at the named port of

shipment. This means that the buyer has to bear all costs and risks of loss of or damage to the goods

from that moment. The FAS term requires the seller to clear the goods for export, which is a reversal

from previous Incoterms versions that required the buyer to arrange for export clearance. However, if

the parties wish the buyer to clear the goods for export, this should be made clear by adding explicit

wording to this effect in the contract of sale. This term can be used only for sea or inland waterway

transport [7]

FOB – Free on Board (named port of shipment) See also: FOB (Shipping)

FOB means that the seller pays for delivery of goods to the vessel including loading. The seller must

also arrange for export clearance. The buyer pays cost of marine freight transportation, bill of lading

fees, insurance, unloading and transportation cost from the arrival port to destination. The buyer

arranges for the vessel, and the shipper must load the goods onto the named vessel at the named port of

shipment according to the dates stipulated in the contract of sale as informed by the buyer. Risk passes

from the seller to the buyer when the goods are loaded aboard the vessel.

CFR – Cost and Freight (named port of destination)

The seller pays for the carriage of the goods up to the named port of destination. Risk transfers to buyer

when the goods have been loaded on board the ship in the country of Export. The Shipper is

responsible for origin costs including export clearance and freight costs for carriage to named port. The

shipper is not responsible for delivery to the final destination from the port (generally the buyer's

facilities), or for buying insurance. If the buyer does require the seller to obtain insurance, the Incoterm

CIF should be considered. CFR should only be used for non-containerized seafreight; for all other

modes of transport it should be replaced with CPT.

CIF – Cost, Insurance & Freight (named port of destination)

This term is broadly similar to the above CFR term, with the exception that the seller is required to

obtain insurance for the goods while in transit to the named port of destination. CIF requires the seller

to insure the goods for 110% of their value under at least the minimum cover of the Institute Cargo

Clauses of the Institute of London Underwriters (which would be Institute Cargo Clauses (C)), or any

similar set of clauses. The policy should be in the same currency as the contract. CIF should only be

used for non-containerized seafreight; for all other modes of transport it should be replaced with CIP.

Allocations of costs to buyer/seller according to Incoterms 2010

Incoter

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Export

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FCA Seller Seller Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buye

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FAS Seller Seller Seller Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buye

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FOB Seller Seller Seller Seller Buyer Buyer Buyer Buyer Buyer Buyer Buye

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CPT Seller Seller Seller Seller Seller Buyer Seller Buyer/Sel

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CFR(CN

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CIF Seller Seller Seller Seller Seller Seller Buyer/Sel

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Buye

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CIP Seller Seller Seller Seller Seller Seller Seller Buyer/Sel

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Buye

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DAT Seller Seller Seller Seller Seller Seller Seller Buyer Buyer Buyer Buye

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DAP Seller Seller Seller Seller Seller Seller Seller Seller Seller Buyer Buye

r

Incoter

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Export

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DDP Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller

------------------------------------

Protection against credit risk

Many analysts believe that the global economy is entering a period of strong new growth, especially in

emerging markets.

1. Thoroughly check a new customer’s credit record. Finding foreign corporate information can be tricky, especially for emerging markets. Local

consulting firms may be able to help, and you can also get assistance from the Trade

Commissioner Service office.

2.

3. Use that first sale to start building the customer relationship. Your number-one tool for managing a customer’s credit risk is building a long-term, trusted

relationship. This can obviously take years to fully achieve. But start laying the groundwork by

discussing your credit terms with a new customer before you extend credit. This will help you

gauge the customer’s attitudes to credit, and ensure that they clearly understand what you

expect of them. Also consider using a “master sales agreement” with a new customer, rather

than relying on purchase orders to set out credit terms.

4. Establish credit limits. To set a credit limit for a new customer, you can use tools such as: Credit-agency reports, which

can provide comprehensive information about a company’s financial history. Bank reports,

which should give details of the bank’s relationship with the company, the company’s

borrowing capacity and its level of debt. Audited financial statements, which can provide a

good view of the business’s liquidity, profitability and cash flow.

5. Make sure the credit terms of your sales agreements are clear. A sales agreement that includes well-worded, comprehensive terms of credit will minimize the

risk of disputes and improve your chances of getting paid in full and on time.

6. Use credit and/or political risk insurance.

7. Use factoring. To do this, you sell your receivable to a factoring company for its cash value, minus a discount.

This gives you your money immediately because you don’t have to wait for payment—the

customer will pay the factoring company instead of you. But make sure the factoring is on a

“non-recourse” basis, which means you’re not liable if the customer defaults.

8. Develop a standard process for handling overdue accounts. Your chances of collecting on a delinquent account are highest in the first 90 days after the due

date.

Political risk

The political stability of a foreign country into which a company is exporting is of the utmost

importance. Exporters must be constantly aware of the policies of foreign governments in order that

they can change their marketing tactics accordingly and take the necessary steps to prevent loss of

business and investment.

Instability in the target market could lead to losses resulting from war, civil strife and political

instability. It is essential to warn exporters to be aware of government intervention in the target market.

Most countries world-wide operate under a capitalist system within which the volumes and values of

goods and services whether provided locally or by way of imports, are set by the forces of supply and

demand.

There are, however, still a number of countries in which the government plays an interventionist role.

Examples of such economies include North Korea, Cuba and Vietnam. In certain other countries,

partial liberalisation of trade has been achieved but the extent of this liberalisation still has to be

investigated by any exporter wishing to enter these markets.

Furthermore, while there are certain countries that appear to have advanced towards a more open

market, there may be constraints upon their foreign currency reserves. In such countries the Reserve or

Central bank of that country may not have enough foreign exchange to allow payments to progress

thereby again resulting in the risk of non-payment for the exporter.

Transportation and logistics risks

With the movement of goods from one continent to another, or even within the same continent, goods

face many hazards. There is the risk of theft, damage and possibly the goods not even arriving at all.

The exporter must understand all aspects of international logistics, in particular the contract of carriage.

This contract is drawn up between a shipper and a carrier (transport operator). Exporters and importers

must understand their legal rights to claim against carriers. The "shipper", would be the party that pays

the main carrier of freight and this could be either the exporter or the importer, dependant upon the

Incoterm (see section on Incoterms 2000, ICC publication) under which that particular transaction was

effected.

Insuring goods in transit

Cargo insurance covers loss of or damage to goods while in transit by land, sea and air.

Insurance for exports

Many exporters arrange insurance and freight but pass on the cost to the buyer. Where this is the case,

your agreed terms are likely to be Cost Insurance Freight to a named destination port - in other words

you are charging your customer for the cost of goods as well as insurance and freight to the port or

airport of their choice.

Foreign buyers often insist on this service, because insurance rates in the UK are relatively cheap.

The benefits:

you have greater control over the risk as the UK insurance industry is highly regulated you could win business from competitors who do not offer insurance

Remember that if you leave your buyer to arrange insurance, they will do so before paying for the

goods. You may not be paid in full if there's a problem and they're not adequately insured. In addition,

if the goods are rejected when they get to the port of entry or to the customer's premises, they won't be

covered by insurance, and the responsibility will be back with you.

Insurance for imports

You will minimise your risks if you arrange insurance of goods that you import. You'll know how

much you are paying and what's included. Your supplier might not be able to give you full details of

insurance cover they arrange, or if they do, the information may not be entirely reliable.

The following types of cover are available:

open cover - for all journeys specific (voyage) policy - for one-off shipments seller's interest contingency - back-up for physical loss or damage where you have not arranged the

cargo insurance

Economic Risk

Port activities form part of national and international transport chains. The volume of trade moving through these chains depends to a large extent on macroeconomic factors, namely population, consumption, production, exports, and so forth. Consequently, the macroeconomic situation and its expected evolution have a strong impact on the level of activity in a port. It is essential to take this element into account in the market survey conducted to estimate the traffic and throughput risk. The principles of traffic and throughput risk sharing are analyzed in a later section devoted to this topic.