INCO TERMS

GENERAL INFORMATION
International Commercial Terms, known as “InCoTerms”, are internationally accepted terms
defining the responsibilities of the exporter and importer in the arrangement of shipments and
transfer of liability involved in their international sales. It is crucial to know which InCoTerm is
being used at the start of a negotiation/quotation of a sale, as it will affect the costs/responsibility
involved in shipping, insurance, and tariffs. InCoTerms are reviewed and published by the
International Chamber of Commerce and a list of the 13 InCoTerms is included at the end of this
document.

INCO Terms and the Exporter

As with all sales details, it is important for the exporter to communicate the InCoTerm details from
the start. See VEDP Export Issues FastFact - Responding to Inquiries. For example, if an export
sale is agreed upon using the InCoTerm “ExWorks” (abbreviated as ExW), the exporter’s
responsibility ends at their facility’s loading dock, having the goods ready for pick up by the
importer/the importer’s agent (such as their designated freight forwarder), and the importer is
responsible to arrange and pay for the shipping and any insurance from that point. Whereas a
sale based on “CIF” would require the exporter to arrange the shipment (the sale price would
include the freight cost/transportation) and provide insurance for the goods while in transit – the
Commercial Invoice total would reflect the Cost of goods, Insurance and Freight/transportation
(CIF).

When designating the InCoTerm on a commercial invoice or a quotation to the buyer, the term is
followed by the city or port involved, such as ExW Richmond, VA or CIF Rotterdam, Netherlands.
Regardless of the InCoTerm agreed upon between the exporter and importer, it is good business
sense for the exporter to continue the communication and update the importer throughout the
process. For example, notifying the importer when the goods are ready to be picked up under
ExWorks terms may be sufficient. However, following up and confirming to the buyer when the
goods were actually picked up by their selected carrier and ultimately the name of the vessel or
air cargo service used and any ocean bill of lading number or airway bill number will further help
keep the buyer informed as well as keep the exporter informed about the status of the shipment
(even though technically under ExWorks the exporter’s responsibility ends at their loading dock
when the goods are picked up).

Among the 13 InCoTerms, the term which requires the least responsibility from the exporter is
ExWorks (ExW). As mentioned, in a sale under ExW, both the title of the goods and responsibility
for transportation and insurance pass to the buyer at the seller’s door or loading dock. For
example: four palletized drums of X chemical priced at US$ 40,000, ExW Richmond, VA. To the
buyer this means that for $40,000 the chemicals will be at the exporter’s facility, packed and
ready for pick up, on the agreed upon date. The seller/exporter notifies/confirms to the buyer that
the goods are ready for pick up. From that point on, the cost of transportation, responsibility and
insurance of the shipment belongs to the importer or the importer’s agent, such as their selected
freight forwarder.

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The most inclusive InCoTerm is Delivered Duty Paid “DDP.” With DDP, the title and the risk pass
to the buyer when the exporter delivers the goods to a named destination and the goods are
cleared for import. As an example: four palletized drums of X chemicals at US$ 40,000, DDP
Santiago, Chile. This means the exporter is telling the importer that for $40,000 the importer will
get the merchandise delivered to the importer’s facility in Santiago, Chile. The exporter pays for
and arranges the transportation, as well as inland transportation for delivery to the importer’s
designated facility in Santiago, pays any insurance coverage and pays any/all duties/tariffs. While
these costs can be added into the product’s pricing or itemized on the commercial invoice, the
exporter takes full responsibility for delivery of the goods to the buyer and any unexpected costs
that may arise, such as delays at customs, demurrage (the storage fee at a port if not picked up
on time for delivery - should the inland carriage be late or unavailable to complete the delivery on
time as arranged by the exporter or its freight forwarder) or changes in inland or ocean
transportation costs.

Before agreeing to ship DDP, the exporter should consider, as always, “details” such as the final
destination at the buyer’s “door” or facility. For example, if your product is a large custom made
piece of machinery for a factory, consider asking the dimensions and capability of the buyer’s
receiving dock (Can the product fit through their door? Do they have people or equipment to
offload the item? Can the type of truck required fit at their receiving dock? Does the road to the
factory allow access by an oversized truck?). Similarly, if your product, such as three laptops
packed in a small box and shipped via airfreight courier for delivery at an office suite of a
downtown city overseas, is shipped under the InCoTerm DDP, you are responsible for paying the
duty (know ahead of time what duty/tariff applies before agreeing to DDP) and you are
responsible for delivery (know the transportation cost and establish good communication with
your selected carrier). Tracking the shipment, communicating with the carrier, acknowledging the
delivery date and contacting your buyer with the shipment details can help alleviate a complacent
carrier delivery rep leaving the package with the wrong person or at a lobby entrance where it
may be lost or stolen.

INCO TERMS
EXW - Ex Works -- Risk passes to buyer including payment of all transportation and insurance
cost from the seller's door. Used for any mode of transportation.

FCA - Free Carrier -- Risk passes to buyer including transportation and insurance cost goods on
the Buyer's collecting vehicle; it is the Buyer's obligation to receive the Seller's arriving vehicle
unloaded.

FAS - Free Alongside Ship --Risk passes to buyer, including payment of all transportation and
insurance cost once delivered alongside ship by the seller. Used for sea or inland waterway
transportation. The export clearance obligation rests with the seller.

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FOB - Free On Board -- Risk passes to buyer, including payment of all transportation and
insurance cost once delivered on board the ship by the seller. Used for sea or inland waterway
transportation.

CFR - Cost and Freight -- Risk and insurance cost passes to buyer when delivered on board the
ship by seller who pays the transportation cost to the destination port. Used for sea or inland
waterway transportation.

CIF - Cost, Insurance and Freight -- Risk passes to buyer when delivered on board the ship by
seller who pays transportation and insurance cost to destination port. Used for sea or inland
waterway transportation.

CPT - Carriage Paid To -- Risk and insurance cost passes to buyer when delivered to carrier by
seller who pays transportation cost to destination. Used for any mode of transportation.

CIP - Carriage and Insurance Paid To --Risk passes to buyer when delivered to carrier by seller
who pays transportation and insurance cost to destination. Used for any mode of transportation.

DAF - Delivered at Frontier -- Risk and responsibility for import clearance passes to buyer when
delivered to named border point by seller. Used for any mode of transportation.

DES - Delivered Ex Ship -- Risk and responsibility for vessel discharge and import clearance
passes to buyer when seller delivers goods on board the ship to destination port. Used for sea or
inland waterway transportation.

DEQ - Delivered Ex Quay (Duty Paid) -- Risk passes to buyer when delivered on board the ship at
the destination point by the seller who delivers goods on dock at destination point cleared for
import. Used for sea or inland waterway transportation.

DDU - Delivered Duty Unpaid -- Risk and responsibility of import clearance passes to buyer when
seller delivers goods to named destination point. Used for any mode of transportation. Buyer is
obligated for import clearance. Seller fulfills his obligation when goods have been made available
at the named place in the country of importation.

DDP - Delivered Duty Paid -- Risk passes to buyer when seller delivers goods to named
destination point cleared for import. Used for any mode of transportation.

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VEDP TRADE EVENTS

For a complete listing of VEDP’s international trade events, please visit the “Events” tab on our
website: www.ExportVirginia.org

WORKS CITED
“InCoTerms 2000” International Chamber of Commerce, May 2006
<www.iccwbo.org/incoterms/preambles.asp>
(The International Chamber of Commerce publishes changes to InCoTerms. The most recent
update is entitled “InCoTerms 2000” as referenced above)

VEDP CONTACT INFORMATION

Virginia Economic Development Partnership
Division of International Trade
P.O. Box 798
901 East Byrd Street
Richmond, Virginia 23218-0798
Tel: (804) 545-5764 Fax: (804) 545-5751
E-mail: ITR@YesVirginia.org
Website: www.exportvirginia.org

Last Revised: September 2007

*Information provided by VEDP Fast Facts is intended as advice and guidance only. The information is in no way exhaustive and the VEDP is not a
licensed broker, banker, shipper or customs agency. VEDP shall not be liable for any damages or costs of any type arising out of, or in any way
connected with the use of, these Fast Facts.