Delivery Terms in International Trade
In international trade, the buyer and the seller need to clearly agree on matters such as where the goods will be delivered, who will bear the costs, at what point the risk passes to the buyer, and who will conclude the contracts of carriage and insurance. The worldwide accepted rules on this subject are the INCOTERMS® (International Commercial Terms) published by the International Chamber of Commerce (ICC). The current edition in force is Incoterms® 2020, which took effect on 1 January 2020. Incoterms® 2020 contains 11 delivery terms, divided into two groups.
- Rules for any mode or modes of transport: EXW, FCA, CPT, CIP, DAP, DPU, DDP
- Rules for sea and inland waterway transport only: FAS, FOB, CFR, CIF
Main Changes in Incoterms® 2020
- DAT (Delivered at Terminal) was removed and replaced by DPU (Delivered at Place Unloaded).
- Under CIP, the minimum insurance cover the seller must obtain was raised to Institute Cargo Clauses (A); under CIF, the minimum cover remains Institute Cargo Clauses (C).
- Under FCA, the parties may agree that the buyer will instruct its carrier to issue an on-board bill of lading, which makes payment by letter of credit easier.
- It is now expressly recognized that under FCA, DAP, DPU and DDP the parties may carry the goods with their own means of transport.
- Security-related obligations and the allocation of their costs between buyer and seller are set out more clearly.
Rules for Any Mode of Transport
EX WORKS (EXW)
Under this term, the seller delivers by placing the goods at the buyer's disposal at its own premises or another named place (such as a factory, warehouse or business premises). The seller is not obliged to load the goods onto any vehicle. From the moment of delivery, all costs and risks relating to the goods are borne by the buyer. This term represents the minimum obligation for the seller.
FREE CARRIER (FCA)
Under this term, the seller delivers the goods to the carrier or another person nominated by the buyer at the seller's premises or another named place. The seller must complete export customs clearance at its own risk and expense. From the moment of delivery, all costs and risks relating to the goods pass to the buyer.
Under Incoterms® 2020, the parties may agree that the buyer will instruct its own carrier to issue the seller an on-board bill of lading after the goods have been loaded on the vessel.
CARRIAGE PAID TO (CPT)
Under this term, the seller delivers the goods to a carrier that it has chosen and contracted itself, with export customs clearance completed, the contract of carriage to the named destination concluded and the transport costs paid. The seller, at its own risk and expense, obtains any export licence or other official authorization required and completes export customs formalities.
Risk passes to the buyer when the goods are handed over to the first carrier, while the seller pays the cost of carriage to the named place of destination.
CARRIAGE AND INSURANCE PAID TO (CIP)
Under this term, the seller delivers the goods to a carrier of its choice, concludes the contract of carriage to the named place of destination and pays the freight. Risk passes to the buyer when the goods are handed over to the first carrier. The seller also obtains insurance in favour of the buyer against the risk of loss of or damage to the goods during carriage. Under Incoterms® 2020, this insurance must cover at least Institute Cargo Clauses (A) and 110% of the contract price. Export customs clearance is the seller's responsibility.
DELIVERED AT PLACE (DAP)
Under this term, the seller delivers by placing the goods at the buyer's disposal on the arriving means of transport, ready for unloading, at the named place of destination. The seller bears all risks and costs involved in bringing the goods to the place of destination. The seller, at its own risk and expense, obtains any export licence or other official authorization required and completes export customs formalities. The seller contracts, at its own expense, for the carriage of the goods to the named place of delivery or, if agreed, to a specific point. The seller bears all risks and costs involved in bringing the goods to the named place of destination.
DELIVERED AT PLACE UNLOADED (DPU)
Under this term, which replaced DAT in Incoterms® 2020, the seller delivers when the goods, once unloaded from the arriving means of transport, are placed at the buyer's disposal at the named place of destination. The place of destination may be a terminal or any other place, covered or not, such as a warehouse or factory. The seller bears all risks and costs of bringing the goods to the place of destination and unloading them. Export customs clearance is the seller's responsibility; import clearance and duties are the buyer's. It is the only Incoterms® rule that obliges the seller to unload the goods at destination.
DELIVERED DUTY PAID (DDP)
Under this term, the seller delivers by placing the goods at the buyer's disposal, cleared for import and ready for unloading from the arriving means of transport, at the named place of destination. The seller bears all risks and costs involved in bringing the goods to the named place of destination and is obliged to carry out customs clearance not only for export but also for import, to pay any duties required for export and import, and to complete all customs formalities. This term represents the maximum obligation for the seller.
Rules for Sea and Inland Waterway Transport
FREE ALONGSIDE SHIP (FAS)
Under this term, the seller delivers by placing the goods alongside the vessel nominated by the buyer at the named port of shipment (for example on a quay or a barge). If the vessel is at the quay, the goods are delivered by bringing them to the loading point; if the vessel is anchored offshore, they are taken alongside it by barge. Risk of damage and costs pass to the buyer when the goods are placed alongside the vessel, and from then on the buyer bears all costs. The seller, at its own risk and expense, obtains any export licence or other official authorization required and completes export customs formalities.
FREE ON BOARD (FOB)
Under this term, the most widely used in Türkiye, the seller delivers the goods on board the vessel nominated by the buyer at the named port of shipment, or procures goods already so delivered. Risk of damage and costs pass to the buyer when the goods are on board, and from then on the buyer bears all costs. The seller, at its own risk and expense, obtains any export licence or other official authorization required and completes export customs formalities.
COST AND FREIGHT (CFR)
Under this term, the seller delivers the goods on board the vessel or procures goods already so delivered. Risk of damage and costs pass to the buyer when the goods are on board. The seller, at its own risk and expense, obtains any export licence or other official authorization required and completes export customs formalities. The seller contracts for the carriage of the goods to the named port of destination and pays the costs and freight.
COST, INSURANCE AND FREIGHT (CIF)
Under this term, the seller delivers the goods on board the vessel or procures goods already so delivered. Risk of damage and costs pass to the buyer when the goods are on board. The seller, at its own risk and expense, obtains any export licence or other official authorization required and completes export customs formalities. The seller contracts for the carriage of the goods to the named port of destination and pays the costs and freight. The seller also contracts for insurance cover against the buyer's risk of loss of or damage to the goods during carriage.
Under Incoterms® 2020, the insurance the seller must obtain under CIF must cover at least Institute Cargo Clauses (C) and 110% of the contract price; the parties may agree on wider cover.
Source: International Chamber of Commerce (ICC), Incoterms® 2020.
