Since January 1, 2020, the eighth version of the International Commercial Terms (also INCO Terms or Incotermscalled) are valid. As international import-export professionals, we at KTB Hamburg know how important a certain Basic understanding of the Incoterm rules for international communication in the trade. We have summarized everything you need to know about INCO terms for manufacturers and distributors to make MRO parts procurement for industrial spare parts as easy as possible.
Consensus for International Trade: A Brief Definition of Incoterms
- The International Commercial Terms are an internationally valid set of rules for the interpretation of commercial clauses. This makes it quick and easy to agree on transport costs, risk handling and business transaction obligations.
- The INCO terms have been used since 1936 by the International Chamber of Commerce ICC Paris set.
- Applicable INCO-Terms regulations are specified via a three-digit abbreviation in the purchase agreement.
The INCO terms abbreviations and their meaning
Individual clauses within the International Commercial Terms regulation shall be clearly indicated in the purchase contract: The wording "Incoterms ® 2020 _ Abbreviation" makes it unequivocally clear that the clauses specified refer to the current INCO-Term regulations of 2020. All common abbreviations for industrial spare parts procurement by trading companies and for international MRO supply chain management can be found here:
Important delivery conditions for the import-export industry
| EXW | "Ex Works" (Ex works) | "Ex works" means that the seller makes the goods available at a named place as soon as they have been manufactured. The pick-up clause does not oblige the seller to load the goods on pallets or to clear them for export. |
| FCA | "Free carrier" (Free Carrier) | This clause states that the seller delivers the goods to the carrier or to another place defined in the purchase contract. In this case, the goods must be cleared at the named place; any risks are transferred to the buyer at this point. |
| CPT | "Freight prepaid"(Carriage paid to) | Freight paid means that the seller is responsible for organizing and financing the transport. The place of delivery to the carrier is specified in the contract. |
| CIP | "Freight insured"(Carriage and Insurance paid to) | In addition to the clauses mentioned under CPT, Seller undertakes to take out and finance comprehensive transport insurance for the goods. The insurance must be valid at least up to the named place of freight. |
| DAP | "Delivered"(Delivered At Place) | Together with this clause is named a specific place where the delivery is carried out by providing the goods ready for unloading. All risks during transportation to the named place are covered by the seller. |
| DPU | "Delivered and unloaded"(Delivered at Place unloaded) | The seller assumes transportation costs and bears all risks for the transportation of the goods to the place of destination, including unloading. Export clearance is handled by the seller; import clearance and import duties are borne by the buyer. |
| DDP | "Delivered, duty paid"(Delivered, Duty paid) | DDP is equivalent to a maximum obligation for the seller. He undertakes the clearance of import and export and provides the goods ready for unloading at the specified place. |
| FAS | "free long side ship"(Free alongside Ship) | This clause applies to deliveries by ship and stipulates that the seller's obligations end as soon as the goods are alongside the cargo ship, i.e. when the goods are delivered to a quay or barge in port and are no longer on board the ship. |
| FOB | "free on board"(Free on Board) | Risks for loss or damage of goods are transferred to the buyer as soon as the goods are loaded onto the cargo ship. |
| CFR | "Cost and Freight"(Cost and Freight) | In this case, the seller shall bear the costs and risks of transportation to the port of destination. Nevertheless, he remains liable for possible damage or loss of goods only until loading on the ship. |
| CIF | "Cost, insurance and freight"(Cost, Insurance and Freight) | In addition to the above obligations, the seller is required by the CIF clause to insure the goods to the place of delivery with minimum insurance coverage. |
Tips on the use of Incoterms when drawing up sales contracts
In order to avoid unexpected obligations and related damage payments, contractual partners should pay attention to a number of things when defining INCO terms. We at KTB are very familiar with trading contracts on an international level and will be happy to advise you on the drafting and adaptation of sales contracts for MRO parts procurement.
This is what you should pay attention to when using INCO-Terms
- INCO-Term clauses define the obligations of the parties to the purchase contract in terms of transportation, financing and security of goods. The clauses stipulated in the purchase Clauses should fit the delivery method and the desired scope of delivery. Our import-export professionals at KTB Hamburg will handle the entire parts procurement process for repair and maintenance materials worldwide, if desired.
- The Place of delivery should be determined as accurately as possiblein order to prevent misunderstandings regarding liability in the event of possible loss of goods or damage to delivery.
Frequently asked questions
What are Incoterms?
Incoterms, short for International Commercial Terms, are delivery terms published by the International Chamber of Commerce (ICC). They govern who bears which transport costs, risks and obligations in international trade, such as loading, insurance or customs clearance. The current version is Incoterms 2020. In the purchase contract, they are stated with abbreviation, place and version.
What does EXW (Ex Works) mean?
With EXW, the seller makes the goods available for collection at its premises or another named place. It does not have to load them or clear them for export. The buyer bears all costs and risks from the point the goods are made available. EXW thus means the minimum obligation for the seller and the greatest effort for the buyer.
What is the difference between FOB and CIF?
With FOB (Free on Board), risk passes to the buyer as soon as the goods are on board the vessel at the port of shipment. The buyer pays for sea transport. With CIF (Cost, Insurance and Freight), the seller pays freight and minimum insurance to the port of destination, but risk likewise already passes on loading on board.
What does DDP mean in Incoterms?
DDP stands for Delivered Duty Paid. The seller bears all costs and risks up to the named place of destination, including export and import clearance and import duties. The goods are made available ready for unloading. DDP means the maximum obligation for the seller and is particularly convenient for the buyer.