INCOTERMS 2020: EXW, FCA, FAS, FOB, CFR, CIF, DDP, & DPU Understanding Incoterms 2020: A Guide to Ocean Freight Terms with Eurovan International In the complex world of international trade, understanding the specific terms of shipping agreements is crucial. The International Commercial Terms, or Incoterms, provide a standardized set of rules to clarify the responsibilities of buyers and sellers involved in international transactions. Eurovan International, a leader in logistics and freight forwarding, leverages these terms to ensure smooth and clear transactions. This article delves into the Incoterms 2020 with a focus on ocean freight terms, making it easier to grasp the roles and responsibilities of each party. EXW (Ex Works): Incoterms 2020 Definition and Responsibilities Ex Works (EXW): The seller makes the goods available at their premises or another named place. Sometimes the location is a factory or a warehouse. The buyer bears all costs and risks involved in taking the goods from the seller’s location to the desired destination. Seller’s Responsibilities with Incoterms 2020: EXW Buyer’s Responsibilities with Incoterms 2020: EXW Incoterms 2020: Real-Life Analogy about EXW Think of EXW as buying a product directly from a farmer’s market. The seller (farmer) provides the goods at their stall, but it’s your responsibility to transport the goods home. You are responsible to handle any necessary packaging and deal with any issues during transportation. Example of Incoterms 2020: EXW A buyer in Spain purchases machinery from a seller in Egypt. Under EXW, the seller at Eurovan International ensures the machinery is ready for pickup at their Cairo warehouse. The buyer arranges for a truck to collect the machinery. The buyer handles all export documents, and covers the shipping costs to Spain. Ex Works (EXW) is used in international trade and specifies the obligations of the buyer and seller. Here are some unique facts about EXW (Ex Works): Minimum Seller Obligation EXW places the minimum responsibility on the seller. The seller’s obligation is fulfilled once the goods are made available for pickup at their premises (factory, warehouse, etc.) or another named place (works, factory, warehouse, etc.). Buyer’s Responsibility Under EXW, the buyer is responsible for all costs and risks involved in taking the goods from the seller’s premises to the final destination. This includes loading, transportation, export customs clearance, and import duties. Risk Transfer Point The risk of loss or damage to the goods transfers from the seller to the buyer as soon as the goods are made available for pickup. The buyer bears all risks from that point onwards. Export and Import Clearance The buyer is responsible for both export and import customs clearance, including all necessary documentation, duties, and taxes. This can be complex, especially in countries with stringent export regulations. Loading Costs Unless otherwise agreed, the buyer is responsible for the costs of loading the goods onto the transport vehicle at the seller’s premises. If the seller assists with loading, this should be explicitly stated in the contract. Insurance Under EXW, the seller has no obligation to arrange insurance. It is the buyer’s responsibility to obtain insurance if they want to protect the goods during transit. Ideal for Domestic Transactions EXW is often used in domestic transactions or situations where the buyer has a strong logistics network and can manage the transportation and export process efficiently. Documentation The seller must provide the commercial invoice and any documents that the buyer might need to take delivery of the goods. However, any additional documentation required for export and import must be arranged by the buyer. Clarity in Contract The contract should clearly specify the exact point at the seller’s premises where the goods will be made available. This avoids any misunderstandings regarding the pickup location. Common Use in Certain Industries EXW is commonly used in industries where buyers prefer to have complete control over the transportation process, such as in certain manufacturing and raw material sectors. Variations in Practices In practice, EXW can vary widely depending on the buyer and seller’s agreement. Sometimes sellers might assist with export clearance and loading, even though it’s not required under EXW terms. Currency and Payment Terms Payment terms under EXW can vary, but they often involve the buyer arranging payment before picking up the goods to minimize the seller’s risk. Consideration of Export Restrictions In countries with strict export controls, EXW might not be the best option as the buyer must handle all export formalities, which can be challenging without local knowledge. Use in E-commerce and International Trade While EXW is less common in international trade due to the complexity of export and import processes, it is sometimes used in e-commerce when the buyer arranges international shipping and handles customs. Cost Efficiency for Buyers For buyers with robust logistics capabilities and experience in handling customs, EXW can be cost-efficient as they can directly control and potentially reduce transportation and handling costs. Understanding EXW is essential for businesses engaged in international trade, as it outlines the minimal obligations of the seller and extensive responsibilities of the buyer, ensuring clarity and proper management of logistics and risks in the transaction. FCA (Free Carrier): Incoterms 2020 Definition and Responsibilities Free Carrier (FCA) requires the seller to deliver the goods to a carrier or another person nominated by the buyer at the seller’s premises or another named place. From that point, the buyer assumes all risks and costs. Seller’s Responsibilities: Buyer’s Responsibilities: Real-Life Analogy FCA is like ordering a package and specifying a courier service to pick it up from the seller’s address. The seller ensures the package is ready and hands it over to your chosen courier. Once the courier has it, you’re responsible for any shipping issues. Example An electronics company in Germany orders components from an Egyptian supplier. The supplier delivers the components to a carrier at their factory, completing all necessary export procedures. The German company then manages the shipment from the carrier’s possession to their facility. FAS (Free Alongside Ship): Incoterms 2020 Definition and Responsibilities Free Alongside Ship (FAS) means the seller delivers the goods alongside the vessel at the named port of shipment. Consequently, the buyer bears all costs and risks from that point forward. Therefore, the buyer must handle loading the goods onto the ship, as well as all subsequent transportation and import costs. FAS is often used in bulk shipping scenarios where the buyer has more control over the loading process. Moreover, it ensures the seller fulfills their obligation once the goods are placed alongside the vessel, ready for loading. Seller’s Responsibilities: FAS (Free Alongside Ship) Buyer’s Responsibilities: FAS (Free Alongside Ship) Real-Life Analogy: FAS (Free Alongside Ship) Imagine a seller bringing goods to the dock but not loading them onto the ship. At this point, the buyer must then take over the process, ensuring the goods are safely loaded onto the vessel and transported. This transition highlights the shift in responsibility and risk from the seller to the buyer at a specific location, illustrating a common practice in international trade under FAS (Free Alongside Ship): Incoterms 2020 terms. Example of FAS (Free Alongside Ship) A buyer in Brazil purchases bulk raw materials from an Egyptian supplier. The supplier delivers the materials to the dock in Alexandria, Egypt. From there, the Brazilian buyer arranges for the loading and shipping to their factory under FAS (Free Alongside Ship): Incoterms 2020. Free Alongside Ship (FAS) is a commercial term used in international trade under Incoterms 2020. Here are some unique facts about FAS (Free Alongside Ship): Definition FAS means that the seller must deliver the goods alongside the vessel nominated by the buyer at the named port of shipment. The risk of loss or damage to the goods passes to the buyer when the goods are alongside the ship. Pre-1936 Usage The term FAS has been in use long before the establishment of Incoterms by the International Chamber of Commerce (ICC) in 1936. It was a standard term in maritime shipping for centuries, facilitating global trade. Cost Division Under FAS, the seller is responsible for the costs up to the point of delivery alongside the ship. This includes export clearance and any fees or charges incurred before the goods are placed alongside the ship. The buyer bears all costs from that point onward, including loading, shipping, insurance, and import duties. Risk Transfer The transfer of risk from seller to buyer occurs when the goods are placed alongside the ship, not when they … Continue reading New Guide To Official Incoterms: Demystify the Chaos with EVI