International Incoterms rules often seem complicated and confusing. To understand the key concepts, let's take a look at the main delivery terms.
EXW (Ex Works) - minimum seller's responsibility
This option is beneficial for the seller because he bears minimal responsibility. After the sale of the goods, all costs and organizational issues - transportation, warehousing, customs clearance - fall on the buyer.
In practice, it looks like this: the buyer contacts a logistics company, specifies the address of the factory and organizes delivery to the final destination. At the same time, the buyer is responsible for customs clearance, either through a forwarding company or through his own broker.
An interesting nuance: in China, EXW can be interpreted in different ways. For example, a supplier can sell goods on these terms, but deliver them to a consolidation warehouse within China free of charge. However, despite this, the terms remain EXW, as the seller does not clear the goods for export.
The main advantage of EXW is the buyer's full control over the process. However, this option is more expensive because the cost of the goods does not include logistics. It is important to specify the address of the factory in advance, as this affects the shipping costs and the final price.
FCA (Free Carrier) - export clearance at the seller's expense
This condition is similar to EXW, but with one important addition: the seller undertakes to clear the goods for export and pay the associated costs. He must obtain an export license and be accredited by the customs.
If the seller simply delivers the goods to the address specified by the buyer, but does not issue an export declaration, this is not FCA. This condition applies only if the goods have passed export customs clearance.
FOB (Free On Board) - transfer of responsibility on board the vessel
Under FOB terms, the seller undertakes to deliver the goods to the port, load them onto the vessel and pay all related costs.
The key point is that the responsibility for the cargo passes to the buyer at the moment when the container crosses the ship's board. From that moment on, the buyer organizes further transportation, including the freight of the vessel and payment of all subsequent expenses.
Simply put, FOB covers all costs on the territory of the sender's country until the moment of loading onto the vessel. Further expenses are the responsibility of the buyer.
CIF (Cost, Insurance and Freight) - protection against risks
CIF is almost identical to FOB, but with an important addition: the seller is obliged to take out cargo insurance and pay sea freight to the port of destination.
His responsibility includes export clearance, delivery to the port, loading onto the vessel, insurance, and sea transportation. However, unloading, customs clearance in the country of import and further delivery are the responsibility of the buyer.
CFR (Cost and Freight) - without insurance
CFR is largely the same as CIF, except for one thing - it does not provide for cargo insurance.
The seller organizes delivery to the port, export clearance and sea freight, but insurance remains at the buyer's discretion. Responsibility for the cargo passes to the buyer from the moment it is loaded onto the vessel. All further costs, including unloading and import clearance, are borne by the recipient.
📌 Not sure which option to choose?
Contact our specialists! Managers of Grand Logistics Company will help you understand the details and choose the best delivery terms. Contact us - we are always ready to advise you!
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