CIP Incoterm (Carriage and Insurance Paid)

The CIP Incoterm or “Carriage and Insurance Paid to” states that the seller is responsible for bringing the goods to the destination, the cost of international freight, as well as insurance costs.

Under CIP, the Incoterms risk transfer point is different from the cost transfer point. The CIP risk transfer takes place when the goods have been accepted by the shipping carrier, be it at the terminal or port, and is a recommended Incoterm for containerized cargo.

The CIP Incoterm is versatile as it can be used for intermodal transportation.

Seller’s obligations under the CIP Incoterm

• Delivery of goods and documents required
• Packaging and wrapping
• Inland transport in the country of origin
• Customs handling fees at origin
• Origin charges
• International freight
• Insurance

Buyer’s obligations under the CIP Incoterm

• Payment of goods
• Destination charges
• Customs handling fees at destination
• Inland transport at the destination country
• Payment of duties and taxes

CIP insurance

The CIP Incoterm is one of just two Incoterms (the other being CIF) under which insurance is mandatory. In both cases, the seller is the party responsible for obtaining cargo insurance.

If, as a buyer, you are able to obtain better or cheaper insurance, consider opting for CPT instead, under which the seller is not contractually obliged to provide cargo insurance and you, as a buyer, can obtain your preferred insurance policy.

CPT Incoterm (Carriage Paid To)

Under the CPT Incoterm or “Carriage Paid To”, the seller is responsible for bringing the goods to destination. Unlike some other Incoterms, the transfer of risk is made when the goods have been handed over to the carrier. However, the seller is responsible for contract for the carriage of the goods from delivery to the agreed final destination.

The CPT Incoterm is versatile as it can be used for all modes of transportation and may also be used where more than one mode of transport is employed.

Seller’s general obligations under the CPT Incoterm

• Checking operations (quality, measuring, weighing, counting…); packaging and marking (unless special conditions exist due to the nature of the goods)
• Hand over the goods to the carrier contracted by the seller along with the usual transport documents or those required by the nature of the transaction at the designated point of delivery and at the allocated date
• Bear risks of loss or damage until delivery
• Contract of carriage until the agreed destination
• Clear goods for export and assist the buyer in obtaining documents and information related to import clearance
• Provide the goods and commercial invoice in conformity with the contract of sale as well as notify the buyer of delivery and provide the buyer with any notice required to receive the goods.
• The seller is under no obligation to make a contract of insurance but is obliged to provide information if the buyer requires it to obtain insurance

Buyer’s general obligations under the CPT Incoterm

• Pay the price of the goods as stated in the contract of sale
• Bear all risks of loss or damage from the time the goods have been handed over to the carrier by the seller
• Clear goods for import and assist the seller with export clearance
• If agreed, give the seller sufficient notice on the time for dispatching the goods and/or receiving them
• The buyer is under no obligation to make a contract of insurance

Transfer of risks under the CPT Incoterm

In CPT, it is paramount to identify the place or point of delivery and destination with precision.

The point of delivery is particularly important since it will also be the point in time in which the goods are handed over to the carrier and risk is transferred to the buyer. If it hasn’t been previously determined, the buyer will have no control as to where this is done. Nevertheless, should the transaction involve more than one carrier (as is the case with string sales), the risk transfer can be done at a later or even earlier stage by specifying it previously in the contract of sale.

It is also strongly recommended that both parties identify the destination place as this is the point to which the seller must contract for carriage and also the point until the costs of carriage fall on the seller.

Allocation of costs under the CPT Incoterm

According to the CPT Incoterm, the seller must pay for:

• All costs relating to the goods until they have been handed over to the carrier
• Costs of loading the goods and transport-related security costs
• If applicable under the contract of carriage: any charges for unloading at destination, costs of transit and those associated with providing usual proof of delivery to the buyer
• Export clearance and other costs related to obtaining documents or information for import clearance
• The following costs are to be covered by the buyer:
• All costs incurred after delivery (except those assigned to seller as previously detailed)
• All charges of transit and unloading not included in the seller’s contract of carriage
• Costs and charges related to providing assistance in obtaining document or information for insurance and/or import clearance purposes
• Any additional cost resulting from not notifying the seller with sufficient time of exact date and place for dispatching and receiving the goods

CFR Incoterm (Cost and Freight)

The CFR Incoterm or “Cost and Freight” is an Incoterm that is exclusive to ocean freight shipping.

It states that the seller is not only responsible for delivering the goods to the port specified by the buyer, but also bears the transportation costs of the goods to the destination port.

CFR is nearly identical to CIF, the only difference is that insurance is mandatory under CIF and must be provided by the seller. With CFR, however, insurance is optional.

Common practice dictates that CFR should be chosen over CIF if the buyer is able to acquire better or more affordable insurance and vice versa.

Seller’s obligations under the CFR Incoterm

Delivery of goods and documents required

Packaging and wrapping

Inland transport in the country of origin

Customs handling fees at origin

Origin charges

International freight

Buyer’s obligations under the CFR Incoterm

Payment of goods

Destination charges

Customs handling fees at destination

Inland transport at the destination country

Payment of duties and taxes

CFR insurance

Even though Incoterms laws do not mandate for cargo insurance to be provided under CFR, it is recommended for international ocean freight shipments to be shipped insured.

The shipments may be covered entirely by one single policy obtained by the buyer or seller, or by two separate insurance policies taken out by both the buyer and seller to cover their respective responsibilities.

Make sure that insurance terms and conditions are clearly defined and specified when negotiating your sales contract.

CFR unsuited for containerized cargo

Unlike many of the other Incoterms, the risk transfer point of the CFR Incoterm differs from the cost transfer point. With CFR, risk is transferred when the goods are loaded on board the shipping vessel at origin.

It should only be used in situations where the seller has direct access to the vessel such as bulk cargo shipping when goods are loaded directly onto the vessel instead of dropped off in a container at a terminal prior to loading. As such, the CFR Incoterm is not suitable for containerized cargo.

DAT Incoterm (Delivered at Terminal)

The DAT Incoterm or “Delivered at Terminal” replaces the now outdated DES Incoterm (Delivery at Ship) and DEQ Incoterm (Delivered at Quay) rules, which appeared in the previous Incoterms edition, Incoterms 2000.

The DAT Incoterm states that the seller must deliver the goods to a cargo terminal when dealing with an ocean freight shipment and/or at a hub for air or ground transportation. This means that the DAT Incoterm can be used for all modes of transportation.

In other words, DAT requires the seller to place the goods that have been unloaded from the vessel but not yet gone through customs clearance at the destination country’s terminal, port, or airport.

Under the DAT Incoterm, the seller is responsible for all costs and risks up to the unloading of goods at the terminal. This means that the buyer will be responsible for processing the clearance of the goods, all duties, taxes and any other charges that may be added at this stage.

If the seller is willing to accept the risks and costs of handling the goods all the way to the final delivery, we recommend using the DAP Incoterm or the DDP Incoterm.

Seller’s obligations under the DAT Incoterm

• Delivery of goods and documents required
• Packaging and wrapping
• Inland transport in the country of origin
• Customs handling fees at origin
• Origin charges
• International freight
• Destination charges
• Inland transport at the destination country until specified terminal/port (i.e. rail/inland terminal)

Buyer’s obligations under the DAT Incoterm

• Payment of goods
• Customs handling fees at destination (depending on arrival location)
• Payment of taxes and duties
• Final transportation from specified terminal/port to final delivery location

DAT insurance

Unlike CIP and CIF, neither the buyer nor the seller is required to provide cargo insurance under the DAT Incoterm.

Whether you are a buyer or seller, we recommend you to always get cargo insurance to cover your responsibilities.

When doing so, make sure that your insurance terms and conditions are clearly listed in your sales contract.

Difference between the DAT Incoterm and the DAP Incoterm

Do not confuse the DAT Incoterm with the DAP Incoterm, which are very similar. The main difference between the two Incoterms lie in its delivery location.

Under the DAT Incoterm, delivery at destination must take place at a terminal, such as a quay, warehouse, container yard, or road, rail, or air cargo terminal, depending on the mode of transportation.

In contrast, under the DAP Incoterm, delivery at destination can be anywhere within the destination country, even beyond the terminal. That said, as an importer, when working under DAT, you will be responsible for unloading the goods at the terminal of the destination country.

But when importing under DAP, unloading will take place at the agreed-upon location at destination.

If you’re still unclear on the differences between the DAP Incoterm and the DAT Incoterm, do get in touch. Our imports and exports agents can advice you on which Incoterm best suits your shipping needs.

DAP Incoterm (Delivered at Place)

The DAP Incoterm, or “Delivered at Place”, replaces the now outdated DDU Incoterm, or Delivery Duty Unpaid, which appeared in the previous Incoterms edition, Incoterms 2000.

DAP is an Incoterm that states that the seller must make the goods available to the buyer at the buyer’s chosen location at origin.

Under DAP delivery terms, the seller is not responsible for unloading the goods at destination or for any customs-related costs, tariffs, taxes, fees, or duties that may apply.

The buyer is therefore responsible for all risks involved with processing the import customs clearance and all applicable duties and taxes upon cargo arrival at destination.

Under DAP, the seller is responsible for the majority of the transportation process and leaves minimal liabilities for the buyer. This makes it one of the two most popular Incoterms, the other being Delivery Duty Paid (DDP), for sellers looking to differentiate themselves by offering high levels of customer service to buyers.

The DAP Incoterm is versatile and can be used irrespective of the mode of transportation.

Seller’s obligations under the DAP Incoterm

• Delivery of goods and documents required
• Packaging and wrapping
• Inland transport in the country of origin
• Customs handling fees at origin
• Origin charges
• International freight
• Destination charges
• Inland transport at the destination country

Buyer’s obligations under the DAP Incoterm

• Payment of goods
• Customs handling fees at destination
• Payment of duties and taxes

DAP insurance

Cargo insurance is not an obligation for either party under the DAP Incoterm.

However, given the significant responsibilities and liabilities of the seller, most sellers exporting under DAP often prefer to purchase insurance.

This may just be to cover the portions they’re liable for. But the more likely scenario would be for them to insure the entire transportation from start to end.

When arranging insurance under DAP, make sure the insurance terms and conditions are specified in the sales contract.

DAP Incoterm destination delays

As an exporter, shipping under the DAP Incoterm means taking responsibility for practically everything not only at the origin but also at the destination.

While this means higher risks for the exporter, by being responsible for the majority of the processes and fees, the exporter can obtain more competitive prices for the purchase of the goods and the ocean freight transportation by negotiating directly with the shipping line or freight forwarder.

It is for this very same reason that there is an elevated risk for shippers. DAP can prove particularly problematic when it comes to demurrage charges that may accrue when the cargo gets held up at destination. In the event this occurs, the shipper is the party liable for the payment of delay fees.

Before agreeing on the DAP Incoterm, as an exporter, make sure the destination country is safe, is one that you’re familiar with, or that your freight forwarder has a destination agent in place there.

DDP Incoterm (Delivery Duty Paid)

The DDP Incoterm, or “Delivery Duty Paid” Incoterm, states that the seller must make the goods available to the buyer at a prearranged location (buyer’s factory, warehouse etc.) and cover all associated expenses including unloading the goods from the carrier and any customs procedure costs and tariffs that may apply.

Under the DDP Incoterm, the seller bears full responsibility for all costs and risks until the goods have been unloaded at the agreed-upon location.

Since this means that the seller would essentially be taking charge of almost the entire transportation from start to end, he’s relieving the consignee of nearly all liabilities and responsibilities. That said, DDP and DAP are very popular Incoterms for sellers looking to provide high levels of customer service.

The downside to this for the importer is the lack of control, given the few responsibilities he has, which could be an attractive option for first-time importers.

The DDP Incoterm is versatile as it can be used irrespective of the mode of transport.

Seller’s obligations under the DDP Incoterm

• Delivery of goods and documents required
• Packaging and wrapping
• Inland transport in the country of origin
• Customs handling fees at origin
• Origin charges
• International freight
• Destination charges
• Customs handling fees at destination
• Payment of duties and taxes
• Inland transport at the destination country (depending on agreed location)

Buyer’s obligations under the DDP Incoterm

• Payment of goods

DDP insurance

Even though cargo insurance is not obligatory under DDP, most sellers prefer to purchase insurance.

This is because sellers have significantly more responsibilities than buyers and their liabilities only end when the cargo is delivered.

It is important to always list insurance terms and conditions in the sales contract.

EXW Incoterm (Ex Works)

The seller makes the goods available at their premises, or at another named place. This term places the maximum obligation on the buyer and minimum obligations on the seller. The Ex Works term is often used while making an initial quotation for the sale of goods without any costs included.