Simply about incoterms FOB, EXW, CFR, FCA, and CIF

Simply about incoterms FOB, EXW, CFR, FCA, and CIF

Incoterms rules are a tricky and confusing topic for many people. The following information will help you understand the basic concepts.

EXW (Ex Works)

This is the most profitable delivery basis for the seller since his terms imply the least responsibility for him.

How is it applied in practice? After the shipper has sold his goods, all shipping terms fall on the buyer’s shoulders. The cargo recipient contacts the logistics company, provides the factory address, and requests shipping to the final destination. He indicates whether he must carry out customs clearance of the cargo or has his own customs representative.

The Chinese market interprets the term EXW ambiguously. So, a Chinese supplier can sell goods on EXW terms while giving free cargo freight to one of the consolidation warehouses in China. But these will still be EXW terms since he does not custom his goods.

Another advantage of this scheme is that the consignee controls his cargo at each stage. This is very convenient, but more expensive since the goods price does not include any logistics.

An important point: it is necessary to specify the plant or factory address from where you need to pick up the cargo – this affects the delivery cost in China and the final price of the goods.

FCA (Free Carrier)

The next freight basis is FCA. It differs from EXW only because the seller arranges his cargo for export. The supplier sells the shipment to the buyer, but at the same time, undertakes to carry out export clearance and bear the costs for it. He must obtain an export license and accreditation at customs to do this. All other terms repeat EXW rules.

If the supplier agrees to deliver the cargo to the address specified by the buyer without paying for export declaration, these are not FCA terms. The FCA rules apply only if the seller has made a “customs clearance”.

FOB (Free On Board)

During the FOB term, the seller undertakes to ship the goods to the container carrier and load it on board. He provides all the logistics before loading on a board until the container appears on the vessel.

There is an important point here. The seller transfers the rights to the cargo when the container crosses the ship’s side. After that, the buyer is responsible for the goods. He also has to charter a place for the goods and pay subsequent costs.

Roughly speaking, FOB is all local expenses on the supplier’s territory until the moment of loading on the ship. After that, the consignee takes responsibility and costs for the cargo.

CIF (Cost, Insurance, and Freight)

CIF terms include – these are, in fact, FOB rules, except that sea freight and insurance policy is the responsibility of the cargo sender.

He also makes an export declaration, shipping the container to the port, paying for loading and unloading, insurance, loading on board the ship, and sea freight to the destination port.

The consignee’s financial responsibility begins when the ship arrives at the destination port, including unloading, customs clearance, and delivery to the export country.

CFR (Cost and Freight)

Under the CFR terms, the CIF rules apply, but with one exception – without insurance. This term is specified when the seller does not want to insure the cargo.

The supplier relieves himself of obligations for the cargo when he transfers it to the buyer on board the ship and also draws up the customs of the country of export, paying duties. In this case, the seller pays for the freight. Import and unloading upon arrival are on the buyer’s shoulders.

Are you still confused about terms? Contact the experts – PartnerTrade managers will be glad to advise you on any direction and time of cargo freight. 

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