Last week we posted the introduction of this blog series on Incoterms. There you'll find a general explanation of the form and function of these beauties. Now we are on to the meat of it – a list of the first 4 Incoterms, along with an expansion of the abbreviation and a detailed explanation of who pays and who assumes risk.
These first 4 are arranged in order of increasing cost and risk to the seller. These 4 terms cover 2 groups: Group E – Departure and Group F - Main carriage not paid by seller.
Group E abbreviations start with E and cover departure of goods. Group F abbreviations all start with an F and are characterized by the main costs being covered by the buyer.
Click here for an incoterms quick reference guide from your friends here at UCM, but then head on back to this page for the detailed explanation of the terms.
1. EXW: Ex (Latin for out of or from) Works; i.e. goods available from the place of production.
Definition: EXW is usually followed by a place name, such as EXW Portland and means essentially that the seller will make the goods available to the buyer at a specified place, i.e. the seller’s premises/warehouse/works/factory, and at a specified time. This fulfills the seller’s obligations – leaving the buyer to load the goods onto whatever transportation has been arranged, clear the goods for export, and bear all the risk during transport.
Caveat: Alternate arrangements can be made, such as the seller agreeing to load the goods and assume the risks of such loading, etc. Any such deviation must be made explicit in the contract.
Note: When getting an initial price quote for goods, you are usually quoted the price for an Ex Works arrangement, that is, the price of the goods not including shipping, loading, insurance or any of the other costs likely to apply. Therefore, Ex Works translates into the arrangement carrying the minimum obligation and risk for the seller and the maximum obligation and risk assumption for the buyer. Ex Works applies exclusively to air, rail, road, and containerized/multimodal transport.
2. FCA: Free Carrier
Definition: FCA is usually followed by a place name – the initial destination of the goods, FCA Anchorage for example. Not surprisingly, this term is also referred to as “named place delivery”. Under the terms of FCA, it is the seller’s obligation to hand the goods over to the first carrier at the named place once they have been cleared for export. Using our earlier example, the seller would have fulfilled their obligation once the goods had been cleared for export and delivered from the seller’s warehouse (let’s say) to the carrier waiting at the port of Anchorage. At this point the buyer assumes the risks and costs of any further transport executed by the first carrier.
Note: Sometimes, no specific place of delivery is where the goods will change hands and be delivered into the hands of the carrier within the range specified in the contract. FCA represents an incremental increase in the cost and obligation to the seller over the EXW arrangement. Because the seller owns the good right up to delivery, FCA arrangements allow the seller to resell the goods to someone else while the goods are still in transit. Free Carrier applies exclusively to air, rail, road, and containerized/multimodal transport.
3.FAS: Free Alongside Ship
Definition: Free Alongside Ship means what it sounds like, that the seller must transport the goods all the way to the dock, close enough to be reached by the crane of the ship it will be transported in. Also it is the seller’s responsibility to clear the goods for export (this is an innovation from the 2000 version of Incoterms, when buyers had to take care of port fees). FAS is usually followed by a place name, for example FAS San Francisco. The place name indicates the port where the goods are to be delivered on the quay beside the carrier ship.
Note: Not surprisingly, FAS applies exclusively to maritime and inland waterway shipping. However it does not apply to goods packaged in shipping containers. FAS is instead usually used for goods sold as bulk cargo, such as petroleum products or grain.
4. FOB: Free Onboard Vessel
Definition: Free Onboard Vessel is sort of a hybrid, where the seller is obligated to bring the goods all the way to the port, clear the goods for export, AND see that they are loaded onto the ship nominated by the buyer. Once the goods clear the railing of the vessel the buyer assumes the risk. FOB is often followed by the named loading port thus: FOB Long Beach, meaning the seller delivers the goods, pays the port fees, and sees the goods loaded onto the ship docked (in this case) at the port of Long Beach.
Note: This Incoterm is used exclusively for maritime and inland waterway transport but not for container shipping.
Well, that’s all for now. Next time we will continue with group C Incoterms – Main carriage paid by seller!