For the last article in our blog series breaking down Incoterms®2020, we’ll explain the four rules that apply specifically to sea and inland waterway transport. In our previous articles, we addressed the first eight terms that cover any mode of transport. (See “Defining DAP, DPU & DDP” and “Defining EXW, FCA, CPT & CIP .”)
Because Incoterms largely define responsibilities and risks for buyers and sellers in international trade, we recommend familiarizing yourself with these rules So you can utilize them in your everyday sales transactions.
- FAS: Free Alongside Ship (Named Port of Shipment)
FAS holds a low to moderate risk for the seller, as the seller is responsible for delivering the goods alongside the vessel or at the named port of shipment. Once the goods are delivered and cleared for export, the risk transfers to the buyer, who is then responsible for loading the goods on the vessel and covering any transportation and import costs thereafter.
- FOB: Free On Board (Name Port of Shipment)
Under FOB, the seller is tasked with delivering the goods and loading them on board the vessel at the named port of shipment. This rule carries a low to moderate risk for the seller as it transfers over to the buyer when the goods are loaded on the vessel and cleared for export at the point of origin. Once this occurs, the buyer assumes the risks and the costs associated with actually shipping the goods to the final destination point, including the cost of import clearance and duties.
- CFR: Cost and Freight (Named Port of Destination)
There is a moderate risk to the seller under CFR. The seller bears all risks and costs associated with arranging and transporting the goods by sea to the destination port. The risk of loss transfers from the buyer to the seller once the goods are on board the vessel. From there, the buyer oversees unloading the goods and covers any additional transportation costs from there onward.
- CIF: Cost Insurance and Freight (Named Port of Destination)
FAS, FOB, and CFR do not require either party to provide insurance. However, CIF differs from the three previously described rules in that the seller must provide at least minimal insurance coverage. Unlike the 2020 revisions to the CIP rule, though, there is no increase in the level of insurance required.
In addition to providing minimum insurance coverage on the goods for their transportation to the port of destination, the seller is responsible for delivering and loading the goods on the vessel, cleared for export, and paying for the cost of carriage to the point of destination. As soon as the goods are loaded, the risk of loss transfers to the buyer.
Interested in more information? Contact us today to get experienced advice and in-depth details on how Incoterms revisions may impact your coverage.