Classification of Incoterms | Incoterms® 2020 groups

Incoterms are the set of rules widely used in international shipments, which defines the point of delivery and also the point where the risk is transferred to buyer from seller.

Incoterms are divided into four groups - C, D, E & F based on their functions.

In this article, we shall understand these groups in details.

Group C (Main carriage paid):
This group contain four incoterms, for all these incoterms main carriage/freight is paid at the origin and the risk is transferred to buyer from seller once the goods are handed over the carrier. The four incoterms of this group are mentioned below.

1. CPT (Carriage paid to)
2. CIP (Carriage and Insurance paid to)
3. CFR (Cost and Freight)
4. CIF (Cost, Insurance and Freight)

The similarities in these four incoterms are export clearance, freight and all the operations at origin port are arranged by seller/ exporter.
Let's have brief idea about these four incoterms.

CPT (Carriage paid to): In CPT delivery term seller arranges packing, transportation, export clearance and delivers the cargo to the first carrier or appointed person at agreed place (place of delivery is not defined in CPT, it can be anywhere as per mutual agreement of buyer & seller), seller also pays the freight till place of delivery as per the contract (as agreed). Buyer is responsible for import clearance and transportation at destination, seller doesn't arrange insurance in case of CPT, it has to be arranged by buyer if required.

CIP (Carriage and Insurance paid to): CIP is similar to CPT, the only difference is in case of CIP seller additionally arranges the insurance.

CFR (Cost and Freight): In CFR delivery term seller arranges packing, primary transportation, export clearance and the freight till agreed port if destination, seller delivers the cargo at the port of loading. Buyer's responsibility is to arrange insurance, import clearance, duties & taxes at destination country and local delivery.

CIF (Cost, Insurance and Freight): CIF is similar as CFR, the only difference is in case of CIF seller arranges insurance at origin.

The main difference between CPT, CIP and CFR, CIF is, CFR & CIF are used for sea/ocean and inland waterways shipments but CPT & CIP can be used for all modes of transportation.

Another difference is CFR & CIF are not suitable for containerized cargo, these terms are suitable for bulk cargo. Where CPT & CIP are highly recommended for containerized cargo.

Group D (Arrival):
In group D incoterms common rule is seller has all the risks till goods are not delivered to the buyer, this group has three incoterms and those are:

1. DAP (Delivered at Place)
2. DPU (Delivered at Place Unloaded)
3. DDP (Delivered Duty Paid)

For these three incoterms seller/exporter has the responsibilities of packing, moving, main carriage/ freight, transportation at destination and delivery of goods at named place, at that point risks & responsibilities are transferred to the buyer. Let us know about these incoterms.

DAP (Delivered at Place): In case of DAP, seller is responsible for all the operations freight and delivery of goods at the named place at destination, buyer is responsible for import custom clearance, import duty or taxes and unloading of the cargo.

DPU (Delivered at Place Unloaded): In case of DPU seller is responsible for all the operations at origin, freight, transportation at destination and unloading at destination, buyer is responsible for import custom clearance, import duty and taxes.

DDP (Delivered Duty Paid): In case of DDP seller has the responsibility of delivery of the goods at buyer's premises, buyer is responsible only for the unloading of the goods.

The difference between DAP and DPU is in case of DAP buyer is responsible for unloading of the goods but in DPU seller is responsible for unloading. And in case of DDP seller is responsible to deliver the goods at buyer's place where buyer has to take care of all the activities, DDP is similar to "door to door delivery".

Group E (Departure):
The only incoterm under this category is EXW (Ex Works).

EXW (Ex Works): In Ex Works incoterms seller packs the goods and makes the goods ready for pick up, buyer arranges pick up the goods from seller's place. All responsibility transferred from seller to buyer once the goods are loaded in buyer's vehicles.

Group F (Main carriage unpaid):
This group contain three incoterms, for all these incoterms carriage/freight is arranged by the buyer, seller has to arrange export clearance and deliver the goods at a named place or port.

1. FCA (Free Carrier)
2. FAS (Free Alongside Ship)
3. FOB (Free on Board)

Similarity between these three incoterms is main carriage or freight is not paid at the origin and the freight is paid by buyer.
Let's understand these three incoterms.

FCA (Free Carrier): In FCA incoterms, either buyer arranges transportation from seller's place or seller deliver the goods at named place. In case of first option buyer will place the vehicle at seller's premises and seller will load the goods on buyer's vehicle, at that point all risks & responsibilities shall be transferred to buyer. In case of second option seller will arrange the primary transportation & export clearance, goods will be delivered to a named place, which can be a port, a terminal, warehouse of buyer’s freight forwarder or any other place, at that point all risks & responsibilities shall be transferred to buyer. In this case, buyer will arrange unloading of the goods, main carriage/freight, import clearance, transportation at destination, unloading etc.

FCA incoterm can be used for in modes of transportation; it is used for containerized cargo.

FAS (Free Alongside Ship): In FAS incoterms seller will pack the goods, arrange export clearance, arrange primary transportation and deliver the goods at the port or terminal alongside the ship (vessel), from that point all risks & responsibilities shall be transferred to buyer, buyer arranges loading into vessel, main carriage/freight, local transportation at destination and unloading.

FAS can be used only in sea and inland waterways transport, FAS is used for bulk cargo.

FOB (Free on Board): In FOB incoterms seller will arrange packing, export clearance, transportation to the port/terminal, and loads the cargo into the vessel, seller’s responsibility ceases once vessel gets on board, from that point all risks & responsibilities are on buyer.

FOB is used only in sea and inland waterways transport. As per Incoterms® 2020 FOB is inappropriate for containerized cargo, because containers are handed over to the shipping line in the port or terminal at some distance from the vessel.

Also read:

Incoterms® 2020

1. EXW(Ex Works)

2. FCA(Free Carrier)

3. FAS(Free alongside ship)

4. FOB(Free on Board)

5. CFR(Cost and Freight)

6. CIF (Cost Insurance & Freight)

7. CPT(Carriage paid to)

8. CIP (Carriage & Insurance paid to)

9. DAP(Delivered at Place)

10. DPU(Delivered at place unloaded)