Incoterms: Key Examples in International Import and Export Transactions

‍

Navigating international transactions can be challenging, especially with varying terms of sale. To simplify, we've provided examples using Net 90-day terms to illustrate the process. Often, a Pro-Forma Invoice is used before the transfer of title, with the Commercial Invoice serving as the official document for accounting. This ensures trade credit reporting aligns with payment terms. The examples below highlight basic transactions under Incoterms, developed as a global standard for international trade, though additional documents and complexities can arise depending on each unique transaction.

‍

E Terms (Departure):

1. EXW (Ex Works)

• Example: A U.S. manufacturer sells custom-made machines to a buyer in Brazil.
• Process: The seller makes the machines available at their warehouse. The buyer arranges transport, export documentation, and insurance. Title transfers at the seller’s premises. Payment terms are Net 90 days, but the buyer assumes all transport and risk from pickup. Other payment terms may be upon delivery or prepaid before releasing goods.
• Seller Paid: 90 days after the goods are made available. No bill of lading is issued by the seller; only a pickup receipt.

‍

F Terms (Main Carriage Unpaid):

2. FCA (Free Carrier)

• Example: A Canadian auto parts manufacturer sells parts to a car assembly plant in Mexico.
• Process: The seller delivers the parts to a designated carrier at a terminal in Canada. Title transfers to the buyer when delivered to the carrier. The invoice is issued with Net 90-day terms upon delivery to the carrier, and the bill of lading or carrier’s receipt confirms the transfer.
• Seller Paid: 90 days after handoff to the carrier.
  ‍

3. FAS (Free Alongside Ship)

• Example: A grain exporter in Argentina sells to a buyer in Japan.
• Process: The seller delivers grain alongside the vessel at Buenos Aires. Title transfers when the grain is placed alongside the vessel. Payment terms are Net 90 days from the date of delivery to the port, confirmed by a dock receipt.
• Seller Paid: 90 days after delivery alongside the vessel.
  ‍

4. FOB (Free On Board)

• Example: A South Korean electronics manufacturer sells to a retailer in Australia.
• Process: The seller loads the electronics onto the ship in Busan. Title transfers to the buyer when the goods are on the ship. Payment terms are Net 90 days from the date of loading. The bill of lading serves as proof of shipment and title transfer.
• Seller Paid: 90 days after the goods are loaded onto the ship.

‍

C Terms (Main Carriage Paid):

5. CFR (Cost and Freight)

• Example: A Chinese machinery manufacturer sells to a buyer in Italy.
• Process: The seller arranges and pays for transport to the port of Genoa. Title transfers to the buyer when the goods are loaded onto the ship in Shanghai. Payment terms are Net 90 days from shipment. The bill of lading is issued to confirm shipment.
• Seller Paid: 90 days after shipment.
  ‍

6. CIF (Cost, Insurance, and Freight)

• Example: A textile exporter in India sells to a fashion company in Germany.
• Process: The seller arranges for shipping and insurance to Hamburg. Title transfers to the buyer when the goods are loaded onto the ship in Mumbai. Payment terms are Net 90 days from shipment. The seller provides the bill of lading and insurance certificate.
• Seller Paid: 90 days after shipment and document exchange.
  ‍

7. CPT (Carriage Paid To)

• Example: A U.S. pharmaceutical company ships medicines to a distributor in South Africa.
• Process: The seller arranges transport to the buyer’s location. Title transfers to the buyer when delivered to the first carrier. Payment terms are Net 90 days from shipment, with a bill of lading provided as proof.
• Seller Paid: 90 days after the carrier takes possession of the goods.
  ‍

8. CIP (Carriage and Insurance Paid To)

• Example: A steel manufacturer in Russia exports to a buyer in Canada.
• Process: The seller arranges for transportation and insurance to Canada. Title transfers to the buyer when delivered to the first carrier. Payment terms are Net 90 days from shipment. The bill of lading and insurance certificate confirm the transfer.
• Seller Paid: 90 days after the first carrier takes possession.

‍

D Terms (Arrival Terms):

9. DAT (Delivered At Terminal)

• Example: A coffee exporter in Ethiopia sells to a coffee roaster in the U.K.
• Process: The seller delivers the coffee to a terminal in London. Title transfers to the buyer upon arrival at the terminal. Payment terms are Net 90 days from delivery, confirmed by a terminal receipt.
• Seller Paid: 90 days after delivery at the terminal.
  ‍

10. DAP (Delivered At Place)

• Example: A Japanese medical equipment manufacturer ships to a hospital in the Netherlands.
• Process: The seller delivers the equipment directly to the hospital. Title transfers when the goods arrive at the hospital. Payment terms are Net 90 days from delivery. The seller provides a delivery receipt upon arrival.
• Seller Paid: 90 days after delivery at the buyer's premises.
  ‍

11. DDP (Delivered Duty Paid)

• Example: A furniture manufacturer in Vietnam ships to a U.S. retailer.
• Process: The seller delivers the furniture to the retailer’s location and pays all duties and taxes. Title transfers to the buyer upon delivery. Payment terms are Net 90 days from delivery. A delivery note is issued to confirm receipt.
• Seller Paid: 90 days after delivery, including duties and taxes.

‍

In each scenario, the seller offers Net 90-day credit terms, meaning the buyer has 90 days after the specified title transfer point (whether at shipment, arrival, or delivery) to make the payment. Each example includes the proper documentation, such as a bill of lading, insurance certificate, dock receipt, or delivery note, to ensure clear title transfer and payment timelines.

‍

In certain situations, the buyer or a supply chain finance company may require an inspection of the goods before they are loaded. Additionally, they may ask for verification that the goods meet the required standards and ensure that the goods have been approved prior to shipment. This helps provide assurance of product quality and confirms that all financial arrangements are in place before proceeding with the transaction.