Explained about basic INCOTERMS for beginners! EXW/FOB/CFR/CIF/DAP/DDP.

Summary

This video, presented by HPS Trade, a Japanese freight forwarder in Thailand, offers an insightful overview of Incoterms, essential trade terms and conditions that dictate who bears the freight costs and responsibility for cargo during delivery. Focusing on six commonly used Incoterms—EXW, FOB, CFR, CIF, DAP, and DDP—the presenter explains each term's implications for freight costs, insurance, and cargo responsibility, emphasizing the importance of understanding these terms for smooth international trade and the mutual agreement between sellers and buyers. The video also highlights the necessity of cargo insurance in international logistics and provides a clear guide for logistics professionals to make informed decisions.

Takeaways

• 📚 Incoterms are international trade terms and conditions that define responsibilities between buyers and sellers for the delivery of goods.
• 🔢 There are 11 different Incoterms, but the focus should be on understanding the six most commonly used ones: EXW, FOB, CFR, CIF, DAP, and DDP.
• 🚚 EXW (Ex Works) is the simplest term for sellers, where buyers are responsible for all transportation costs and risks from the seller's factory.
• 🚢 FOB (Free On Board) transfers the responsibility of goods from the seller to the buyer once the goods are loaded onto the ship.
• 💸 CFR (Cost and Freight) requires sellers to pay all transportation costs and freight to the port of import, after which importers pay local costs.
• 🛫 CIF (Cost, Insurance, and Freight) is similar to CFR but includes insurance arranged by the seller for the cargo during transit.
• 🚪 DAP (Delivered At Place) is a 'door-to-door' term where the seller pays all costs and bears responsibility until the goods reach a specified location.
• 🏦 DDP (Delivered Duty Paid) is similar to DAP, but the seller also pays for import customs duties and taxes, making it a complete 'door-to-door' service.
• ⚠️ It's crucial for both buyers and sellers to understand and agree on the Incoterms to avoid disputes and ensure smooth international trade.
• 🌐 Incoterms help establish clear rules for cargo delivery, payment, and risk allocation, which are essential for international logistics.
• 💼 Understanding Incoterms is vital for professionals in manufacturing, trading, and forwarding companies to make informed decisions and provide the best service to customers.

Q & A

What is the purpose of INCOTERMS in international trade?

INCOTERMS are trade terms and conditions that clearly define who pays the freight and who is responsible for the cargo at different steps of the cargo delivery process between sellers and buyers.

How many types of INCOTERMS are there in total?

There are 11 types of INCOTERMS in total.

Why is it important to understand the basic six INCOTERMS as a beginner?

As a beginner, focusing on the six most commonly used INCOTERMS helps in building a strong foundation before moving on to the rest, making it easier to understand and remember the more complex terms.

What are the six basic INCOTERMS that are frequently used in trade business?

The six basic INCOTERMS are EX WORKS (EXW), FOB, CFR, CIF, DAP, and DDP.

What does EX WORKS (EXW) mean for the seller in terms of responsibility and cost?

In EX WORKS, the seller's responsibility ends once the cargo is loaded onto the buyer's transportation at the factory. The buyer is responsible for all transportation costs and risks from that point.

How does the responsibility of cargo change under FOB terms?

Under FOB terms, the responsibility for the cargo shifts from the seller to the buyer once the cargo is loaded onto the ship at the port of export.

What does CFR stand for and who pays the freight costs under this term?

CFR stands for Cost and Freight. The seller pays all freight costs from the factory to the port of import, while the importer pays for costs such as shipping fees and transportation from the port to the final delivery location.

What is the main difference between CFR and CIF?

The main difference between CFR and CIF is that CIF includes insurance ('I' stands for Insurance), meaning the seller has to arrange insurance for the cargo delivery in addition to paying all freight costs from the factory to the port of import.

What is DAP and how does it differ from DDP in terms of responsibility and cost?

DAP (Delivered At Place) means the seller pays all costs and takes all responsibility for the cargo until it is delivered to a specific place. The main difference from DDP is that in DAP, import taxes are paid by the importer, whereas in DDP, the seller pays both the import taxes and all transportation costs including taxes.

Why is cargo insurance recommended in international logistics?

Cargo insurance is recommended because it provides security against unforeseen events such as accidents, fires, or damage during the long voyage. Without insurance, there is no guarantee for the cargo, which can lead to significant financial loss.

How should one approach learning and applying INCOTERMS in their logistics job?

One should start by understanding the basic six INCOTERMS and then gradually learn the rest. It's also important to consider which terms are advantageous for one's own logistics and to make informed suggestions to customers based on a clear understanding of the terms and conditions.

Outlines

00:00

📚 Introduction to Incoterms for International Trade

This paragraph introduces the concept of Incoterms, which are essential trade terms and conditions used in international shipping. Incoterms help clarify who is responsible for paying freight and handling cargo at various stages of delivery. The speaker emphasizes the importance of understanding Incoterms to avoid disputes and ensure smooth business transactions. Six commonly used Incoterms are highlighted for beginners to focus on: EXW, FOB, CFR, CIF, DAP, and DDP. Each term is briefly described to set the stage for more detailed explanations in subsequent paragraphs.

05:02

🚢 Detailed Explanation of Six Key Incoterms

This paragraph provides an in-depth look at the six key Incoterms mentioned earlier. EXW (Ex Works) is described as the simplest term for sellers, where buyers take over all logistics and costs from the factory. FOB (Free On Board) shifts responsibility to buyers once goods are loaded onto the exporting vessel. CFR (Cost and Freight) and CIF (Cost, Insurance, and Freight) are explained, with the key difference being that CIF includes insurance. The paragraph also clarifies that the responsibility shift in CFR and CIF is similar to FOB, occurring when goods are loaded onto the vessel. DAP (Delivered At Place) and DDP (Delivered Duty Paid) are door-to-door terms, with the main difference being who pays import taxes. The paragraph concludes by summarizing the cost and responsibility aspects of each term and encourages viewers to consider the advantages of each Incoterm for their logistics needs.

Keywords

💡Incoterms

Incoterms, short for International Commercial Terms, are a set of international rules that define the responsibilities of buyers and sellers for the delivery of goods. In the video, Incoterms are the central theme as they provide a framework for trade agreements, helping to avoid misunderstandings and disputes. The script explains that Incoterms clarify who pays for freight and who is responsible for the goods at different stages of the delivery process.

💡EXW (Ex Works)

EXW is an Incoterm that indicates the seller's minimum obligation, which is to make the goods available at their premises. The buyer bears all costs and risks involved in bringing the goods to their destination. In the script, EXW is described as the easiest trade condition for sellers, as they pass the cargo to the buyers at the factory, and the responsibility moves once the cargo is loaded into containers.

💡FOB (Free On Board)

FOB is an Incoterm that specifies the point at which the responsibility for goods moves from the seller to the buyer. The term is used when goods are loaded onto a ship at the port of export. The seller pays for local transportation costs, while the buyer covers ocean freight and delivery fees at the import site. The script emphasizes that the cargo responsibility moves from sellers to buyers once the goods are on board the exporting vessel.

💡CFR (Cost and Freight)

CFR is an Incoterm that requires the seller to pay all transportation costs and freight to bring the goods to the port of import. The buyer then pays for the remaining costs, such as shipping fees and transportation from the port to the final delivery location. The script explains that in CFR, the responsibility for the cargo remains with the seller until the goods are loaded onto the vessel.

💡CIF (Cost, Insurance, and Freight)

CIF is similar to CFR but includes insurance coverage for the goods during transit. The seller's responsibility includes arranging insurance in addition to paying for freight costs to the port of import. The script points out that the main difference between CFR and CIF is the inclusion of insurance, which provides security during the long voyage and potential risks associated with international logistics.

💡DAP (Delivered at Place)

DAP is an Incoterm where the seller pays all costs and assumes all risks until the goods are delivered to a specified location, which can be the buyer's premises or another agreed-upon place. The script refers to DAP as a 'door-to-door' service, indicating that the seller takes on significant responsibility, including logistics, until the goods reach their destination.

💡DDP (Delivered Duty Paid)

DDP is an Incoterm that represents the maximum obligation for the seller, who arranges and pays for all logistics, including import taxes and duties, up to the specified delivery location. The script contrasts DAP and DDP, highlighting that in DDP, the seller pays for import custom tax and consumption tax, whereas in DAP, these taxes are paid by the importer.

💡Freight

Freight refers to the cost of transporting goods from one place to another, typically via ship, plane, or truck. In the context of the video, freight costs are a critical aspect of Incoterms, as they determine who pays for the transportation of goods at different stages. The script explains that different Incoterms allocate freight costs to either the seller or the buyer.

💡Cargo

Cargo refers to goods or produce being transported, typically by ship, but also by air or land. The video script frequently mentions cargo to illustrate the application of Incoterms, emphasizing the importance of understanding who is responsible for the cargo at various stages of the delivery process.

💡Insurance

Insurance in the context of the video refers to the coverage arranged by the seller to protect the cargo during transit. The script highlights the importance of insurance in international logistics, especially in CIF Incoterms, where the seller is responsible for arranging insurance, providing a safety net against potential risks and damages during the long voyage.

💡Responsibility

Responsibility in the video script pertains to who is accountable for the goods at different stages of the delivery process. Incoterms define the point at which responsibility for the cargo shifts from the seller to the buyer. The script uses the term to explain the varying degrees of responsibility assumed by sellers and buyers under different Incoterms.

Highlights

Incoterms, a set of international commercial terms, is crucial for understanding responsibilities and costs in trade.

There are 11 types of Incoterms, but beginners should focus on the six most commonly used: EXW, FOB, CFR, CIF, DAP, and DDP.

Incoterms clarify who pays for freight and who is responsible for cargo at different stages of delivery.

Understanding Incoterms helps avoid disputes and ensures smoother international trade transactions.

EXW (Ex Works) is the simplest term for sellers, where buyers handle all logistics and costs from the factory.

FOB (Free On Board) transfers cargo responsibility from sellers to buyers once the cargo is loaded onto the ship.

CFR (Cost and Freight) requires sellers to pay all freight costs to the port of import.

CIF (Cost, Insurance, and Freight) is similar to CFR but includes insurance arranged by the seller.

DAP (Delivered At Place) means sellers cover all costs and responsibilities until the cargo reaches a specified location.

DDP (Delivered Duty Paid) is a door-to-door term where sellers pay all costs, including import taxes and duties.

Cargo insurance is strongly recommended for security during international logistics.

Understanding the switching step of cargo responsibility is crucial for avoiding misunderstandings.

Incoterms help manufacturers and trading companies determine the most advantageous terms for their logistics.

Forwarding companies should have a deep understanding of Incoterms to provide the best suggestions to customers.

The video aims to support viewers in their logistic jobs by explaining international logistics knowledge.

The presenter offers to assist with shipments to or from Thailand and encourages viewers to subscribe and engage.

Transcripts

this is presented by hps trade

japanese freight forwarder in thailand

this time let us explain about inca

terms to understand very well

incoterms is the trade term and

condition and it describes three english

letters such as cfr and fob

there are 11 kinds of encoders in total

it is not easy to remember all 11

kinds of inco terms but please do not

worry

as a beginner course let's focus on

remembering six kinds which are used

very often

it's okay to remember the rest of the

others after remembering those basic six

kinds of inco terms

first of all what is inca terms we need

to understand this first

in trade terms and conditions inc terms

is mentioned clearly

who pays the freight in the different

steps of the cargo delivery

and who has the responsible for those

cargos in the different steps of the

cargo delivery

between sellers and buyers please

understand those two points first

as international trades there are

different steps and procedures for the

cargo's delivery

through those steps we decide to mention

in in terms

about the range of the money payment and

the timing of the cargo release

when the cargo trouble happens it will

be difficult to have the good business

deal

as long as both the seller and buyer do

not recognize and follow the clear rule

mutually for avoiding the troubles

sellers and buyers must make deals based

on the international rule

for this time we will explain to you

about six basic inc terms

which are used very often in trade

business

ex works fob cfr cif

dap ddp these six are today's topics

let us explain one by one first of all

it's x works x works is also called ex

works as well

sellers pass the cargos to the buyers at

the factory in exporting place

buyers importers make all payments such

as transportation fee

from the factory to the delivery places

an importing site

the responsibility of the cargo is moved

from the seller to the buyers

as soon as sellers finish to load the

cargo from the factory to the containers

in other words x works as the easiest

trade condition for the sellers

next it's fob fob

is the trade terms and conditions that

the responsibility of the cargos move

from sellers to buyers

after the cargos are on the board of

exporting side

sellers pay the local transportation fee

in exporting side

buyers pay the ocean freight and

delivery fee in the importing site in

this terms and conditions

the next is cfr cfr is used to call as

cost

and freight but cfr is the correct word

in cfr sellers pay all freight costs

from the factory

at exporting signed to the port in

import side

importers pay the rest of cost such as

shipping fee and transportation fee from

the importing port to the delivery place

before talking about the movement of the

cargo responsibility in cfr

let us explain about cif cif

is the same as cfr sellers pay all

freight costs from the factory

at exporting signed to the port in

import side

the different point between cfr and cif

is an insurance

in cif i stands for insurance

sellers have to arrange the insurance

for the cargo delivery

we are now explaining about the cost and

the cargo responsibility in cfr and cif

in both cfr and cif the delivery cost is

on exporters from the factory

at exporting signed to the port in

import side

however the responsibility of the cargo

and handling the cargos are the same as

fob

those are moved from exporters to

importers once the cargo is loaded on

the board of the vessel

this point makes us to misunderstand so

please be cautious to remember this

point

we talk about the insurance a little in

international logistics

the cargo is handing by the crane

swinging in the vessel

and then it takes long voyage time to be

delivered to the importing side

in the container vessel there are other

containers with dangerous cargos

we have sometimes heard about the story

that the dangerous cargo was on the fire

and the fire burned out the other

containers

unfortunately no one does not guarantee

for the cargos if you don't get the

cargo insurance

we will feel so much secure as we get

the insurance

no one knows what happens in the

international logistics

we strongly recommend to our customers

to get the cargo insurance every time

let us talk back about inca terms the

fifth one is dap

dap is the trade term and condition that

sellers pay all cost and take all

responsibility for the cargo

until it is delivered in the certain

places

in other words this trade terms is

called door-to-door

let's take a look with the dp together

ddp is the same as dap

sellers arrange all logistics from the

factory and exporter side to the

specific delivery places an

importer side seller exporter will take

both delivery cost and cargo

responsibility

until the specific delivery places in

import side

the different point between dap and ddp

is the payment of the import tax

which exporters or importers pay for it

in dap

import custom tax and consumption tax is

paid by the importers

on the other hand in ddp sellers as

exporters pay both

import custom tax and consumption tax

sellers will pay all transportation

costs including taxes

now let's look back about the cost and

responsibility in incoterms

x works is the trade term that importers

will arrange all logistics from picking

up the cargos at the factory and

exporting places to the specific

delivery places in importer side

importers pays all the delivery cost

until the delivery places

and take all responsibility for the

cargo delivery

fob is the trade term that exporters

will arrange to pay the cost and take

the responsibility

until the cargos will be loaded on the

vessel in the exporter side

and then importers will arrange to pay

all costs

including ocean freight and delivery fee

to the importing places

and the importers will take cargo

responsibility as well

in cfr and cif exporters will pay all

cost for the cargos

until the cargo will be delivered in the

port of importing site

importers pay local cost in importing

side until the cargo will be delivered

in the specific places

the attention point is the switching

step of the cargo's responsibility

it is the same as fob that the cargo's

responsibility is moving from sellers to

the buyers

when the cargos are on the board of the

vessel lastly

in dap and ddp exporters take all

delivery cost and cargo responsibility

until the cargos will be delivered in

dap importers pay the taxes

but in ddp exporters pay the taxes

payment of the cost is all listed as

like this

and then the cargo's responsibility is

all listed as like this

how was those about inca terms those six

inca terms are very often to be used

importantly the decision of using inca

terms is based on the agreement between

sellers and buyers in all trade terms

and conditions

if you are working at manufacturing

companies or trading companies

you need to think which trade terms have

the advantages for your own logistics

if you are working at the forwarding

company let's understand those trade

terms and conditions very well

and let's make the best suggestion to

your customers

it's not like that difficult as you

understand those well once

in this channel i explain about

international logistics knowledge for

your better understanding

i hope this video will be a good support

for your logistic job

if you have any shipment from thailand

or to thailand

please feel free to contact me

also i'm very motivated to keep updating

this video

if you subscribe press good or comment

anything

well thank you see you next time

[Music]

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