Decoding Incoterms: The key to efficient agri-food trade

Introduction to Incoterms in agri-food trade

In global agribusiness, where commodities navigate complex trade routes, clear trade terms are essential. Incoterms, also known as International Commercial Terms, provide a structured framework that outlines distinct responsibilities, costs, and risks for both buyers and sellers.

These standardized terms ensure that businesses, regardless of where they operate, have a common understanding, making trade smoother and more efficient. For agribusinesses, mastering these terms is crucial to avoid costly misunderstandings and to ensure smooth transactions in a sector where timely deliveries can mean the difference between profit and loss.

XW | Ex-Works or Ex-Warehouse: This term signifies that the seller's responsibility is limited to making the goods available at their premises or another specified location. It places minimal obligation on the seller, making the buyer responsible for all transportation costs, duties, and insurance. The buyer also assumes all risks from the point of collection onward.

FCA | Free to Carrier: Under FCA, the seller delivers the goods to a carrier chosen by the buyer at a predetermined location. This means the seller is responsible for export duties and transportation to the specified location. Once the goods are handed over to the carrier, the buyer assumes all risks and further transportation costs.

FAS | Free Alongside Ship: With FAS, the seller is obligated to deliver the goods alongside a specific ship at a designated port of shipment. This means the goods are left at the quay, and the buyer is responsible for loading the goods, paying freight charges, and assuming all risks once the goods are alongside the ship.

FOB | Free On Board: Under FOB, the seller ensures the goods are loaded onto the ship chosen by the buyer. The seller bears all costs and risks up to the point where the goods are onboard the vessel. After this point, all responsibilities, including freight charges and risks, transfer to the buyer.

CFR | Cost and Freight: For CFR, the seller covers all costs, including transportation, to bring the goods to the specified port of destination. However, the risk of loss or damage to the goods transfers to the buyer as soon as they're loaded onto the ship. Insurance is not included, making it the buyer's responsibility if desired.

CIF | Cost, Insurance and Freight: Similar to CFR, the seller is responsible for transporting the goods to the destination port. Additionally, the seller is obligated to provide insurance against the buyer's risk of loss or damage during transit. The insurance needs to be for a minimum cover, and any additional coverage or costs are borne by the buyer.

CPT | Carriage Paid To: Under CPT, the seller pays the freight charges to transport the goods to a specified destination. The seller bears all risks until the goods are handed over to the first carrier. From that point, the buyer assumes all risks, and any additional transportation costs or insurance is their responsibility.

CIP | Carriage And Insurance Paid To: This term is similar to CPT, but the seller also arranges and pays for insurance against the risk of loss or damage during transit. The insurance provided is for a minimum cover, and the buyer must pay for any additional coverage.

DAP | Delivered At Place: Under DAP, the seller delivers the goods, ready for unloading, at a named place of destination. The seller bears all risks and costs associated with bringing the goods to the specified location, excluding import duties or taxes, which are the buyer's responsibility.

DPU | Delivered At Place Unloaded: With DPU, the seller delivers and unloads the goods at a specified place. All risks and costs up to the point of unloading, including transportation and unloading, are borne by the seller. The buyer is responsible for import clearance and any associated costs.

DDP | Delivered Duty Paid: Under DDP, the seller delivers the goods to the buyer at a named place of destination, covering all risks and costs, including duties and taxes. The buyer has minimal responsibility, only needing to unload the goods upon arrival.

Incoterms: A strategic investment for global agribusinesses

For businesses in the agri-food industry, leveraging these terms effectively can enhance operations and trading. By clearly defining responsibilities, including everything from costs to risks, businesses can optimize their supply chains, negotiate better deals, and minimize potential disputes. In an era where efficiency and clarity are paramount, mastering Incoterms is a strategic investment toward future success.