Mastering Incoterms in SAP MM: Streamlining Procurement and Logistics
Incoterms are standardized rules from the International Chamber of Commerce (ICC) that define duties, expenses, and risks for buyers and sellers in global and local trade. Here’s a concise overview of the specified Incoterms from the 2020 edition (still current), building on the short summaries. Each details transport, insurance, customs roles, and risk handover points.
1. EXW (Ex Works)
Overview: Seller offers goods at their site (e.g., factory) or named spot; buyer covers all costs/risks from there, including loading, transport, and customs.
Seller’s Duties: Prepare goods, invoice, docs; ready items for pickup; notify buyer.
Buyer’s Duties: Arrange/pay transport, loading; handle export/import customs, fees; assume risks post-availability.
Risk Shift: To buyer when goods are ready (unloaded).
Use: For buyers with strong logistics or local buys needing transport control.
Example: German buyer gets Chinese machinery EXW from Shanghai; arranges pickup, export, and import/shipping.
Notes: Buyer needs export expertise; less practical for international trade.
2. FCA (Free Carrier)
Overview: Seller hands goods to buyer’s chosen carrier at a named spot (e.g., premises/terminal), covering export; buyer manages main transport onward.
Seller’s Duties: Clear export (licenses, fees); deliver to carrier; provide docs (invoice, export).
Buyer’s Duties: Arrange/pay transport from spot; handle import clearance, taxes; take risks post-handover.
Risk Shift: To buyer at carrier handover.
Use: Suits buyers controlling transport, needing seller export help; common for containers.
Example: U.S. buyer gets Japanese electronics FCA to Tokyo warehouse; seller exports/delivers; buyer ships/imports.
Notes: Delivery spot impacts loading; more flexible than EXW.
3. CPT (Carriage Paid To)
- Definition: Seller sets up/pays main transport to named destination (e.g., buyer’s port), but risk passes to buyer at first carrier handover.
- Seller’s Duties: Arrange/pay transport to destination; export clearance; provide transport docs (bill of lading).
- Buyer’s Duties: Assume risks from first carrier; manage import clearance, taxes; handle onward transport if needed.
- Risk Shift: To buyer at first carrier, not destination.
- Use: Fits buyers wanting seller-paid transport but okay with imports.
- Example: Brazilian buyer gets Indian textiles CPT to Santos port; seller ships/exports; buyer risks from India handover, imports.
- Notes: Early risk shift can mislead; buyer needs import capability.
4. DPU (Delivered at Place Unloaded)
Overview: Seller delivers and unloads goods at a specified location (e.g., port, warehouse); covers costs/risks until unloaded.
Seller’s Duties: Arrange/pay transport; export clearance; unload at destination; provide docs.
Buyer’s Duties: Handle import clearance, taxes; manage onward transport; assume risks post-unload.
Risk Shift: To buyer after unloading.
Use: Fits buyers wanting seller-managed transport/unloading at specific sites.
Example: Australian buyer gets German machinery DPU to Sydney warehouse; seller transports/exports/unloads; buyer imports/moves further.
Notes: Replaces DAT (2020); seller unloads, unlike DAP.
5. DAP (Delivered at Place)
Overview: Seller delivers goods ready for unloading at named spot; covers costs/risks to delivery, not unloading.
Seller’s Duties: Arrange/pay transport; export clearance; supply docs.
Buyer’s Duties: Unload goods; manage import clearance, taxes; take risks/costs post-delivery.
Risk Shift: To buyer at delivery (ready for unload).
Use: Suits buyers handling unloading/imports but wanting seller transport.
Example: Canadian buyer gets Italian furniture DAP to Toronto warehouse; seller transports/exports; buyer unloads/imports.
Notes: Buyer unloads (vs. DPU); flexible delivery spot.
6. DDP (Delivered Duty Paid)
Overview: Seller delivers import-cleared goods to buyer’s country spot, paying duties/taxes; covers costs/risks to ready-for-unload.
Seller’s Duties: Arrange/pay transport; clear export/import, pay fees; provide docs.
Buyer’s Duties: Unload goods; assume risks/costs post-delivery.
Risk Shift: To buyer at delivery (ready for unload).
Use: Ideal for buyers seeking minimal logistics; seller handles most.
Example: Mexican buyer gets Korean chemicals DDP to Mexico City; seller manages transport/clearance/duties; buyer unloads.
Notes: Seller needs import expertise; costliest for seller.
7. FAS (Free Alongside Ship)
Overview: Seller places goods beside ship at named port; buyer handles loading, transport, imports. Sea/waterway only.
Seller’s Duties: Deliver beside ship; export clearance; provide docs (e.g., invoice).
Buyer’s Duties: Load goods; arrange/pay transport, insurance, imports; take risks post-placement.
Risk Shift: To buyer beside ship.
Use: For bulk cargo where buyer controls ship/loading.
Example: Egyptian buyer gets Ukrainian grain FAS Odessa; seller ports/exports; buyer loads/ships/imports.
Notes: Sea-limited; needs ship schedule sync.
8. FOB (Free On Board)
Overview: Seller loads goods onto buyer’s ship at named port; handles export, buyer covers transport. Sea/waterway only.
Seller’s Duties: Load on ship; export clearance; provide docs (e.g., bill of lading).
Buyer’s Duties: Arrange/pay transport, insurance, imports; take risks post-boarding.
Risk Shift: To buyer on board.
Use: For bulk loads; buyer controls shipping, seller loads.
Example: Japanese buyer gets Australian steel FOB Sydney; seller loads/exports; buyer ships/imports.
Notes: Risk at ship’s rail (vs. FAS); needs clear ship comms.
9. CFR (Cost and Freight)
Overview: Seller pays transport to destination port; risk to buyer on board. Sea/waterway only.
Seller’s Duties: Arrange/pay transport; export clearance; provide docs (e.g., bill of lading).
Buyer’s Duties: Assume risks on board; manage import clearance, taxes; handle onward transport.
Risk Shift: To buyer on board.
Use: For buyers wanting seller-paid freight but handling imports.
Example: South African buyer gets Indonesian coal CFR Cape Town; seller ships/exports; buyer risks on board, imports.
Notes: Like CPT for sea; buyer risks during transit.
10. CIF (Cost, Insurance & Freight)
Overview: Seller covers transport/insurance to destination port; risk to buyer on board. Sea/waterway only.
Seller’s Duties: Arrange/pay transport; export clearance; get insurance (min 110% value), provide docs (e.g., bill of lading, policy).
Buyer’s Duties: Assume risks on board; manage import clearance, taxes; handle onward transport; claim insurance if needed.
Risk Shift: To buyer on board.
Use: For buyers wanting seller freight/insurance, handling imports.
Example: Indian buyer gets UK machinery CIF Mumbai; seller ships/exports/insures; buyer risks on board, imports.
Notes: Minimal insurance; like CFR with coverage.
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