Incoterms (International Commercial Terms) : Buyer and Supplier - who is responsable for what? -

Incoterms (International Commercial Terms) are standardized trade terms developed by the International Chamber of Commerce (ICC) that clarify the rights, responsibilities, and costs between buyers and sellers in international trade.
They answer three fundamental questions:

• Who pays for each part of the shipping?
• Who's responsible if something goes wrong?
• Where exactly does responsibility transfer from the seller to the buyer?

Incoterms consists of four main groups:

"E" GROUP - PICKUP:

EXW (Ex Works) means that the buyer comes to get the goods from the factory or the warehouse. The seller just makes the goods available at their location. The buyer handles everything else.

"F" GROUP - MAIN SHIPPING NOT PAID:

FCA (Free Carrier): the seller brings goods to the buyer's carrier (like a trucker or at a port), handles export paperwork, and the responsibility transfers there.
FAS (Free Alongside Ship): the seller delivers goods next to the ship at port, handles export paperwork, and responsibility transfers there. Sea transport only.
FOB (Free On Board): the seller loads goods onto the ship, handles the export paperwork, and the responsibility transfers once goods are on board. This trade term is valid for sea transport only.

"C" GROUP - MAIN SHIPPING PAID:

CFR (Cost and Freight): the seller pays the shipping to the destination port and loads the goods on the ship, but the buyer takes over the risks once the goods are on board. This trade term is valid for sea transport only.
CIF (Cost, Insurance, and Freight): is the same as CFR, but the seller also pays for the insurance. The buyer still takes on the risk once the goods are on board the ship. Valid for sea transport only.
CPT (Carriage Paid To): the seller pays for the delivery to the agreed upon destination and handles the export. The risk transfers to the buyer when first carrier receives the goods.
CIP (Carriage and Insurance Paid To): Same as CPT, but the seller must also provide the insurance. The risk transfers to the buyer when the carrier receives the goods.

"D" GROUP - DELIVERY:

DAP (Delivered at Place): Seller delivers to the buyer's location (goods will be ready for unloading), pays all the costs except the import duties. The buyer handles the unloading and the import clearance.
DPU (Delivered at Place Unloaded): Seller delivers and unloads the goods at the buyer's location. The buyer handles the import duties and the clearance.
DDP (Delivered Duty Paid): Seller handles everything, the delivery, the unloading, the import duties, and the clearance of goods.

Real life example

We are buying machines from Frankfurt to deliver to Chicago:

• EXW: You pick up the machines from the factory in Frankfurt 
• FCA: They deliver to Frankfurt airport, you handle the rest 
• CPT: They pay shipping to Chicago, but you handle the import fees
• DDP: They handle everything until the machines reach your warehouse in Chicago

To choose the right terms of commerce, a lot of parameters need to be taken into consideration:

• Your experience with international trade
• How much control you want over the shipping of the goods
• How much responsibility/risk you are willing to take
• Cost implications (more service from seller = higher price)

Points to remember:

• Always specify the exact location (e.g., "FCA Frankfurt Airport")
• Always mention "Incoterms 2020"
• Some terms are only valid for sea freight (FAS, FOB, CFR, CIF)
• Price differences reflect the different levels of responsibilities/risks
• More seller responsibility usually means higher prices

Risk and costs: 

The risks in this context allude to the responsibility in case the goods are damaged or lost, and the costs mean who pays for each part of shipping journey

Under CPT  for example the seller pays the shipping costs to the destination, but the risk transfers to the buyer once it is handed to first carrier. 

So the seller pays the shipping but the buyer takes on the risks during transport.

This system helps avoid any misunderstandings that might arise and makes international trade smoother by having  a clear, standardized rules that everyone understands.