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Incoterms

incoterms

Inco terms Highlight

  • First published by the ICC in 1936
  • ICC (International Chamber of Commerce) Official Rules for the Interpretation of Trade terms.
  • Purpose is to provide a set of international rules for the interpretation of the most commonly used trade terms.
  • 13 categories describing where risks lie between seller and buyer
  • International Commercial Terms (INCOTERMS) are also referred as shipping terms, delivery terms or sometimes as trade terms.

Introduction of Inco terms

  • Incoterms are the most commonly accepted terms of sale in international business
  • Incoterms have been adopted by most countries
  • Defines the responsibilities and risks for transactions.
  • To help parties to avoid misunderstandings, with all the waste of time and money that this entails
  • They are used as part of the overall sales agreement.

Category of Incoterms 2000

Incoterms are divided into four (4) categories:

  • E terms - Seller makes the goods available to the buyer at the seller's premises or other place named by the seller
  • F terms - Seller is responsible to deliver the goods to the export shipment point and carrier designated by the buyer
  • C terms - Seller is responsible for contracting carriage of goods to the place of destination, but does not assume risk of loss or damage to goods, or additional costs due to events occurring after shipment
  • D terms - Seller is responsible for all costs and risks associated with delivering goods to the named place in the country of destination

The Structure of Incoterms

Group E EXW Ex Works (named place)
Group F FCA Free Carrier (named place)
  FAS Free alongside Ship (named port of shipment)
  FOB Free On Board (named port of shipment)
Group C CFR Cost and Freight (named port of destination)
  CIF Cost Insurance and Freight (named port of destination)
  CPT Carriage Paid To (named place of destination)
  CIP Carriage Insurance Paid To (named place of destination)
Group D DAF Delivered at Frontier (named place)
  DES Delivered Ex Ship (named port of destination)
  DEQ Delivered Ex Quay (named port of destination)
  DDU Delivered Duty Unpaid (named place of destination)
  DDP Delivered Duty Paid (named place of destination)

Incoterms Classified

All modes of transport including multi-modal
EXW - Ex Works
FCA - Free Carrier
CPT - Carriage Paid To
CIP - Carriage and Insurance Paid To
DAF - Delivered at Frontier
DDU - Delivered Duty Unpaid
DDP - Delivered Duty Paid
Sea and inland waterway transport only
FAS - Free Alongside Ship
FOB - Free Onboard
CFR - Cost and Freight
CIF - Cost, Insurance, and Freight
DES - Delivered Ex Ship DEQ - Delivered Ex Quay

INCOTERMS EXW- EX WORKS (named place)

EX Works means that the seller delivers when he places the goods at the disposal of the buyer at the seller's premises or another named place (i.e. Factory, warehouse, premises) not cleared for export and not loaded on any collecting vehicle. This term thus represents the minimum obligation for the seller (exporter), and the buyer (importer) has to bear all costs and risks involved in taking the goods from the seller's premises. However, if the parties wish the seller (exporter) to be responsible for the loading of the goods on departure and to bear the risks and all the costs of such loading, this should be made clear by adding explicit wording to this effect in the contract of sale

INCOTERMS FCA- FREE CARRIER (named place)

Seller delivers when goods, cleared for export, to the carrier nominated by the buyer at a named place. Term may be used irrespective of the mode of transport. Seller obligated to load goods on arriving vehicle if it arrives at the seller's premises. Seller not obliged to unload goods from his vehicle.

INCOTERMS FAS- FREE ALONGSIDE SHIP (named port of shipment)

Seller delivers when goods, cleared for export, are placed alongside the vessel Seller obliged to clear goods for export. The buyer bears all costs and risks of loss or damage to the goods from that moment. Terms can be used for sea or inland waterway transport only.

INCOTERMS FOB- FREE ON BOARD (named port of shipment)

Seller delivers when goods, cleared for export, pass the ship's rail at the named port of shipment. The buyer bears all costs and risks of loss or damage to the goods from that point. Term can be used for sea or inland waterway transport only.
If intent is not to deliver goods across the ship's rail, use FCA.

INCOTERMS CFR- COST AND FREIGHT (named port of destination)

Seller delivers when goods, cleared for export, pass the ship's rail at the named port of shipment. The seller pays the costs and freight necessary to bring goods to port of destination, but the buyer bears the risk of loss and additional costs occurring after delivery. Term can be used for sea or inland waterway transport. If intent is not to deliver goods across the ship's rail, use CPT.

INCOTERMS CIF- COST, INSURANCE AND FREIGHT (named port of destination)

Seller delivers when goods, cleared for export, pass the ship's rail at the named port of shipment. The seller pays the costs and freight necessary to bring goods to port of destination, but the buyer bears the risk of loss and additional costs occurring after delivery. The seller procures marine insurance, against buyer's risk of loss. Seller is required to obtain insurance only on minimum cover. Term can be used for sea or inland waterway transport. If intent is not to deliver goods across the ship's rail, use CIP.

INCOTERMS CPT- CARRIAGE PAID TO (named place of destination)

Seller delivers the goods, cleared for export, to the carrier. The seller pays the costs of carriage necessary to bring goods to named destination, but the buyer bears the risk of loss and additional costs occurring after delivery. Term may be used irrespective of mode of transport.

INCOTERMS CIP- CARRIAGE AND INSURANCE PAID TO (named place of destination)

Seller delivers the goods, cleared for export, the carrier. The seller pays the costs of carriage to named destination, but the buyer bears the risk of loss and additional costs occurring after delivery. The seller procures insurance against buyer's risk of loss. Seller is required to obtain insurance only on a minimum cover. Term may be used irrespective of mode of transport.

INCOTERMS DAF- DELIVERED AT FRONTIER (named place)

Seller delivers goods, cleared for export, at disposal of buyer on arriving means of transport. Not unloaded, not cleared for import at point at frontier before customs border of adjoining country. Term may be used irrespective of the mode of transport when goods are delivered at a land frontier. If delivery is to take place in the port of destination, DES or DEQ should be used.

INCOTERMS DES- DELIVERED EX SHIP (named port of destination)

Seller delivers goods at disposal of buyer on board the ship. Not cleared for import at the named port of destination.

INCOTERMS DEQ- DELIVERED EX QUAY (named port of destination)

Seller delivers goods, not cleared for import, at disposal of buyer on the quay at the named port of destination. Seller bears all costs and risks to bring goods to the named port of destination and discharging the goods on the quay. Term used only for delivery by sea.

INCOTERMS DDU- DELIVERED DUTY UNPAID (named place of destination)

Seller delivers goods to the buyer, not cleared for import, and not unloaded, at the named place of destination. Seller bears all costs and risks (except duty) to bring goods to the named place of destination. Term may be used irrespective of mode of transport. If delivery is to take place at the port, quay or on board a vessel, DES or DEQ should be used.

INCOTERMS DDP- DELIVERED DUTY PAID (named place of destination)

Seller delivers goods to the buyer, cleared for import, and not unloaded, at the named place of destination. Seller bears all costs and risks, including import duty, to bring goods to the named place of destination. Term may be used irrespective of mode of transport. If delivery is to take place at the port, quay or on board a vessel, DES or DEQ should be used.

Summary

  • Buyer's Objective: maximize control of supply chain, use FOB, FCA, or FAS.
  • Must name a place after the INCOTERM.
  • INCOTERMS are negotiable.
  • INCOTERMS should appear on all commercial documents.
  • Establish a close relationship with a forwarder.