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Incoterms

 

INCOTERMS, also known as shipping terms, defines the responsibilities of the buyer and seller. These terms divide transactions cost and allocates responsibilities between buyer and seller during its transportation route from starting point to final destination.

·        Group E – Departure

EXW (Ex Works)

The seller makes the goods available at his premises. The buyer is responsible for all charges.

This term may be the easiest to administer, however, it may not be in the seller’s best interests. There is no control over the final destination of the goods. It may be possible for the seller to negotiate better freight rates than the buyer.

 

A vehicle arriving to take delivery of the seller’s goods under EXW may not be suitable for carriage.

 

·        Group F – Main Carriage Unpaid

FCA (Free Carrier)

The seller hands over the goods, cleared for export, into the custody of the first carrier (named by the buyer) at the named place. This term is suitable for all modes of transport, including carriage by air, rail, road, and containerized / multi-modal transport.

FAS (Free Alongside Ship)

The seller must place the goods alongside the ship at the named port. The seller must clear the goods for export; this changed in the 2000 version of the Incoterms. This term is suitable for maritime transport only.

FOB (Free On Board)

The seller must load the goods on board the ship nominated by the buyer, cost and risk being divided at ship’s rail. The seller must clear the goods for export. This term is a classic maritime trade term and is only suitable to use for maritime transport.

FOT (Free On Truck)

The seller must load the product or goods on the truck. Any loss or damage to the products during transport is paid for by the buyer. This term is only suitable when goods are being carried by trucks.

FOR (Free On Rail)

This Incoterm is no longer valid, its replacements is FCA. It is used when goods are transported via trains.

·        Group C – Main Carriage Paid

CFR (Cost and Freight)

Seller must pay the costs and freight to bring the goods to the port of destination. However, risk is transferred to the buyer once the goods have crossed the ship’s rail. This term is only suitable for maritime transport.

CIF (Cost, Insurance and Freight)

Exactly the same as CFR except that the seller must in addition procure and pay for insurance for the buyer. It is only suitable for maritime transport.

CPT (Carriage Paid To)

The general/containerized/multimodal equivalent of CFR. The seller pays for carriage to the named point of destination, but risk passes when the goods are handed over to the first carrier.

CIP (Carriage and Insurance Paid To)

The containerized transport/multimodal equivalent of CIF. Seller pays for carriage and insurance to the named destination point, but risk passes when the goods are handed over to the first carrier.

·        Group D- Arrival

DAF (Delivered At Frontier) (named place)

This term can be used when the goods are transported by rail and road. The seller pays for transportation to the named place of delivery at the frontier. The buyer arranges for customs clearance and pays for transportation from the frontier to his factory. The passing of risk occurs at the frontier.

DES (Delivered Ex Ship) (named port)

Where goods are delivered ex ship, the passing of risk does not occur until the ship has arrived at the named port of destination and the goods made available for unloading to the buyer. The seller pays the same freight and insurance costs as he would under a CIF arrangement. Unlike CFR and CIF terms, the seller has agreed to bear not just cost, but also Risk and Title up to the arrival of the vessel at the named port. Costs for unloading the goods and any duties, taxes, etc., are for the Buyer.

A commonly used term in shipping bulk commodities, such as coal, grain, dry chemicals, and where the seller either owns or has chartered, their own vessel.

DEQ (Delivered Ex Quay) (named port)

This is similar to DES, but the passing of risk does not occur until the goods have been unloaded at the port of destination.

DDU (Delivered Duty Unpaid) (named destination place)

This term means that the seller delivers the goods to the buyer to the named place of destination in the contract of sale. The goods are not cleared for import or unloaded from any form of transport at the place of destination. The buyer is responsible for the costs and risks for the unloading, duty and any subsequent delivery beyond the place of destination. However, if the buyer wishes the seller to bear cost and risks associated with the import clearance, duty, unloading and subsequent delivery beyond the place of destination, then this all needs to be explicitly agreed upon in the contract of sale.

DDP (Delivered Duty Paid) (named destination place)

This term means that the seller pays for all transportation costs and bears all risk until the goods have been delivered and pays the duty. It is also used interchangeably with the term “Free Domicile”. This is the most comprehensive term for the buyer

Summary of terms – As already on website

International Trade Contracts and Incoterms

Proper paperwork is essential when dealing with importing and exporting. Right documentation regarding your trade should always be prepared even if you use freight forwarders or agents to complete the tasks. Business cultures vary in different countries so it is important to have a clear written contract to avoid the risk of misunderstandings in the future. Incoterms are widely used in international commercial transactions.

The contracts should be based on the business culture of the place where the product is being delivered. It should clearly state who is responsible for different tasks throughout the journey. It should also clarify who paid for each different costs. To avoid wordiness in the contract, the internationally recognized Incoterms should be used.

The contract should cover the payment amounts, when it is due, when it was paid and, which currency was used for payments.