INCOTERMS
INCOTERMS DIVISIONS 2000
INCOTERMS (International Commercial terms) help ease the communication difficulties between traders from around the world.
They allow the different parties involved in an import/export transaction to be clear at what points ownership and payment responsibilities transfer from one party to the other.
INCOTERMS relate to the rights and obligations of the parties to the contract of sale with respect to the delivery of goods sold, but excluding “intangibles” like computer software.
INCOTERMS are a set of international rules for the interpretation of the 13 trade terms published by the International Chamber of Commerce (ICC).
Responsibilities are simply and clearly defined by referring to one of the ICC INCOTERMS. Thus the risk of misunderstanding and subsequent disputes is eliminated.
INCOTERMS 2000 is devided into four groups. They are mainly the E, F, C and D groups.
GROUP E: DEPARTURE
Ex Works (EXW) […named place]
Is the minimum obligation of a seller. The seller agrees to make the goods available to the buyer at the seller’s premises (named place).
The seller is not responsible to bear the cost of loading the goods onto the vehicle provided by the buyer, unless otherwise agreed in advance. The buyer bears the full cost and risks involved in bringing the goods from the EXW location to the ultimate destination.
GROUP F: MAIN CARRIAGE NOT PAID BY SELLER
Free Carrier (FCA) […named place]
This is a term designed to meet the needs of multimodal transportation, and is ideally suited when a buyer has named a transportation intermediary to take control of their cargo prior to loading on board a vessel, aircraft, barge, etc..
Under FCA the seller has fulfilled its obligation to deliver when he had handed over the goods to the charge of the carrier named by the buyer at the (named place).
The buyer pays for the transportation.
Free Alongside Ship (FAS) […named port of shipment]
The seller is required to deliver the goods alongside the actual ship on the pier/quay. From that point forward, the buyer bears all cost (loading cost, freight, insurance etc) and risk. Under FAS terms, the buyer is required to clear the goods for export and pay the cost of loading the goods. This is commonly used for shipments of large items via breakbulk and charter.
Free On Board (FOB) […named port of shipment]
Goods shipped under FOB terms are placed on board the ship by the seller at the specific port of shipment named in the sales agreement/contract. All costs and risks from the point where the cargo “crosses the ship’s rail” passes to the buyer.
GROUP C: MAIN CARRIAGE PAID BY SELLER
Cost & Freight (CFR) […named port of destination]
The title and risks change at the ship’s rail, just as in FOB terms, but the cost allocation is different. For goods shipped under CFR, the seller pays all costs to deliver the goods up to the named port of destination (while under the FOB, the buyer is responsible for these costs).
Cost, Insurance & Freight (CIF) […named port of destination]
The seller has the same obligations as he has under the CFR term, except that now the seller has the additional responsibility to procure cargo insurance against the cargo’s risk of loss or damage during the carriage.
As a general note on cargo insurance, the cargo must have at least a minimum coverage under the Institute Cargo Clause or any similar set of clauses. As a rule, the amount of the insurance should correspond to the price provided in the contract plus 10 per cent; and where possible be in the currency of the contract.
The buyer will bear all risks from the time the cargo passes over the ship’s rail at the port of shipment. This term is only used for sea shipment.
Carriage Paid To (CPT) […named place of destination]
Seller pays the freight for the carriage of the goods to the named destination. The buyer pays for the insurance. The passing of risk occurs when the goods have been delivered into the custody of the first carrier. This term requires the seller to clear the goods for export. It may be used for any mode of transport including multimodal transportation.
Carriage and Insurance Paid To (CIP) […named place of destination]
This is CPT plus insurance. However, in the CIP term, seller has the additional responsibility to procure cargo insurance against the buyer’s risk of loss or damage to the goods during the carriage.
GROUP D: ARRIVAL
Delivered at Frontier (DAF) […named place]
DAF means that the seller is obliged to move the goods to the named place at the frontier (border crossing). The seller bears all costs/risks up to this point, but it is not responsible for customs clearance, duty, or taxes. This term is primarily intended to be used when goods are carried by rail or road.
Delivered Ex Ship (DES) […named port of destination]
The seller requires to make the goods available to the buyer “on board the ship at the place named in the sales contract”. 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. The buyer is responsible to clear the cargo for import and transport it to his destination.
This term can only be used for sea or inland waterway.
Delivered Ex Quay (DEQ) […named port of destination]
This is DES plus unloading costs. Duty/Taxes will be bear by buyers, but seller has additionally agreed to pay for the discharge (unloading) of the cargo. This term can only be used when the goods are to be delivered by sea or inland waterway on discharging from a vessel onto the quay or wharf at the port of destination.
Delivered Duty Unpaid (DDU) […named place of destination]
Under this term, the seller’s responsibilities include the delivery of goods to the named place in the country of importation, and he is not responsible for clearance of goods for import neither is he responsible for unloading the cargo from any arriving means of transport at the named place of destination.
Delivered Duty Paid (DDP) […named place of destination]
This term is almost identical to DDU. Just as EXW represented the seller’s minimum obligation in an international transaction, DDP would represent the seller’s MAXIMUM obligation. The seller pays for all transportation costs and bears all risk until the goods have been delivered and pays the duty.