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Incoterms - Trade Terms

Incoterms rules are standard trade definitions most commonly used in international sales contracts. Devised and published by the International Chamber of Commerce, they are at the heart of world trade.

Among the best known Incoterms rules are EXW (Ex works), FOB (Free on Board), CIF (Cost, Insurance and Freight), DDU (Delivered Duty Unpaid), and CPT (Carriage Paid To).

ICC introduced the first version of Incoterms rules - short for "International Commercial Terms" - in 1936. Since then, ICC expert lawyers and trade practitioners have updated them six times to keep pace with the development of international trade.

ICC is currently revising Incoterms 2000. The new edition, Incoterms® 2010, is expected to enter into force on 1 January 2011.

Most contracts made after 1 January 2000 will refer to the latest edition of Incoterms rules, which came into force on that date. The correct reference is to "Incoterms 2000". Unless the parties decide otherwise, earlier versions of Incoterms rules - like Incoterms 1990 - are still binding if incorporated in contracts that are unfulfilled and date from before 1 January 2000. You can purchase the Incoterms Publication at: International Chamber of Commerce website: http://www.iccwbo.org

A listing of the 13 Incoterms:

Group E - Departure

  • EXW: EX Works

Group F - Main carriage not paid by seller

  • FCA: Free Carrier
  • FAS: Free Alongside Ship
  • FOB: Free On Board

Group C - Main carriage paid by seller

  • CFR: Cost and Freight
  • CIF: Cost, Insurance and Freight
  • CPT: Carriage Paid To
  • CIP: Carriage and Insurance Paid to

Group D - Arrival

  • DAF: Delivered At Frontier
  • DES: Delivered Ex Ship
  • DEQ: Delivered Ex Quay
  • DDU: Delivered Duty Unpaid
  • DDP: Delivered Duty Paid

 

Group E – Departure

EXW – Ex Works (named place): The seller makes the goods available at his premises. The buyer is responsible for all charges. This term means that the seller fulfills its obligation to deliver when it has made the goods available at its premises (i.e. works, factory, warehouse, etc.) to the buyer. The seller is not responsible for loading the goods on the vehicle provided by the buyer. Unless otherwise agreed, the seller is not responsible for clearing the goods for export. EX WORKS represents the minimum obligation for the seller. This term may be the easiest to administer for the exporter. There is no control over the final destination of the goods. It may be possible for the buyer to negotiate better freight rates than the seller.

 

Group F – Main carriage unpaid

FCA – Free Carrier (named place) 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 containerised / multi-modal transport.

FAS – Free Alongside Ship (named loading port) 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. Suitable for maritime transport only.

FOB – Free on board (named loading port) 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. Maritime transport only. It also includes Air transport when the seller is not able to export the goods on the schedule time mentioned in the letter of credit. In this case the seller allows a deduction of sum equivalent to the carriage by ship from the air carriage.

 

Group C – Main carriage paid

CFR – Cost and Freight (named destination port) 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. Maritime transport only.

CIF – Cost, Insurance and Freight (named destination port) Exactly the same as CFR except that the seller must in addition procure and pay for insurance for the buyer. Maritime transport only.

CPT – Carriage Paid To (named place of destination) The general/containerised/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) (named place of destination) The containerised 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. Also used interchangeably with the term "Free Domicile". The most comprehensive term for the buyer. In most of the importing countries, taxes such as (but not limited to) VAT and excises should not be considered prepaid being handled as a "refundable" tax. Therefore VAT and excises usually are not representing a direct cost for the importer since they will be recovered against the sales on the local (domestic) market.

Reference Source: http://en.wikipedia.org/wiki/Incoterms

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