INCOTERMS

INCOTERMS

INTRODUCTION• Language is one of the most complex and

important tools of International Trade. As in any complex and sophisticated business, small changes in wording can have a major impact on all aspects of a business agreement. Word definitions often differ from industry to industry. This is especially true of global trade. Where such fundamental phrases as "delivery" can have a far different meaning in the business than in the rest of the world.

• For business terminology to be effective, phrases must mean the same thing throughout the industry. That is why the International Chamber of Commerce created "INCOTERMS" in 1936. INCOTERMS are designed to create a bridge between different members of the industry by acting as a uniform language they can use

• Costs: who is responsible for the expenses involved in a shipment at a given point in the shipment's journey?

• Control: who owns the goods at a given point in the journey?

• Liability: who is responsible for paying damage to goods at a given point in a shipment's transit?

NECESSITY

HISTORY OF THE INTERNATIONAL CHAMBER OF COMMERCE

• The International Chamber of Commerce was founded in 1919 with an overriding aim that remains unchanged: to serve world business by promoting trade and investment, open markets for goods and services, and the free flow of capital.

• Much of ICC's initial impetus came from its first president, Etienne Clémentel, a former French minister of commerce. Under his influence, the organization's international secretariat was established in Paris and he was instrumental in creating the ICC International Court of Arbitration in 1923.

INITIATION OF INCOTERMS

• ICC introduced the first version of Incoterms - 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.

PREAMBLES• The Preambles explain the areas the terms

cover but do not spell out the obligations of buyer and seller - information that can be obtained only by consulting the full published texts of the 13 Incoterms.

• FAS FREE ALONGSIDE SHIP states that under FAS the seller delivers when the goods are placed alongside the vessel at the named port of shipment. "The buyer has to bear all costs and risks of loss of or damage to the goods from that moment.“

WHY INCOTERMS• Incoterms are international rules that are

accepted by governments, legal authorities and practitioners worldwide for the interpretation of the most commonly used terms in international trade. They either reduce or remove altogether uncertainties arising from differing interpretations of such terms in different countries

What are the 13 Incoterms?

• Each Incoterm is referred to by a three-letter abbreviation.

• EXW EX WORKS (named place)• FCA FREE CARRIER (named place)• FAS FREE ALONGSIDE SHIP (named port of shipment)

• FOB FREE ON BOARD (named port of shipment)

• 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 AND INSURANCE PAID TO (n

amed place of destination)• DAF DELIVERED AT FRONTIER (named plac

e)• DES DELIVERED EX SHIP (named port of dest

ination)• DEQ DELIVERED EX QUAY (named port of de

stination)• DDU DELIVERED DUTY UNPAID (named plac

e of destination)• DDP DELIVERED DUTY PAID (named pl

ace of destination)

• EXW EX WORKS (named place)• FCA FREE CARRIER (named place)• FAS FREE ALONGSIDE SHIP (named port of

shipment)• FOB FREE ON BOARD (named port of shipment)

• 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 AND INSURANCE PAID TO (named place of destination)

• 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)

•

• ICC recommends that "Incoterms 2000" be referred to specifically whenever the terms are used, together with a location. For example, the term "Delivered at Frontier" (DAF) should always be accompanied by a reference to an exact place and the frontier to which delivery is to be made.

CORRECT USE• Here are three examples of correct use of

Incoterms:

• EXW EX WORKS (Lalu Khet) Incoterms 2000

• FCA Kuala Lampur Incoterms 2000FOB Karachi Incoterms 2000DDU Frankfurt Schmidt GmbH Warehouse 4 Incoterms 2000 

• DAF Mona Bao Bonded Ware house Incoterms 2000

WHY DO INCOTERMS NEED REVISING PERIODICALLY?

• The main reason is the need to adapt Incoterms to contemporary commercial practice. For instance, in the 1990 version, the clauses dealing with the seller's obligation to provide proof of delivery allowed paper documentation to be replaced by e-mail for that purpose for the first time

• Under FAS (FREE ALONGSIDE SHIP) the seller is required to clear the goods for export. This is a reversal from previous Incoterms versions, which required the buyer to arrange for export clearance.

• Under DEQ (DELIVERED EX QUAY) the buyer is required to clear the goods for import and to pay for all formalities, duties, taxes and other charges upon import. This is a reversal from previous Incoterms versions, which required the seller to arrange for import clearance.

• What are "E"-terms “F"-terms “C"-terms and “D"-terms. What does that mean?

THE GROUPS

• E EXW (DEPARTURE)• F FCA – FAS – FOB (MAIN CARRIAGE UN PAID)• C CFR- CIF - CPT – CIP (MAIN CARRIAGE PAID)• D DAF- DES - DEQ – DDU – DDP (ARRIVAL)

EXW• Under the "E"-term (EXW), the seller only

makes the goods available to the buyer at the seller's own premises. It is the only one of that category.

• Deals With Departure

• the seller makes the goods available at his premises.

F TERMS

• Under the "F"-terms (FCA, FAS and FOB), the seller is called upon to deliver the goods to a carrier appointed by the buyer.

• Main carriage Unpaid

•

C TERMS

• Under the "C"-terms (CFR, CIF, CPT and CIP), the seller has to contract for carriage, but without assuming the risk of loss or damage to the goods or additional costs due to events occurring after shipment or dispatch.

• Main carriage paid

D TERMS

• Under the "D"-terms (DAF, DES, DEQ, DDU and DDP), the seller has to bear all costs and risks needed to bring the goods to the place of destination.

• Arrival

INCO TERMS• EXW (ex works) at a named point of

origin (NAMED PLACE) (e.g., ex factory, ex mill, ex warehouse). Under this term, the price quoted applies only at the point of origin and the seller agrees to place the goods at the disposal of the buyer at the specified place on the date or within the period fixed. All other charges are for the account of the buyer.

• One of the simplest and most basic shipment arrangements places the minimum responsibility on the seller with greater responsibility on the buyer. In an EX-Works transaction, goods are basically made available for pickup at the shipper/seller's factory or warehouse and "delivery" is accomplished when the merchandise is released to the consignee's freight forwarder. The buyer is responsible for making arrangements with their forwarder for insurance, export clearance and handling all other paperwork.

EX-WORKS

FCA (FREE CARRIER)• In this type of transaction, the seller is

responsible for arranging transportation, but he is acting at the risk and the expense of the buyer. Where in FOB the freight forwarder or carrier is the choice of the buyer, in FCA the seller chooses and works with the freight forwarder or the carrier. "Delivery" is accomplished at a predetermined port or destination point and the buyer is responsible for Insurance

Main carriage unpaid

FCA (free carrier) to a named place

• This term replaces the former 'FOB named inland port" to designate the seller's responsibility for the cost of loading goods at the named shipping point. It may be used for multimodal transport, container stations, and any mode of transport, including air.

Main carriage unpaid

FAS (free alongside ship) at a named port of export.

• This includes the price for the goods, plus charges to deliver the goods from the factory to alongside the vessel at the exit port. The seller handles the cost of unloading and wharfage. The buyer covers the cost to load the goods on the vessel and all the insurance and transportation costs to the destination port.

Main carriage unpaid

FAS (Free Alongside Ship)• In these transactions, the buyer bears all the

transportation costs and the risk of loss of goods. FAS requires the shipper/seller to clear goods for export, which is a reversal from past practices. Companies selling on these terms will ordinarily use their freight forwarder to clear the goods for export. "Delivery" is accomplished when the goods are turned over to the Buyers Forwarder for insurance and transportation.

Main carriage unpaid

FOB (Free On Board)• One of the most commonly used-and misused-terms,

FOB means that the shipper/seller uses his freight forwarder to move the merchandise to the port or designated point of origin. Though frequently used to describe inland movement of cargo, FOB specifically refers to ocean or inland waterway transportation of goods. "Delivery" is accomplished when the shipper/seller releases the goods to the buyer's forwarder. The buyer's responsibility for insurance and transportation begins at the same moment.

» Main carriage unpaid

CLARIFICATION

• FOB (free on board) at a named port of export. This includes the FAS cost, plus the cost to load the goods on the vessel. The buyer pays for insurance and transportation to the foreign port.

CFR (cost and freight) to a named overseas port of import

• . Under this term, the seller quotes a price for the goods that includes the cost of transportation to the named point of debarkation. The cost of insurance is left to the buyer's account. (Typically used for ocean shipments only.)

Main carriage paid

CFR (COST AND FREIGHT)• This term formerly known as CNF (C&F) defines two

distinct and separate responsibilities-one is dealing with the actual cost of merchandise "C" and the other "F" refers to the freight charges to a predetermined destination point. It is the shipper/seller's responsibility to get goods from their door to the port of destination. "Delivery" is accomplished at this time. It is the buyer's responsibility to cover insurance from the port of origin or port of shipment to buyer's door. Given that the shipper is responsible for transportation, the shipper also chooses the forwarder. Main carriage paid

CIF (COST, INSURANCE AND FREIGHT)

• This arrangement similar to CFR, but instead of the buyer insuring the goods for the maritime phase of the voyage, the shipper/seller will insure the merchandise. In this arrangement, the seller usually chooses the forwarder. "Delivery" as above, is accomplished at the port of destination. This includes the FOB cost, plus all insurance and transportation to costs to the foreign port.

Main carriage paid

CPT (CARRIAGE PAID TO)

• In CPT transactions the shipper/seller has the same obligations found with CIF, with the addition that the seller has to buy cargo insurance, naming the buyer as the insured while the goods are in transit.

Main carriage paid

CIP (CARRIAGE AND INSURANCE PAID TO)

• This term is primarily used for multimodal transport. Because it relies on the carrier's insurance, the shipper/seller is only required to purchase minimum coverage. When this particular agreement is in force, Freight Forwarders often act in effect, as carriers. The buyer's insurance is effective when the goods are turned over to the Forwarder.

Main carriage paid

•

DAF (DELIVERED AT FRONTIER)• Here the seller's responsibility is to hire a

forwarder to take goods to a named frontier, which usually a border crossing point, and clear them for export. "Delivery" occurs at this time. The buyer's responsibility is to arrange with their forwarder for the pick up of the goods after they are cleared for export, carry them across the border, clear them for importation and effect delivery. In most cases, the buyer's forwarder handles the task of accepting the goods at the border across the foreign soil. Arrival

DES (DELIVERED EX SHIP)•

In this type of transaction, it is the seller's responsibility to get the goods to the port of destination or to engage the forwarder to the move cargo to the port of destination uncleared. "Delivery" occurs at this time. Any destination charges that occur after the ship is docked are the buyer's responsibility

Arrival.

DEQ (DELIVERED EX QUAY)•

In this arrangement, the buyer/consignee is responsible for duties and charges and the seller is responsible for delivering the goods to the quay, wharf or port of destination. In a reversal of previous practice, the buyer must also arrange for customs clearance.

Arrival

•

DDP (DELIVERED DUTY PAID)•

DDP terms tend to be used in intermodal or courier-type shipments. Whereby, the shipper/seller is responsible for dealing with all the tasks involved in moving goods from the manufacturing plant to the buyer/consignee's door. It is the shipper/seller's responsibility to insure the goods and absorb all costs and risks including the payment of duty and fees.

Arrival•

DDU (DELIVERED DUTY UNPAID)

• This arrangement is basically the same as with DDP, except for the fact that the buyer is responsible for the duty, fees and taxes. Arrival

DDP• Delivered to the buyer's door duty paid.

Arrival

  EXW FCA FAS FOB CFR CIF CPT CIP DAF DES DEQ DDU DDP

SERVICESEx

Works

Free Carrie

r

Free Alongside

Ship

Free Onboard Vessel

Cost & Freigh

t

Cost Insurance & Freight

Carriage Paid To

Carriage Insurance Paid To

Delivered At

Frontier

Delivered Ex Ship

Delivered Ex Quay

Duty Unpaid

Delivered Duty

Unpaid

Delivered Duty Paid

Warehouse Storage

Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller

Warehouse Labor

Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller

Export Packing

Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller

Loading Charges

Buyer Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller

Inland Freight

BuyerBuyer/Seller*

Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller

Terminal Charges

Buyer Buyer Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller

Forwarder's Fees

Buyer Buyer Buyer Buyer Seller Seller Seller Seller Seller Seller Seller Seller Seller

Loading On Vessel

Buyer Buyer Buyer Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller

Ocean/Air Freight

Buyer Buyer Buyer Buyer Seller Seller Seller Seller Seller Seller Seller Seller Seller

Charges On  Arrival At Destination

Buyer Buyer Buyer Buyer Buyer Buyer Seller Seller Buyer Buyer Seller Seller Seller

Duty, Taxes & Customs Clearance

Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Seller

Delivery To Destination

Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Seller Seller

Load to truck

Export- duty payment

Transport to exporter's port

Unload from truck at the origin's port

Landing charges at origin's port

Transport to import's port

Landing charges at importer's port

Unload onto trucks from the importers' port

Transport to destination

Insurance

Entry -Customs clearance

Entry -Taxation

EXW No No No No No No No No No No No No

FCA Yes Yes Yes No No No No No No No No No

FAS Yes Yes Yes Yes No No No No No No No No

FOB Yes Yes Yes Yes Yes No No No No No No No

CFR Yes Yes Yes Yes Yes Yes No No No No No No

CIF Yes Yes Yes Yes Yes Yes No No No Yes No No

CPT Yes Yes Yes Yes Yes Yes No No No No No No

CIP Yes Yes Yes Yes Yes Yes No No No Yes No No

DAF Yes Yes Yes Yes Yes Yes No No No No No No

DES Yes Yes Yes Yes Yes Yes No No No Yes No No

DEQ Yes Yes Yes Yes Yes Yes Yes No No Yes No No

DDU Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes No

DDP Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes

GROUPS• Group E - where the goods are made available

to the buyer at the seller's premises; • Group F - where the seller must deliver the

goods to a carrier appointed by the buyer; • Group C - where the seller must contract for the

carriage of the goods without assuming risk of loss of, or damage to the goods or additional costs due to events occurring after shipment;

• Group D - where the seller has to bear all costs and risks required to bring the goods to the place of destination

• Group E Departure

• EXW - Ex Works Named place - Any mode of transportThe seller must place the goods at the disposal of the buyer at the seller's premises or another named place not cleared for export and not loaded on any collecting vehicle

• Group F Main Carriage Unpaid• FCA - Free Carrier

Named place - Any mode of transportThe seller must deliver the goods, cleared for export, to the carrier nominated by the buyer at the named place.

• FAS - Free Alongside ShipNamed port of shipment - Maritime and inland waterway transport onlyThe seller must place the goods, cleared for export, alongside the vessel at the named port of shipment.

• FOB - Free on BoardNamed port of shipment - Maritime and inland waterway transport onlyThe seller delivers the goods, cleared for export, when they pass the ship's rail at the named port of shipment.

• Group C Main Carriage Paid• CFR - Cost and Freight

Named port of destination - Maritime and inland waterway transport onlyThe seller delivers the goods when they pass the ship's rail in the port of shipment and must pay the costs and freight necessary to bring the goods to the named port of destination. The buyer bears all additional costs and risks after the goods have been delivered (over the ship's rail at the port of shipment).

• CIF - Cost Insurance and Freight Named port of destination - Maritime and inland waterway transport onlyThe obligations are the same as under CFR with the addition that the seller must procure insurance against the buyer's risk of loss of, or damage to the goods during carriage.

• CPT - Carriage Paid To Named place of destination - Any mode of transportThe seller delivers the goods to the nominated carrier and must also pay the cost of carriage necessary to bring the goods to the named destination. The buyer bears all additional costs and risks after the goods have been delivered to the nominated carrier.

• CIP - Carriage and Insurance Paid To Named place of destination - Any mode of transportThe obligations are the same as under CPT with the addition that the seller must procure insurance against the buyer's risk of loss of, or damage to the goods during carriage.

• Group D Arrival• DAF - Delivered at Frontier

Named place - Any mode of transportThe seller must place the goods at the disposal of the buyer on the arriving means of transport not unloaded, cleared for export but not cleared for import, at the named point and place at the frontier.

• DES - Delivered Ex ShipNamed port of destination - Maritime and inland waterway transport onlyThe seller delivers when the goods are placed at the disposal of the buyer on board the ship, not cleared for import, at the named port of destination.

• DEQ - Delivered Ex Quay Named port of destination - Maritime and inland waterway transport onlyThe seller delivers when the goods are placed at the disposal of the buyer, not cleared for import, on the quay at the named port of destination.

• DDU - Delivered Duty Unpaid Named place of destination - Any mode of transportThe seller must deliver the goods to the buyer, not cleared for import, and not unloaded at the named place of destination.

• DDP - Delivered Duty Paid Named place of destination - Any mode of transportThe seller must deliver the goods to the buyer, cleared for import, and not unloaded at the named place of destination.

• As can be seen this list runs from the term where the buyer has most of the responsibility (EXW) through to that where the seller has the majority of the responsibility (DDP). It is worth noting that in Incoterms 2000 the only term that requires the buyer to clear the goods for export (including obtaining any export licence necessary) is EXW and the only term that requires the seller to clear the goods for import (including obtaining any import licence necessary) is DDP.

• 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 classic maritime trade term, Free On Board: 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

• 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) • It 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) • It means the same as 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) It 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) It 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