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Incoterms

Incoterms are internationally accepted commercial terms defining the respective roles of the buyer and seller in the arrangement of transportation and other responsibilities and clarify when the ownership of the merchandise takes place. They are used in conjunction with a sales agreement or other method of transacting a sale.

 

The Purpose of Incoterms

  • A contraction of "International Commercial Terms", defining the reciprocal obligations of seller and buyer under an international contract of sale and purchase.

  • Incoterms specify the respective responsibilities of the parties, but do not specify the point at which title is transferred.

  • Incoterms set out how the associated costs and risks are apportioned.

 

Definitions

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

EX WORKS (named place)
FREE CARRIER (named place)
FREE ALONGSIDE SHIP (named port of shipment)
FREE ON BOARD (named port of shipment)
COST AND FREIGHT (named port of destination)
COST, INSURANCE AND FREIGHT (named port of destination)
CARRIAGE PAID TO (named place of destination)
CARRIAGE PAID TO (named place of destination)
DELIVERED AT FRONTIER (named place)
DELIVERED EX SHIP (named port of destination)
DELIVERED EX QUAY (named port of destination)
DELIVERED DUTY UNPAID (named place of destination)
DELIVERED DUTY PAID (named place of destination)

 

The Four Groups of Incoterms

Group E: EX

EXW: The seller has fulfilled his obligation to deliver when the goods are made available on his own premises (workshop, factory, warehouse, etc.). The buyer bears all the costs and risks involved in transporting the goods from the seller’s premises to the desired destination. This term represents the minimum obligation for the seller.

Group F: Free

FCA: The seller has fulfilled his obligation to deliver when he has delivered the goods, cleared for export, to the carrier nominated by the buyer at the named place. The buyer chooses the transport method and carrier. He pays for the main transport. Costs and risks are transferred at the moment the carrier takes charge of the goods.

FAS: The seller has fulfilled his obligation to deliver when the goods have been placed alongside a ship at the named port of shipment. The buyer bears all the costs and risks of loss of or damage to the goods. The FAS term requires the seller to clear the goods for export.

FOB: The seller has fulfilled his obligation to deliver when the goods pass the ship’s rail at the named port of shipment. The seller clears the goods for export. The buyer chooses the ship and pays the maritime shipping costs. Costs and risks are transferred when the goods pass the ship’s rail at the named port of shipment.

Group C: Cost or Carriage

CFR: The seller must choose the ship and pay the costs and freight necessary to bring the goods to the named port of destination. The export formalities are the responsibility of the seller. Risks are transferred at the same point as for FOB.

CIF: The seller is bound by the same obligations as for CFR, but must also procure marine insurance against the risk of loss of or damage to the goods during the carriage. The export formalities are the responsibility of the seller. The goods are carried by sea or inland waterway transport at the risk and perils of the buyer, at the moment when the goods pass the ship’s rail at the port of shipment.

CPT: The seller chooses the transport method and pays the cost of carriage for the goods to the named destination. He also clears the goods for export. The risks transfer from the seller to the buyer at the point where the goods are delivered to the first carrier.

CIP: The seller is bound by the same obligations as for CPT, but must also procure insurance against the risk of loss of or damage to the goods during carriage. The seller clears the goods for export.

Group D: Delivered

DAF: The seller has fulfilled his obligation to deliver when the goods have been delivered, cleared for export and on the arriving means of transport not unloaded, at the named point and place on the frontier, but before the customs border of the adjacent country. Costs and risks are transferred on crossing the frontier. The buyer is responsible for import customs formalities and the payment of import customs duties and taxes.

DES: The seller has fulfilled his obligation to deliver 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. The seller must bear all the costs and risks involved in bringing the goods to the named port of destination.

DEQ: The seller has fulfilled his obligation to deliver when the goods are placed at the disposal of the buyer not cleared for import on the quay at the named port of destination. The buyer clears the goods for importation. Costs and risks are transferred at the moment when the goods are discharged onto the quay at the named port.

DDP: Whilst the EXW term represents the minimum obligation for the seller, DDP represents the maximum. The seller is responsible for everything, including import customs clearance and the payment of all applicable duties and taxes. Costs and risks are transferred at the moment of delivery to the buyer. The costs and risks of unloading are borne by the buyer.

DDU: The seller delivers the goods to the buyer not cleared for import and not unloaded from any arriving means of transport at the named place of destination. The buyer bears the risks and costs of carrying out the import customs formalities and pays all import duties and taxes.

 

Essential Distinctions

Sales on departure (8 Incoterms), whereby, most of the risks of carriage is on the buyer.
Sales on arrival (5 Incoterms), whereby, most of the risks of carriage on the seller.

Sales on Departure Sales on Arrival
CIF Rarely used DAF Rarely used
CIP Frequently used DDU Frequently used
CFR Rarely used DDP Exceptionally used
CPT Frequently used DES Rarely used
EXW Frequently used DEQ Rarely used
FAS Rarely used
FCA Frequently used
FOB Rarely used

 

Exclusively Maritime Exclusively Terrestrial Multipurpose 

Sales on Departure

Sales on Arrival Sales on Departure Sales on Arrival
FAS DES DAF EXW DDU
FOB DEQ FCA DDP
CFR CPT
CIF   CIP

The ICC recommends that "Incoterms 2000" be referred to specifically whenever the terms are used, together with a location.

 

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