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INCOTERMS

Introduction: The most complex & important tool of International Trade is Language. Small changes in wording can have a major impact on all the aspects of Business agreement, esp. in International Trade. For Business terminology to be effective, phrases must mean the same thing throughout the industry. This is where “Incoterms” comes into existence. The International Chamber of Commerce (ICC) in 1936 devised & published INCO Terms. Incoterms or International commercial terms INCOTERMS are designed to create a bridge between different members of the industry by acting as a uniform language they can use. Meaning: Incoterms are internationally accepted commercial terms widely used throughout the world. It is a set of three-letter standard trade terms most commonly used in international contracts for the sale of goods. It defines the respective roles of the buyer (Importer) and seller (Exporter) in the arrangement of transportation and other responsibilities and clarifies when the ownership of the merchandise takes place. These terms are incorporated into export-import sales agreements and contracts worldwide and are a necessary part of foreign trade. The main objective of Incoterms defines the responsibilities and the obligations of a seller (Exporter) and a buyer (Importer) within the framework of international contracts of trade concerning loading, transport, type of transport, insurances and delivery. Its first function is about a distribution of transport charges. The second role is to define the place of transfer and the transport risks involved in order to justify the ownership for support and damage of goods by shipments sent by the seller (exporter) or the buyer (importer) in an event of execution of transport. Incoterms deal with the questions related to the delivery of the products from the seller (exporter) to the buyer (importer). This includes the carriage of products, export and import clearance responsibilities, who pays for what, and who has risk for the condition of the products at different locations within the transport process. Incoterms are always linked to a physical location and has nothing to do with the transfer of ownership. Incoterms safeguard the following issues in the Foreign Trade contract or International Trade Contract:  To determine the critical point of the transfer of the risks of the seller to the buyer in the process forwarding of the goods (risks of loss, deterioration, robbery of the goods) allow the person who supports these risks to make arrangements in particular in term of insurance.    To specify is going to subscribe the contract of carriage that is to say the seller or the buyer. To distribute between the seller and the buyer the logistic and administrative expenses at the various stages of the process. To define who is responsible for packaging, marking, operations of handling, loading and unloading of the goods or the potting and the discharge of the containers as well as the operations of inspection. To fix respective obligations for the achievement of the formalities of exportation and /or importation, the payment of the rights and taxes of importation as well as the supply of the documents.

ICC introduced the first version of Incoterms - short for "International Commercial Terms" - in 1936. Since then, ICC expert lawyers and trade practitioners have updated it many times to keep pace with the development of international trade. Effective January 1 of 2000, the ICC once again updated Incoterms to follow the modern trends in international trade. They should now be incorporated under

.named port of shipment): Free Alongside Ship means that the seller (exporter) delivers when the goods are placed alongside the vessel at the named port of shipment. etc. The exporter is responsible for the goods until they are deposited alongside the ship. including multimodal transport. works. This means that the buyer (importer) has to bear all costs and risks of loss of or damage to the goods from that point.e. This term is not appropriate unless the buyer is prepared to be directly involved in carrying out the export formalities.. Below are the 13 international Incoterms adopted by the International Chamber of Commerce. factory.Free On Board (. Group E (Departure): 1) EXW . If the parties do not intend to deliver the goods across the ship's rail.Cost & Freight (. This leaves the buyer responsible for ensuring that all the relevant paper work is completed prior to the goods leaving the country..Ex Works (. air. cleared for export. EXW places the most responsibility on the buyer.. The buyer is responsible for organising the collection of the goods from the exporter’s premises. This term may be used irrespective of the mode of transport.) not cleared for export and not loaded on any collecting vehicle. road. From that point.named port of shipment): Free on Board means that the seller (exporter) delivers when the goods pass the ship's rail at the named port of shipment.. Group C (Main carriage paid) 5) CFR .. This means that the buyer (importer) has to bear all costs and risks of loss of or damage to the goods from that moment. After this point the buyer is responsible for the risk. if the parties wish the buyer (importer) to clear the goods for export.the reference "Incoterms 2000" into contracts that are effective from January 2000 or any date thereafter. The buyer is also responsible for organising transport to the port. The seller (exporter) must pay the costs and freight necessary to bring the goods to the named port of destination but the risk of loss of or damage to the goods. 3) FAS . the Buyer bears the costs and risks of moving the goods to destination.Free Carrier (.named place): Ex works means that the seller (exporter) delivers when he places the goods at the disposal of the buyer (importer) at the seller's premises or another named place (i. This term can be used only for sea or inland waterway transport. inland waterway or by a combination of such modes. This term can be used only for sea or inland waterway transport. The exporter must clear the goods for export and then hand them over to a carrier named by the buyer. as well as any additional costs due to events occurring after . the FCA term should be used. in a contract of carriage. to the carrier nominated by the buyer (importer) at the named place.named port of destination): Cost and Freight means that the seller (exporter) delivers when the goods pass the ship's rail in the port of shipment...Free Alongside Ship (.. Group F (Main carriage unpaid): 2) FCA . and the buyer (importer) has to bear all costs and risks involved in taking the goods from the seller's premises. This term is used only for water transport. If the buyer (importer) nominates a person other than a carrier to receive the goods. A Carrier means any person who. The FOB term requires the seller (exporter) to clear the goods for export. sea. 4) FOB . This means the exporter has no legal liability for anything that occurs to the goods after the buyer or a carrier has collected them from the factory or warehouse.named place): Free Carrier means that the seller (exporter) delivers the goods. and insurance between the exporter and the port. The FAS term requires the seller (exporter) to clear the goods for export. then the exporter is acting at the buyer’s risk. If the buyer asks the exporter to help contract a carrier. However. This term thus represents the minimum obligation for the seller (exporter). this should be made clear by adding explicit wording to this effect in the contract of sale. the seller (exporter) is deemed to have fulfilled his obligation to deliver the goods when they are delivered to that person. undertakes to perform or to procure the performance of transport by rail.. warehouse.

the CIP term should be used. the seller (exporter) contracts for insurance and pays the insurance premium.Cost. but not cleared for import at the named point and place at the frontier. Carrier means any person who. If the parties do not intend to deliver the goods across the ship's rail. the risk passes when the goods have been delivered to the first carrier. in CIP the seller (exporter) also has to procure insurance against the buyer's risk of loss of or damage to the goods during the carriage. The buyer (importer) should note that under the CIF term the seller (exporter) is required to obtain insurance only on minimum cover. Group D (Arrival): 9) DAF .named place of destination): "Carriage and Insurance paid to. The CIF term requires the seller (exporter) to clear the goods for export.named port of destination): Cost. by rail.Delivered at Frontier (.. Insurance and Freight means that the seller (exporter) delivers when the goods pass the ship's rail in the port of shipment.. If subsequent carriers are used for the carriage to the agreed destination. Should the buyer (importer) wish to have the protection of greater cover. This means that the buyer (importer) bears all risks and any other costs occurring after the goods have been so delivered.Carriage Paid To (." means that the seller (exporter) delivers the goods to the carrier nominated by him but the seller (exporter) must in addition pay the cost of carriage necessary to bring the goods to the named destination.named place): Delivered at Frontier means that the seller (exporter) delivers when the goods are placed at the disposal of the buyer (importer) on the arriving means of transport not unloaded. 6) CIF . are transferred from the seller (exporter) to the buyer (importer).. However. The CFR term requires the seller (exporter) to clear the goods for export.. road. If the parties do not intend to deliver the goods across the ship's rail.. air. Consequently. the CPT term should be used. in CIF the seller (exporter) also has to procure marine insurance against the buyer's risk of loss of or damage to the goods during the carriage. inland waterway or by a combination of such modes. sea. This means that the buyer (importer) bears all risks and any additional costs occurring after the goods have been so delivered.named place of destination): "Carriage paid to. the risk passes when the goods have been delivered to the first carrier. The buyer (importer) should note that under the CIP term the seller (exporter) is required to obtain insurance only on minimum cover. Insurance & Freight (. Consequently. Should the buyer (importer) wish to have the protection of greater cover. The term "frontier" may be used for any frontier including that of the country of export. in a contract of carriage. This term can be used only for sea and inland waterway transport.. the seller (exporter) contracts for insurance and pays the insurance premium. Therefore. undertakes to perform or to procure the performance of transport. he would either need to agree as much expressly with the seller (exporter) or to make his own extra insurance arrangements. sea.. as well as any additional costs due to events occurring after the time of delivery..the time of delivery. 7) CPT .Carriage and Insurance Paid To (. However. air.. but before the customs border of the adjoining country. If subsequent carriers are used for the carriage to the agreed destination. he would either need to agree as much expressly with the seller (exporter) or to make his own extra insurance arrangements. This term may be used irrespective of the mode of transport including multimodal transport. The seller (exporter) must pay the costs and freight necessary to bring the goods to the named port of destination but the risk of loss of or damage to the goods. by rail.. it is of vital importance that the frontier in question be defined precisely by always naming the point and place in the term. This term can be used only for sea and inland waterway transport. road. cleared for export." means that the seller (exporter) delivers the goods to the carrier nominated by him but the seller (exporter) must in addition pay the cost of carriage necessary to bring the goods to the named destination.. . Carrier means any person who. inland waterway or by a combination of such modes. in a contract of carriage. undertakes to perform or to procure the performance of transport. This term may be used irrespective of the mode of transport including multimodal transport.. are transferred from the seller (exporter) to the buyer (importer). The CPT term requires the seller (exporter) to clear the goods for export. 8) CIP . The CIP term requires the seller (exporter) to clear the goods for export.

The DEQ term requires the buyer (importer) to clear the goods for import and to pay for all formalities.. 10) DES . this should be made clear by adding explicit wording to this effect in the contract of sale.. where applicable.named port of destination): Delivered duty unpaid means that the seller (exporter) delivers the goods to the buyer (importer). This term can be used only when the goods are to be delivered by sea or inland waterway or multimodal transport on a vessel in the port of destination.) in or outside the port. if the parties wish the seller (exporter) to be responsible for the unloading of the goods from the arriving means of transport and to bear the risks and costs of unloading. The seller (exporter) has to bear all the costs and risks involved in bringing the goods thereto including.However. placing them for collection on the quay (port). if the parties wish the seller (exporter) to carry out customs formalities and bear the costs and risks resulting therefrom as well as some of the costs payable upon import of the goods. However. The documentation must state that duty has been paid.. the DES or DEQ terms should be used. DDP represents the maximum obligation. 11) DEQ . Whilst the EXW term represents the minimum obligation for the seller (exporter). duties. any "duty" (which term includes the responsibility for and the risks of the carrying out of customs formalities.named port of destination): Delivered Ex Ship means that the seller (exporter) delivers when the goods are placed at the disposal of the buyer (importer) on board the ship not cleared for import at the named port of destination. taxes and other charges upon import.Delivered Ex-Ship (.Delivered Duty Paid (. and clearing them through customs. the DES or DEQ terms should be used. However if the parties wish to include in the seller's obligations the risks and costs of the handling of the goods from the quay to another place (warehouse. The seller (exporter) has to bear the costs and risks involved in bringing the goods thereto. customs duties. This term can be used only when the goods are to be delivered by sea or inland waterway or multimodal transport on discharging from a vessel onto the quay (wharf) in the port of destination. 13) DDP . etc. and not unloaded from any arriving means of transport at the named place of destination. the DDU or DDP terms should be used. other than. The seller (exporter) has to bear costs and risks involved in bringing the goods to the named port of destination and discharging the goods on the quay (wharf). If the parties wish to include in the seller's obligations all or part of the costs payable upon import of the goods. taxes and other charges) for import in the country of destination. where applicable (Refer to Introduction paragraph 14).Delivered Ex-Quay (. This term may be used irrespective of the mode of transport but when delivery is to take place in the port of destination on board the vessel or on the quay (wharf).named port of destination): Delivered duty paid means that the seller (exporter) delivers the goods to the buyer (importer). 12) DDU . except the agreement includes unloading the goods off the ship.named port of destination): Delivered Ex Quay means that the seller (exporter) delivers when the goods are placed at the disposal of the buyer (importer) not cleared for import on the quay (wharf) at the named port of destination. terminal. on board a vessel or on the quay (wharf). transport station.. customs duties. cleared for import.. DEQ is similar to DES. this should be made clear by adding explicit wording to this effect in the contract of sale. then the DEQ term should be used. If the parties wish the seller (exporter) to bear the costs and risks of discharging the goods.. The seller (exporter) has to bear all the costs and risks involved in bringing the goods to the named port of destination before discharging. When delivery is to take place in the port of destination. This term should not be used if the seller (exporter) is unable directly or indirectly to obtain the import license. This term may be used irrespective of the mode of transport when goods are to be delivered at a land frontier.Delivered Duty Unpaid (. this should be made clear by adding explicit wording to this effect in the contract of sale. any "duty" (which term includes the responsibility for and the risk of the carrying out of customs formalities and the payment of formalities. . and the payment of formalities. and not unloaded from any arriving means of transport at the named place of destination. Such "duty" has to be borne by the buyer (importer) as well as any costs and risks caused by his failure to clear the goods for import in time. not cleared for import... taxes and other charges) for import in the country of destination.

this should be made clear by adding explicit wording to this effect in the contract of sale. INCOTERMS 2010 are grouped into two classes: A. DEQ. INCOTERMS 2010 also attempt to better take into account the roles cargo security and electronic data interchange now play in international trade. while two new terms. 4. including the payment of Customs duties and taxes. The revised rules designated “INCOTERMS 2010” contain a series of changes. once unloaded from the arriving means of transport. cleared for export. The Seller bears all risks involved in bringing the goods to the named place. DAP – DELIVERED AT PLACE (… named place of destination) The Seller delivers when the goods are placed at the Buyer’s disposal on the arriving means of transport ready for unloading at the names place of destination. 5. DAT – DELIVERED AT TERMINAL (… named terminal at port or place of destination) The Seller delivers when the goods. and DDU designations have been eliminated. DDP – DELIVERED DUTY PAID (… named place) The Seller delivers the goods -cleared for import – to the Buyer at destination. the Buyer bears the costs and risks of moving the goods to destination. EXW – EX WORKS (… named place of delivery) The Seller’s only responsibility is to make the goods available at the Seller’s premises. container yard or road. The DAF. If the parties wish the buyer (importer) to bear all risks and costs of the import. if the parties wish to exclude from the seller's obligations some of the costs payable upon import of the goods (such as VAT). From that point. DES. The Buyer bears full costs and risks of moving the goods from there to destination. “Terminal” includes any place. The Seller bears all costs and risks of moving the goods to destination. such as a quay. the Buyer bears the risks of loss or damage. The Seller. From that point. have been added. 3. From the time the goods are transferred to the first carrier. FCA – FREE CARRIER (… named place of delivery) The Seller delivers the goods. 7. to the carrier selected by the Buyer. From the time the goods are transferred to the first carrier. the DES or DEQ terms should be used. 2010. such as a reduction in the number of terms to 11 from 13. The Seller loads the goods if the carrier pickup is at the Seller’s premises. CIP – CARRIAGE AND INSURANCE PAID TO (… named place of destination) The Seller pays for moving the goods to destination. Delivered at Terminal (DAT) and Delivered at Place (DAP). This term may be used irrespective of the mode of transport but when delivery is to take place in the port of destination on board the vessel or on the quay (wharf). 6. however. the Buyer bears all costs and risks of loss or damage. The Seller bears all risks involved in bringing the goods to and unloading them at the terminal at the named port or place of destination. 2. the Buyer bears the risks of loss or damage. TERMS FOR ANY TRANSPORT MODE 1. the DDU term should be used. The International Chamber of Commerce (ICC) has published revisions to its International Commercial Terms. MARITIME-ONLY TERMS 8.However. . CPT – CARRIAGE PAID TO (… named place of destination) The Seller pays for moving the goods to destination. warehouse. FAS – FREE ALONGSIDE SHIP (… named port of shipment) The Seller delivers the goods to the origin port. rail or air cargo terminal. whether covered or not. purchases the cargo insurance. B. also known as INCOTERMS that take effect on January 1. are placed at the Buyer’s disposal at a named terminal at the named port or place of destination.

FOB – FREE ON BOARD (… named port of shipment) The Seller delivers the goods on board the ship and clears the goods for export.9. The Seller however. From that point. purchases the cargo insurance. 11. . The Buyer bears all risks of loss or damage. The Buyer bears all risks of loss or damage. the Buyer bears all costs and risks of loss or damage. CFR – COST AND FREIGHT (… named port of destination) The Seller clears the goods for export and pays the costs of moving the goods to destination. CIF – COST INSURANCE AND FREIGHT (… named port of destination) The Seller clears the goods for export and pays the costs of moving the goods to the port of destination. 10.