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Incoterms 2017 EXW | FCA | FAS | FOB | CFR |

CIF | CPT | CIP | DAF | DES | DEQ | DDU


Incoterms (International Commercial Terms)
What are Incoterms?

THROUGHOUT THE YEARS, AS INTERNATIONAL COMMERCE WAS PROGRESSING, THE


NEED FOR COMMON CODES OF CONDUCT AND CONTRACT CREATED THE INCOTERMS
RULES.
ince 1923, the International Chamber of Commerce (ICC) has been publishing these rules, creating the
framework in which a deal is executed, and determining the obligations, costs and risks between the
seller and the buyer. Ever since then, one has to search real hard to find a commercial invoice between
two parties that doesn’t have those distinct three letter codes that determine who is responsible for
payment and risk throughout the cargo’s journey from origin to destination.
The international chamber of commerce first published in 1936 a set of international rules for the
international rules for the interpretation of trade terms. These rules were known as Incoterms 1936.
Amendments and additions were later made as 1953, 1967, 1990 and 2000 to bring the standards in line
with current international trade practices.
The Incoterms rules were amended with the eighth version— Incoterms 2010 having been published on
January 1, 2011. The ICC have begun consultations on a new revision of Incoterms, to be
called Incoterms 2020.
The Incoterms rules focus on these two key aspects of the transaction:
Which party – buyer or seller – is responsible for arranging and paying for transport (and associated
activities such as loading or unloading), import and export procedures, insuring the goods etc.?
At what point in the journey does responsibility for the consignment transfer from seller to buyer? This
becomes important if the goods are lost or damaged in transit.
By agreeing to use an Incoterms rule, the buyer and seller achieve precision and clarity in defining their
obligations and responsibilities.
Note that the Incoterms rules do not attempt to cover all aspects of the commercial agreement – there are
important matters such as transfer of title and how the goods are to be paid for, on which the Incoterms
rules are silent.
When the parties have agreed on an Incoterms rule to govern the transaction, it is incorporated into the
commercial agreement by way of a reference such as the following:

The following are the Incoterms

1)EXW ex-works

1. Carriage to be arranged by the buyer.


2. Risk transfer from the seller to the buyer when the goods are at the disposal of the purchaser.
3. Cost of assignment from the vendor to the buyer when the goods are at the disposal of the buyer.

2) FCA free carrier

1. Carriage has to arranged by the buyer or either by the seller on the behalf or the buyer.
2. Risk transfer from the vendor to the buyer when the goods have been delivered to the carrier at
the named place.
3. Cost transfer from the seller to the buyer when the goods have been delivered to the carrier at the
named place.

3) FAS free alongside ship

1. Carriage to be arranged by the buyer.


2. Risk transfer from the seller to the buyer when the goods have been placed alongside the ship.
3. Cost transfer from the vendor to the buyer when the goods have been placed alongside the ship.

4) FOB free on board

1. Carriage to be arranged by the purchaser.


2. Risk transfer from the seller to the buyer when the goods pass the ship’s rail.
3. Cost transfer from the vendor to the buyer when the goods have been placed alongside the ship.

5) CFR cost and freight

1. Carriage have to be arranged by the seller.


2. Insurance have to be arranged by the buyer.
3. Risk transfer from the vendor to the buyer when the goods pass the ship’s rail.
4. Cost transfer at the port of destination buyer, paying such fees as are not for the sellers account
under the carriage contract.

6) CIF (COST insurance and freight)

1. Carriage and insurance have to be arranged by the seller.


2. Risk transfer from the seller to the buyer when the goods pass the ship’s rail.
3. Cost transfer at the port of destination buyer, paying such costs as are not for the sellers account
under the carriage contract.

7) CPT – Carriage Paid to (duty paid)

1. Risk transfer from the seller to the buyer when the goods pass the ship’s rail.
2. Cost transfer at the port of destination buyer , paying such costs as are not for the sellers account
under the carriage contract.

8) CIP Carriage and Insurance paid to

1. Carriage and insurance have to be arranged by the seller.


2. Risk transfer from the seller to the buyer when the goods pass the ship’s rail.
3. Cost transfer at the port of destination buyer, paying such costs as are not for the sellers account
under the carriage contract.

9) DAF (Delivered at Frontier)

1. Carriage to be arranged by the seller.


2. Risk transfer from the seller to the buyer when the goods have been de;covered at the frontier.
3. Cost transfer from the seller to the buyer when the goods have been delivered at the frontier.

10) DES (Delivered ex-ship)

1. Carriage to be arranged by the seller.


2. Risk transfer from the seller to the buyer when the goods are placed at the disposal of the buyer
on the board of the ship.
3. Cost transfer from the seller to the buyer when the goods are placed at the disposal of the buyer
on the board of the ship.

11) DEQ (Delivered EX quay)

1. Carriage to be arranged by the seller.


2. Risk transfer from the seller to the buyer when the goods are placed at the disposal of the buyer
on the board of the ship.
3. Cost transfer from the seller to the buyer when the goods are placed at the disposal of the buyer
on board of the ship.

12) DDU (delivered duty unpaid)

1. Carriage to be arranged by the seller.


2. Risk transfer from the seller to the buyer when the goods are placed at the disposal of the buyer
on the board of the ship.
3. Cost transfer from the seller to the buyer when the goods are placed at the disposal of the buyer
on the board of the ship.

Incoterms Explained Pictorially:


Incoterms for any mode of transportation:
EXW Ex Works
FCA Free Carrier
CPT Carriage Paid To
CIP Cost, Insurance and Freight
DAT Delivered At Terminal
DAP Delivered At Place
DDP Delivered Duty Paid
Incoterms for sea and inland waterway transport:
FAS Free Alongside Ship
FOB Free On Board
CFR Cost and Freight
CIF Cost, Insurance and Freight.
Within this article, we will focus on the terms most commonly used for ocean transportation of
containerized cargo.

Ex-Works or EXW

In this arrangement, the buyer is in control. They are responsible for arranging everything after picking
up the goods from the seller’s location. Documentation, export licenses, and local charges at origin are
all paid by the buyer, as well as transportation costs for the truck to move from origin to the port, the
ocean freight, and all other charges at destination. The seller is only responsible for packing and having
the cargo ready at the agreed location.

Free On-Board or FOB

The seller is responsible to deliver the cargo at POL, clear customs, and load the goods on board the
vessel nominated by the buyer. Cost and risk are divided when the goods are actually on board of the
vessel (this rule is new!) The buyer is responsible for any other cost until the delivery at destination.
FOB is the most misused incoterm, since it was never intended for combined inland and ocean
transportation in containers (see Incoterms 2010, ICC publication 715), but only inland waterway and
maritime transport. The correct rule should be FCA.

Cost and Freight or CFR

The seller is responsible for all costs, including the freight up until the cargo reaches the port of
destination. The risk, however, is transferred to the buyer, once the cargo is loaded onto the vessel (this
rule is new!) The only cost not covered by the seller up until POD is maritime insurance, which is the
only difference with our next incoterm rule, CIF.

Cost, Insurance and Freight or CIF

As already mentioned, this is exactly the same as CFR, but maritime insurance is also covered by the
buyer.
INCOTERMS WERE CREATED SO THAT THERE ARE NO MISUNDERSTANDINGS BETWEEN
TRADERS ALL THE WORLD.

They are a universal language for global commerce that every party in the chain of transport needs to
speak. The buyer, the seller, the customs officer, the customs broker, the freight forwarder, the carrier’s
employees, the warehouse manager, and even the trucker in many cases – just to name the most
common ones.

cost responsibilities for each party –


CIF -
FOB - CFR - DAT - DDP -
EXW - Cost, DAP -
Free Cost Delivered Delivered
INCO TERMS Ex
on and
Freight
at
Delivered
Duty
Works and at Place
Board Freight Terminal Paid
Insurance
Pickup & Delivery BUYER SELLER SELLER SELLER SELLER SELLER SELLER
Handling Fees BUYER SELLER SELLER SELLER SELLER SELLER SELLER
Export Documents BUYER SELLER SELLER SELLER SELLER SELLER SELLER
Container Loading (if required) BUYER SELLER SELLER SELLER SELLER SELLER SELLER
Terminal Fees BUYER SELLER SELLER SELLER SELLER SELLER SELLER
Freight BUYER BUYER SELLER SELLER SELLER SELLER SELLER
Import Documents BUYER BUYER BUYER BUYER SELLER SELLER SELLER
Inland to Terminal BUYER BUYER BUYER BUYER SELLER SELLER SELLER
Container Unloading BUYER BUYER BUYER BUYER SELLER SELLER SELLER
Import Handling BUYER BUYER BUYER BUYER SELLER SELLER SELLER
Door Delivery BUYER BUYER BUYER BUYER ADVISE SELLER SELLER
Customs Clearance BUYER BUYER BUYER BUYER ADVISE ADVISE SELLER
Duties & Taxes BUYER BUYER BUYER BUYER BUYER BUYER SELLER

Choosing the right terms

Each option has its own benefits and risks for both the buyer and the seller.
BENEFITS

 Freight Control – Working on tight time frames or stock control it is essential to know where your
freight is the majority time
o Buyer – EXW, FOB, CFR/CIF Seller – DAT, DAP, DDP
 Cost Control – Knowing the cost of the freight will help you work out the true cost of your products
o Buyer – EXW, FOB, CFR/CIF Seller – DAT, DAP, DDP

RISKS

 Lack of visibility – Stock control


o Buyer – DAT, DAP, DDP Seller –EXW, FOB, CFR/CIF
 Unexpected costs – Not having the ability you nominate your forwarder can incur additional costs that
you haven’t taken into account, resulting in loss of profit
o Buyer – CFR/CIF, DAT Seller – FOB