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INCO TERMS
• International Commercial Terms (INCOTERMS)

The INCOTERMS (International Commercial Terms) is a universally recognized set of

definitions of international trade terms, such as FOB, CFR and CIF, developed by the
International Chamber of Commerce (ICC) in Paris, France. It defines the trade contract
responsibilities and liabilities between buyer and seller. It is invaluable and a cost-saving
tool. The exporter and the importer need not undergo a lengthy negotiation about the
conditions of each transaction. Once they have agreed on a commercial term like FOB,
they can sell and buy at FOB without discussing who will be responsible for the freight,
cargo insurance, and other costs and risks.
The INCOTERMS was first published in 1936---INCOTERMS 1936---and it is revised
periodically to keep up with changes in the international trade needs. The complete
definition of each term is available from the current publication---INCOTERMS 2000. The
publication is available at your local Chamber of Commerce affiliated with the International
Chamber of Commerce (ICC).
Many importers and exporters worldwide are accustomed to and may still use the
INCOTERMS 1980, the predecessor of INCOTERMS 1990 and INCOTERMS 2000.
Under the INCOTERMS 2000, the international commercial terms are grouped into E, F, C
and D, designated by the first letter of the term (acronym), as follows:

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INCOTERMS IN OPERATION

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 Contd .
• International Commercial Terms
( INCOTERMS ) GROUP TERM    Stands for
E
EXW- Ex works
F
• FCAFree Carrier
• FASFree Alongside Ship
• FOBFree On Board
• C
• CFRCost and Freight
• CIFCost, Insurance and Freight
• CPTCarriage Paid To
• CIPCarriage and Insurance Paid To
• D
• DAFDelivered At Frontier
• DESDelivered Ex Ship
• DEQDelivered Ex Quay
• DDUDelivered Duty Unpaid
• DDP Delivered duty paid

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 Contd.

• In practice, trade terms are written with either all upper case letters
(e.g. FOB, CFR, CIF, and FAS) or all lower case letters (e.g. fob, cfr,
cif, and fas). They may be written with periods (e.g. F.O.B. and
c.i.f.).
• In international trade, it would be best for exporters to refrain,
wherever possible, from dealing in trade terms that would hold the
seller responsible for the import customs clearance and/or payment
of import customs duties and taxes and/or other costs and risks at
the buyer's end, for example the trade terms DEQ
(Delivered Ex Quay) and DDP (Delivered Duty Paid). Quite often,
the charges and expenses at the buyer's end may cost more to the
seller than anticipated. To overcome losses, hire a reliable customs
broker or freight forwarder in the importing country to handle the
import routines.
• Similarly, it would be best for importers not to deal in EXW (Ex
Works), which would hold the buyer responsible for the export
customs clearance, payment of export customs charges and taxes,
and other costs and risks at the seller's end.

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 Contd.
• EXW   {+ the named place}
Ex Works

– Ex means from. Works means factory, mill or warehouse, which

is the seller's premises. EXW applies to goods available only at
the seller's premises. Buyer is responsible for loading the goods
on truck or container at the seller's premises, and for the
subsequent costs and risks. In practice, it is not uncommon that
the seller loads the goods on truck or container at the seller's
premises without charging loading fee.
– In the quotation, indicate the named place (seller's premises)
after the acronym EXW, for example EXW Kobe and EXW San
Antonio.
– The term EXW is commonly used between the manufacturer
(seller) and export-trader (buyer), and the export-trader resells
on other trade terms to the foreign buyers. Some manufacturers
may use the term Ex Factory, which means the same as Ex
Works.
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 Contd.
• FCA   {+ the named point of departure}
Free Carrier

– The delivery of goods on truck, rail car or container at the specified point
(depot) of departure, which is usually the seller's premises, or a named
railroad station or a named cargo terminal or into the custody of the
carrier, at seller's expense. The point (depot) at origin may or may not
be a customs clearance center. Buyer is responsible for the main
carriage/freight, cargo insurance and other costs and risks. In the air
shipment, technically speaking, goods placed in the custody of an air
carrier is considered as delivery on board the plane. In practice, many
importers and exporters still use the term FOB in the air shipment.
– The term FCA is also used in the RO/RO (roll on/roll off) services.
– In the export quotation, indicate the point of departure (loading) after the
acronym FCA, for example FCA Hong Kong and FCA Seattle.
– Some manufacturers may use the former terms FOT (Free On Truck)
and FOR (Free On Rail) in selling to export-traders.

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 Contd.

• FAS   {+ the named port of origin}

Free Alongside Ship

– Goods are placed in the dock shed or at the side of the ship, on
the dock or lighter, within reach of its loading equipment so that
they can be loaded aboard the ship, at seller's expense. Buyer is
responsible for the loading fee, main carriage/freight, cargo
insurance, and other costs and risks. In the export quotation,
indicate the port of origin (loading) after the acronym FAS, for
example FAS New York and FAS Bremen.
– The FAS term is popular in the break-bulk shipments and with
the importing countries using their own vessels.

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 Contd.
• FOB   {+ the named port of origin}
Free On Board
The delivery of goods on board the vessel at the named port of origin
(loading), at seller's expense. Buyer is responsible for the main
carriage/freight, cargo insurance and other costs and risks. In the export
quotation, indicate the port of origin (loading) after the acronym FOB, for
example FOB Vancouver and FOB Shanghai.
– Under the rules of the INCOTERMS 1990, the term FOB is used for
ocean freight only. However, in practice, many importers and exporters
still use the term FOB in the air freight.
– In North America, the term FOB has other applications. Many buyers and
sellers in Canada and the U.S.A. dealing on the open account and
consignment basis are accustomed to using the shipping terms FOB
Origin and FOB Destination.
– FOB Origin means the buyer is responsible for the freight and other costs
and risks. FOB Destination means the seller is responsible for the freight
and other costs and risks until the goods are delivered to the buyer's
premises, which may include the import customs clearance and payment
of import customs duties and taxes at the buyer's country, depending on
the agreement between the buyer and seller.
– In international trade, avoid using the shipping terms FOB Origin and
FOB Destination, which are not part of the INCOTERMS (International
Commercial Terms).
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 Contd.

• CFR   {+ the named port of destination}

Cost and Freight
The delivery of goods to the named port of destination (discharge) at the
seller's expense. Buyer is responsible for the cargo insurance and other
costs and risks. The term CFR was formerly written as C&F. Many
importers and exporters worldwide still use the term C&F. In the export
quotation, indicate the port of destination (discharge) after the acronym
CFR, for example CFR Karachi and CFR Alexandria.
– Under the rules of the INCOTERMS 1990, the term Cost and Freight is
used for ocean freight only. However, in practice, the term Cost and
Freight (C&F) is still commonly used in the air freight.
•

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 Contd.

• CIF   {+ the named port of destination}

Cost, Insurance and Freight
The cargo insurance and delivery of goods to the named port of
destination (discharge) at the seller's expense. Buyer is responsible
for the import customs clearance and other costs and risks. In the
export quotation, indicate the port of destination (discharge) after
the acronym CIF, for example CIF Pusan and CIF Singapore.
– Under the rules of the INCOTERMS 1990, the term CIF is used
for ocean freight only. However, in practice, many importers and
exporters still use the term CIF in the air freight.

– CPT   {+ the named place of destination}

Carriage Paid To
The delivery of goods to the named place of destination
(discharge) at seller's expense. Buyer assumes the cargo
insurance, import customs clearance, payment of customs
duties and taxes, and other costs and risks. In the export
quotation, indicate the place of destination (discharge) after the
acronym CPT, for example CPT Los Angeles and CPT Osaka

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 Contd.
• CIP   {+ the named place of destination}
Carriage and Insurance Paid To
The delivery of goods and the cargo insurance to the named place
of destination (discharge) at seller's expense. Buyer assumes the
import customs clearance, payment of customs duties and taxes,
and other costs and risks. In the export quotation, indicate the place
of destination (discharge) after the acronym CIP, for example CIP
Paris and CIP Athens

• DAF   {+ the named point at frontier}

Delivered At Frontier
The delivery of goods to the specified point at the frontier at seller's
expense. Buyer is responsible for the import customs clearance,
payment of customs duties and taxes, and other costs and risks. In
the export quotation, indicate the point at frontier (discharge) after
the acronym DAF, for example DAF Buffalo and DAF Welland.

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 Contd.

• DES   {+ the named port of destination}

Delivered Ex Ship

– The delivery of goods on board the vessel at the named port of

destination (discharge), at seller's expense. Buyer assumes the
unloading fee, import customs clearance, payment of customs duties
and taxes, cargo insurance, and other costs and risks. In the export
quotation, indicate the port of destination (discharge) after the acronym
DES, for example DES Helsinki and DES Stockholm.

– DEQ   {+ the named port of destination}

Delivered Ex Quay
The delivery of goods to the quay (the port) at destination at seller's
expense. Seller is responsible for the import customs clearance and
payment of customs duties and taxes at the buyer's end. Buyer
assumes the cargo insurance and other costs and risks. In the export
quotation, indicate the port of destination (discharge) after the acronym
DEQ, for example DEQ Libreville and DEQ Maputo

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 Contd.
• DDU   {+ the named point of destination}
Delivered Duty Unpaid
The delivery of goods and the cargo insurance to the final point at
destination, which is often the project site or buyer's premises, at
seller's expense. Buyer assumes the import customs clearance and
payment of customs duties and taxes. The seller may opt not to
insure the goods at his/her own risks. In the export quotation,
indicate the point of destination (discharge) after the acronym DDU,
for example DDU La Paz and DDU Ndjamena.

• DDP   {+ the named point of destination}

Delivered Duty Paid
The seller is responsible for most of the expenses, which include the
cargo insurance, import customs clearance, and payment of customs
duties and taxes at the buyer's end, and the delivery of goods to the
final point at destination, which is often the project site or buyer's
premises. The seller may opt not to insure the goods at his/her own
risks. In the export quotation, indicate the point of destination
(discharge) after the acronym DDP, for example DDP Bujumbura
and DDP Mbabane.
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 TRADE TERMS USED SPECIFICALLY IN CHARTER SHIPPING

• RO/RO Vessels and LASH

Besides the full container ship, the RO/RO (roll on/roll off) vessel
and the LASH are other systems of water transport used in
international trade.
• RO/RO (Role On/Role Off ) Vessels
The RO/RO vessel (RO/RO or RORO) derived from the traditional
car ferry, where motor vehicles are driven on and off by their drivers.
RO/RO is popular within the European trade routes. It is also used
in other trade routes like the U.S.A.-Central America route and
Europe-West Africa route. The RO/RO is equipped with ramp(s) that
makes loading and unloading from the side and/or bow (front of
vessel) and/or stern (rear of vessel) possible. Some modern
RO/ROs are designed as a trailer/break-bulk/container carrier
suitable for the deep-sea voyage (long haul), making loading and
unloading of containers from the top, like a full container ship,
possible using the crane. The type of cargo that can be carried on a
RO/RO is flexible, including large objects.

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 CONTD.
• The full RO/RO has low stowage factors, as a result of wasted space
around the underside of the trailers and other motor vehicles. Therefore, the
full RO/RO is not ideal for deep-sea trade. The low stowage factors,
however, are compensated for by the quickness of the "turn around' time in
ports in the short-sea voyage (short haul).
• In general, the capital cost for a full RO/RO is lower than the full container
ship or the LASH. When the cargo availability is insufficient in a port in the
short-sea trade, investment in sophisticated container handling installations
can be uneconomical. Therefore, the full RO/RO offers a solution to short-
sea transport needs. A large area of land for parking trailers and other motor
vehicles is necessary while they await loading.

LASH (Lighter Aboard Ship)

The lighter aboard ship or LASH---barge-carrier or barge-carrying vessel---is
designed to carry lighters (barges), where they are lifted by crane over the
stern (rear) of the vessel. The LASH and barge come in different
configurations. Some LASHes can accommodate over 24 barges. Each
barge may carry 600 to 1,000 metric tons of cargo, which is much bigger
than the ocean freight container, and can float and be towed up and down a
river or canal, thus the barge is often referred to as the floating container.

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 Contd.
– The LASH is useful in moving a relatively large volume of cargo
in the short-sea trade and to and from sites on rivers and canals,
such as Rhine Canal in Europe, that cannot be used by the
larger ocean-going vessels. The LASH keeps the load in the
same vessel for the entire trip, thus reduces cargo handling,
transport costs and time.
– The LASH is popular in Europe, taking advantage of the
extensive inland waterway systems which are the cheapest
means of inland transport. The export goods from landlocked
European countries like Switzerland may move by LASH or
other inland waterway transports to the port of Rotterdam
(Netherlands) or Antwerp (Belgium), and transfer to the ocean
going vessel for the deep-sea voyage.

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 Contd.

• Conference Shipping

Conference shipping is provided by the conference carrier or

member of a freight conference. The freight conference---
conference or steamship conference or liner conference---is a group
of operators of vessel who operate on the same routes and
cooperate on shipping schedules at the standardized freight rates
between ports.
• Conference shipping has regular sailing schedules, thus is called
the liner service.
• Most ocean freight is carried by conferences. Conference carriers or
their agents issue an ocean bill of lading.

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 Contd.

• Non-conference Shipping

• Non-conference shipping is provided by the independent carrier or

operator of vessel who is not a member of a freight conference,
sometimes called outside shipping. Independent carriers, which
carry about 25% of the ocean freight, operate on selected trade
routes in competition with conference carriers.
• Non-conference shipping often does not have regular sailing
schedules and freight rates between ports. Consequently, it is
perceived as less dependable than conference shipping.
• Independent carriers or their agents issue an ocean bill of lading.

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 Contd.
• Charter Shipping

Charter shipping is a tramp service. The term tramp, as used in the

ocean shipping, refers to a cargo ship not operating on regular
routes and schedules, and picking up cargo only when it is
chartered (hired) from the ship operator.
• While conference and non-conference shipping are for general
cargoes, charter shipping usually is for bulk cargoes like oil, coal,
ore, and grain. Charter shipping has the lowest freight rate per unit
of weight or measure.
• A charter party is required in charter shipping. A charter party---
charter party contract---is a written contract between the ship
operator and the charterer (shipper). The contract normally includes
the ports, freight rate and time involved in the voyage(s).
• The ship operator issues a charter party bill of lading. Unless a letter of
credit (L/C) permits or calls for a charter party bill of lading, the bank will
reject such transport document in the L/C negotiation.

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 Contd.
• Some trade terms used specifically in charter shipping are as
follows:
FI
Free In
• The word "free" as used in the charter shipping term means not
including. FI is a pricing term indicating that the charterer of a vessel
(i.e., the shipper) is responsible for the cost of loading goods onto the
vessel.
FO
Free Out
• FO is a pricing term indicating that the charterer of a vessel (i.e., the
shipper) is responsible for the cost of unloading goods from the vessel.
FIO
Free In and Out
• FIO is a pricing term indicating that the charterer of a vessel (i.e., the
shipper) is responsible for the costs of loading goods onto the vessel
and unloading goods from the vessel.
• Please see International Commercial Terms for the different trade
terms used in exporting-importing.

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 Contd.

• Voyage charter
The ship is chartered for a single journey and it may involve more than one
port of call. The ship operator crews and operates the ship and it is the
operator's own ship's master in control of the ship. This type of charter
shipping is analogous to the limousine service where the driver, who is in
control of the car in a journey, is provided by the car operator.
• Time charter
The ship is chartered for a period of time. This type of charter shipping is
similar to a voyage charter in the crewing and operating of the ship. The
contract may call for a specific or unlimited number of voyages within the
agreed time.

• Bareboat charter
The term bareboat means a ship without a crew and ship's master. The
charterer (shipper) is in charge of crewing and operating the ship within a
period of time, usually a number of years. This type of charter shipping is
analogous to a car leasing where the lessor (the car operator) provides the
car only and the lessee provides his/her own driver.

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