INCOTERMS OF
SHIPPING
The INCOTERMS (International
Commercial Terms) is a universally recognized set of definition of
international trade terms, such as FOB, CFR & 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. The
INCOTERMS was first published in 1936 --- INCOTERMS 1936 --- and it is revised
periodically to keep with changes in the international trade needs.
Under INCOTERMS 2000, the international
commercial terms are grouped into E, F, C and D, designated by the first letter
of the term, relating to the final letter of the term. E.g. EXW— ex works comes
under grouped ‘E’.
- 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.
- Under the “F”-TERM (FCA, FAS, &FOB), the seller is called upon to deliver the goods to a carrier appointed by the buyer.
- Under the “C”-TERM (CFR, CIF, CPT, & CIP), the seller has to contract for carriage, but without assuming the risk of loss or damage to the goods or additional cost due to events occurring after shipment or discharge.
- Under the “D”-TERM (DAF, DEQ, DES, DDU & DDP), the seller has to bear all costs and risks needed to bring the goods to the place of destination.
All terms list the seller’s and buyer’s
obligations. The respective obligations of both parties have been grouped under
up to 10 headings where each heading on the seller’s side “mirrors” the
equivalent position of the buyer. Examples are Delivery, Transfer of risks, and
Division of costs. This layout helps the user to compare the parties respective
obligations under each Incoterms. Once they have agreed on a commercial terms
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.
INCOTERMS
01.EXW
[+the named place] Ex Works:
Ex means from. Works means factory, mill
or warehouse, which are 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.
02.FCA
[+the named point of departure] Free Carrier:
The delivery of goods on truck, rail car
or container at the specified point of departure, which is usually the sellers
premises, or a named railroad station or a named cargo terminal or into the
custody of the carrier, at seller’s expense. The point at origin may or may not
be a customs clearance centre. Buyer is responsible for the main
carriage/freight, cargo insurance and other costs and risks.
03.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 Doha and FAS Durban. The
FAS term is popular in the break-bulk shipments and with the importing
countries using their own vessels.
04.FOB
[+the named port of origin] Free on Board:
The delivery of goods on the 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. 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 custom 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.
05.CFR
[+the named port of destination] Cost and Freight:
The delivery of goods to the named port of
destination (discharge) at the seller’s expenses. 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.
06.CIF
[+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.
07.CPT
[+the named place of destination] Carriage Paid To:
The delivery of goods to the named port of
destination (discharge) at the seller’s expenses. Buyer assumes the cargo
insurance, import custom clearance, payment of custom duties and taxes, and
other costs and risks.
08.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 importer customs clearance, payment of customs duties and taxes,
and other costs and risks.
09.DAF
[+ the names 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
custom clearance, payment of custom duties and taxes, and other costs and
risks.
10.DES
[+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 free, import customs clearance, payment of customs duties and
taxes, cargo insurance, and other costs and risks.
11.DEQ
[+ the named port of destination ] Delivered Ex Quay:
The delivery of goods to the Quay (the
port) at the destination at buyers expense. Seller is responsible for the
importer customs clearance, payment of customs duties and taxes, at the buyers
end. Buyer assumes the cargo insurance and other costs and risks.
12.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 buyers premises at
sellers expense. Buyer assumes the import customs clearance, payment of customs
duties and taxes. The seller may opt not to insure the goods at his/her own
risks.
13.DDP
[+ the named point of destination] Delivered Duty Paid:
The seller is responsible for most of the
expenses which include the cargo insurance, import custom clearance, and
payment of custom duties, and taxes at the buyers end, and the delivery of
goods to the final point of destination, which is often the project site or
buyers premise. The seller may opt not
to insure the goods at his/her own risk.
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