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INCOTERMS (INTERNATIONAL COMMERCE TERMS)

Incoterms (International Commerce Terms) is a series of standardised abbreviations expressing contractual obligations of parties to an international sale.

Incoterms (FOB, CIF, EXW, FCA, FAS, CFR, CPT, CIP, DAF, DES, DEQ, DDU or DDP) are used generally as a short hand way of defining the contractual obligations of the buyer and the seller regarding the place of delivery, loading, transport, unloading, insurance, duties of the goods and which costs are incurred by whom and where.

These terms are used generally in Export – Import documents such as ATR, EUR Certificate of Origin, Letters of Credit, Invoices, Statements, international contracts and other documents, and provide a reference for the clarification of import requirements and shipping practices involved. If for adding an extra agreement, any other words or terms such as ‘Terminal Handling Charges’, ‘EX Loaded’ or ‘ASWP (Any Safe World Port)’ are added to the standard Incoterms, it must be made clear in writing to set out in detail which party is responsible for the extra transactions and costs brought about by the additional terms.

INCOTERMS GROUPS [ GENERAL PRINCIPLES ]

GROUP E (EXW)
Under this group, the obligation of the Seller is restricted to making the goods available at his/her premises; minimum risk case for the Seller. EXW is the only Incoterm in this category.

GROUP F (FCA, FAS, FOB)
In this group, the seller, at his own cost, is responsible to deliver the goods to a carrier chosen by the buyer.

GROUP C (CFR, CIF, CPT, CIP)
The seller arranges and pays for the international carriage of the goods, but the responsibility for providing insurance to cover the costs associated with the risks related with the operation subsequent to the shipment of the goods remains with the Buyer.

GROUP D (DAF, DES, DEQ, DDU, DDP)
Maximum risk case for the Seller, where the seller has to cover all costs and risks associated with bringing the goods to the place of destination.

13 INCOTERMS

Incoterms are defined below in alphabetical order, indicating the obligations and responsibilities of the Buyer and the Seller under the particular Incoterm. Unless otherwise specified, the Incoterms can be used for any method of transport. The word “Sea” means Sea and Inland Waterways.

GROUP E (EXW)
Under this group, the obligation of the Seller is restricted to making the goods available at his/her premises; minimum risk case for the Seller. EXW is the only Incoterm in this category.

EXW EX-WORKS (Named Place)
Seller: Buyer:
The seller is responsible only to make the goods ready for collection at his premises or an appointed place of works or factory on the date agreed. This is a Minimum obligation case for the Seller. The buyer is responsible for paying all transportation costs, insurance and bringing the goods to their final destination. The buyer must be able to carry out export formalities in the country of supply. Maximum obligation for the Buyer

GROUP F (FCA, FAS, FOB)
In this group, the seller, at his own cost, is responsible to deliver the goods to a carrier chosen by the buyer.

FCA FREE CARRIER (Named Place)
Also the term to use in place of FOB for airfreight operations)
Seller: Buyer:

The seller brings the goods to the first main carrier at his own cost. The responsibility of the seller ends at this point.

Buyer’s obligations and responsibilities start from delivery of the goods by the Seller to the main carrie, including the selection and payment of the main export shipping.

 

FAS FREE ALONGSIDE SHIP (Named Place)
[ Used only for Sea transportation ]
Seller: Buyer:
As under FCA, the Seller’s brings the goods to the ship at his own cost. Additionally, the Seller is responsible for completing export documentation and clearing goods for export. Once the goods have been delivered to the first main carrier, the buyer becomes responsible, including loading, transportation, unloading, insurance and associated costs.

 

FOB FREIGHT ON BOARD / FREE ON BOARD (Named Place)
[ Used only for Sea transport ]
Seller: Buyer:
The Seller, at his own cost, delivers the goods on board the ship chosen by the Buyer, and is responsible for completing export documentation and clearing goods for export. Once the goods are delivered on board the ship, the buyer is responsible for the rest of the transaction, including loading, transportation, unloading, insurance and associated costs.

GROUP C (CFR, CIF, CPT, CIP)
The seller arranges and pays for the international carriage of the goods, but the responsibility for providing insurance to cover the costs associated with the risks related with the operation subsequent to the shipment of the goods remains with the Buyer.

CFR COST AND FREIGHT (Named Place)
[ Used only for Sea transport ]
[ For Airfreight use CPT ]
[ For Land Transport use CPT ]
[ For containerised sea shipments, consult your forwarder ]
Seller: Buyer:
The Seller delivers the goods on board the ship chosen by the Buyer, and is responsible for completing export documentation and clearing goods for export. Additionally, the Seller pays for the loading and the transportation of the goods from their premises to the Port of Destination (Port of Discharge). Seller’s responsibilty ends once the goods are loaded on to the ship. Once the goods are delivered on board the ship chosen by the Buyer, the buyer becomes responsible for the rest of the operation, including insurance, transportation of the goods from the Port of Destination (Port of Discharge) to his pemisses, unloading, and associated costs. (Under this Incoterm, the buyer does not pay the cost transportation of the goods from Seller’s premises to the Port of Destination; the Seller does.)

 

CIF COST, INSURANCE AND FREIGHT (Named Place)
[ Used only for Sea transport ]
[ For Airfreight use CPT ]
[ For Land Transport use CPT ]
[ For containerised sea shipments, consult your forwarder ]
Seller: Buyer:
– Same responsibilites as under CFR
– Additionally, the Seller, at his own cost, will provide insurance to cover the Buyer’s risks of transit sea transportation of the goods.
Under CIF, the selling price includes the cost of the goods, the freight or transport costs and the cost of insurance. The seller’s responsibility ends when the goods have been delivered on board the ship.
Same as under CFR; once the goods are delivered on board the ship the buyer becomes responsible for the rest of the operation, but this time the buyer does not pay for insurance or sea transportation, which are paid by the Seller.

 

CPT CARRIAGE PAID TO (Named Place)
Seller: Buyer:
The Seller delivers the goods on board the ship chosen by the Buyer, and is responsible for completing export documentation and clearing goods for export. Additionally, the Seller pays for the loading and the transportation of the goods from their premises to a named point of destination. Seller’s responsibilty ends once the goods are loaded on to the first carrier. Once the goods are delivered on board the first carrier, the buyer becomes responsible for the rest of the operation. The buyer pays for insurance.

 

CIP CARRIAGE AND INSURANCE PAID TO (Named Place)
Seller: Buyer:
The Seller delivers the goods on board the ship nominated by the Buyer. Additionally, the Seller pays for the loading and transportation of the goods from their premises to a named point of destination. Seller’s responsibilty ends once the goods are loaded on to the first carrier
– The seller also pays for insurance.
(Unless otherwise agreed between the Seller and the Buyer, the Seller is required to obtain minimum cover insurance only.)
– Same as CPT, except
– The Buyer is required to obtain only additional cover for the insurance.

 

GROUP D (DAF, DES, DEQ, DDU, DDP)
Maximum risk case for the Seller, where the seller has to cover all costs and risks associated with bringing the goods to the place of destination.

DAF DELIVERED AT FRONTIER (Named Place)
[ Used for Rail transprort ]
[ Used for Road transport ]
Seller: Buyer:
The Seller arranges and pays for transporting goods to a named point and place at the frontier. The Seller must also clear goods for export, but not import, and is responsible for risks and costs associated with goods until they reach a frontier. Buyer’s responsibility commences once goods are delivered to the frontier. The buyer arranges for customs clearance and pays for transportation from the frontier to his premises.

 

DES DELIVERED EX SHIP (Named Place)
[ Used for Sea transprort ]
Seller: Buyer:
The Seller arranges and pays for transporting goods to a named point and place at the frontier. The Seller must also clear goods for export, but not import, and is responsible for any risks and costs until the goods reach a frontier. As in a CIF agreement, the seller pays the freight and insurance costs. Buyer’s responsibility commences once the goods made available to the buyer for unloading at the named port of destination
If the buyer is to be made responsible for discharging goods, the DEQ Incoterm must be used.

 

DEQ DELIVERED EX QUAY (Named Place)
[ Used for Sea transprort ]
Seller: Buyer:
– Same as DES, additionally,
– The Seller is also responsible for delivering goods not cleared for import, at a named destination port
– The Seller covers all costs and assumed responsibility for the transportation of and discharging goods on the quayside.
Buyer’s responsibility commences once the goods have been unloaded at the port of destination. The buyer must clear the goods for import and cover import taxes and duties. The two parties can agree that the seller will cover the costs of importing goods, by adding additional clauses in the contract.

 

DDU DELIVERED DUTY UNPAID (Named Place)
[ If goods are delivered on board a ship or on a quay, use DES or DEQ ]
Seller: Buyer:
The seller will deliver the goods to the buyer at a named place of destination at his own cost. The Seller does not have to clear the goods for import, or unload the goods or pay for the duty. Buyer’s responsibility commences once the goods are made available at the appointed destination. The buyer must clear the goods for import and cover import taxes and duties. The two parties can agree that the seller will cover the costs of importing goods, by adding additional clauses in the contract.

 

DDP DELIVERED DUTY PAID (Named Place)
[ If goods are delivered on board a ship or on a quay, use DES or DEQ ]
[ Not to be used if the Seller is unable to arrange an import licence ]
Seller: Buyer:
The seller will deliver the goods to the buyer at a named place of destination and unload at his own cost. The Seller must also clear the goods for import, and pay all import duties, taxes and charges. If written into the sales contract, VAT obligation can be transferred to the buyer.

For further information on Incoterms, visit the website of ICC (International Chamber of Commerce) at http://www.iccwbo.org/incoterms/id3045/index.html

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