Utilities
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:
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.
Cost and Freight (CFR):
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.
Cost, Insurance and Freight
(CIF): 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.
Delivered at Frontier
(DAF): 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.
Delivered Duty Unpaid
(DDU):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.
Delivered Duty Paid
(DDP): 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.
Delivered Ex Quay (DEQ):
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.
Delivered Ex Ship (DES):
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.
Ex Works (EXW): 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.
Free Alongside Ship
(FAS): 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.
Free on board (FOB): 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).
Free Carrier . . . (named
port): 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.
Carriage and Insurance Paid
To (CIP) : 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.
Carriage Paid to . . .
(named place of destination): 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.
(Source: from Incoterms 1990, International Chamber of Commerce)