What are INCOTERMS?

Incoterms are a set of simple three letter codes which represent

t h e d i f f e r e n t w a y s international shipments may be organized. They allow sellers
and buyers from different cultures and legal systems to decide at what point
the ownership and paying for freight, insurance and customs costs transfer from
one to the other.
Who decides what INCOTERMS mean?
The International Chamber of Commerce has set up strict definitions for each
incoterm. Choosing a suitable incoterm allows the buyer and seller to negotiate a price
best suited to their needs and to be confident that there will be no confusion
over who pays the costs. T o e n s u r e t h a t t h e l a t e s t v e r s i o n i s
b e i n g u s e d s h i p p i n g c o n t r a c t s s h o u l d r e f e r t o "INCOTERMS
2000".
When should INCOTERMS be used?
It is not compulsory to use incoterms. However when things go wrong and disputes
arise it is much easier to sort out who is responsible for what if incoterms
have been written i n t o the shipping contract. To be safe,
i n c o t e r m s s h o u l d b e d e c i d e d u p o n i n t h e negotiation phase of any
international purchasing contract.
How do INCOTERMS work?
Each INCOTERM is a three letter acronym related to where the seller's
responsibility ends. They should be written into the purchasing or shipping
contracts. Some incoterms r e q u i r e the changeover point to be
n a m e d . A s w e l l a s b u y e r a n d s e l l e r s t h e r e a r e "carriers". They
are the people who have a contract to transport the goods by land, sea, air or a
combination of modes. A seller will be given a bill of lading, way bill or
carrier' sreceipt, that document can be used to prove that the goods have
been taken on by the carrier. There are four groups of INCOTERMS - "E", "F",
"C" & "D"
Group: E used where the seller does not want to arrange transport.

EXW- "Ex-Works" means the seller's only responsibility is to make the goods
available at the seller's premises, i.e., the works or factory. The seller is not
responsible for loading the goods on the vehicle provided by the buyer unless
otherwise agreed. The buyer bears the full costs and risk involved in bringing the
goods from there to the desired destination."Ex works" represents the minimum
obligation of the seller.
Group: F-used where the seller can arrange some transport within his/her own
country.

FCA- Free Carrier; this term has been designed to meet the requirements of multi-
modal transport, such as container or roll-on, roll-off traffic by trailers and
ferries. The seller fulfils his/her obligations when the goods are delivered
to the custody of the carrier at a n a m e d p o i n t . I f n o p r e c i s e p o i n t c a n
b e n a m e d a t t h e t i m e o f t h e c o n t r a c t o f s a l e , t h e parties should refer
to the place where the carrier should take the goods into its charge. The
risk of loss or damage to the goods is transferred from seller to buyer at that time.
FAS- Free alongside Ship, requires the seller to deliver the goods alongside the ship
on the quay. From that point on, the buyer bears all costs and risks of loss and damage
to the goods. F.A.S. requires the buyer to clear the goods for export and pay the cost
of loading the goods.
FOB- Free On Board vessel, named ocean port of shipment .The goods are placed
on board the ship by the seller at a port of shipment named in the sales
agreement. The risk of loss of or damage to the goods is transferred to the
buyer when the goods pass the ship's rail (i.e., off the dock and placed on the
ship).The seller pays the cost of loading the goods.
Group: C-used where the seller can arrange and pay for most of the freight charges up
to the foreign country.

CFR - (or C&F) Cost and Freight, Named ocean port of destination, requires the seller
to pay the costs and freight necessary to bring the goods to the named destination, but
the risk of loss or damage to the goods, as well as any cost increases, are transferred
from the seller to the buyer when the goods pass the ship's rail in the port
of shipment. Insurance is the buyer's responsibility.

CIF- Cost, Insurance and Freight, named ocean port of destination. This is CFR
with the additional requirement that the seller procure transport insurance
against the risk of loss or damage to goods. The seller must contract with the insurer
and pay the insurance premium. Insurance is generally important in
international shipping because transport companies have restricted liability for loss
or damage.
CPT- freight/Carriage paid to, named place or port of destination. This term means
the seller pays the freight for the carriage of the goods to the named
destination. The risk of loss or damage to the goods and any cost increases transfers
from the seller to the buyer when the goods have been delivered to the
custody of the final carrier, and not at the ship's rail. Accordingly, "freight/carriage
paid to" can be used for all modes of transportation, including container or
roll-on roll-off traffic by trailers and ferries. When the seller is required to
furnish a bill of lading, way bill, or carrier receipt, the seller duly fulfils its
obligation by presenting such a document issued by the person contracted
with for carriage to the main destination.
CIP- Carriage and Insurance Paid To named place or port of destination. This term
(also abbreviated CIP) is the same as "freight/carriage paid to" but with
the additional requirement that the seller has to procure transport insurance against
the risk of loss or damage to the goods during the carriage. The seller contracts with
the insurer and pays the insurance premium.
Group: D-used where the seller can pay for most of the delivery charges to
the destination country.

DAF- Delivered at Frontier, named place of destination, by land, not unloaded. This
term means that the seller's obligations are fulfilled when the goods have arrived at
the frontier but before the customs border of the country named in the sales contract.
The term is primarily used when goods are carried by rail or truck. The
seller bears the full cost and risk in delivering the goods up to this point, but the
buyer must arrange and pay for the goods to clear customs.
DES- Delivered Ex-Ship, named port of destination, not unloaded. This term means
the seller makes the goods available to the buyer on board the ship at the destination
named in the sales contract. The seller bears the full cost and risk involved in bringing
the goods there. The cost of unloading the goods and any customs duties must be paid
by the buyer.
DEQ- Delivered Ex-Quay, named port of destination, unloaded, not cleared. This
term means the seller has agreed to make the goods available to the buyer
on the quay or the wharf at the destination named in the sales contract. The seller
bears the full cost and risks in delivering the goods to that point including
unloading. There are two v a r i a t i o n s o f e x q u a y c o n t r a c t s : " e x
quay duty paid" and "ex quay duty on buyers
account." In the first, the duty is paid by the seller. In the second, the duty also is paid
by the seller, but the buyer must reimburse the seller.
DDU- Delivered Duty Unpaid, named place of destination, not unloaded, not cleared.
This term Delivered duty paid or under these terms, the seller fulfils his
obligation to deliver when the goods have been available to the buyer nucleated for
import at the point or place of the named destination. The seller bears all costs and
risks involved in bringing the goods to the point or place of named
destination. There is no obligation for import clearance.
DDP- Delivered Duty Paid, named place of destination, not unloaded, cleared. T h i s
term represents the seller's maximum obligation. The term "DDP."
i s g e n e r a l l y followed by words indicating the buyer's premises. It notes that the
seller bears all risks and all costs until the goods are delivered. This term can be used
irrespective of the mode of transport. If the parties wish to make clear that the seller is
not responsible for certain costs, additional word should be added (for
example, "delivered duty paid exclusive of VAT and/or taxes").