INCOTERMS
The most complex & important tool of International
Trade is Language. Small changes in wording can have a major impact on all the aspects
of Business agreement, esp. in International Trade. For Business terminology to
be effective, phrases must mean the same thing through out the industry. This is
where �Incoterms� comes into existence.
�Incoterms� is devised & published by the International Chamber of Commerce
in 1936. Incoterms or
International commercial terms are a series
of international sales terms widely used throughout the world.
INCOTERMS are designed to create a
bridge between different members of the industry by acting as a uniform language
they can use.
ICC introduced the first version
of Incoterms - short for "International Commercial Terms" - in 1936. Since then,
ICC expert lawyers and trade practitioners have updated it many times to keep pace
with the development of international trade. Effective January 1 of 2000, the ICC
once again updated Incoterms to follow the modern trends in international trade.
They should now be incorporated under the reference "Incoterms 2000" into contracts
that are effective from January 2000 or any date thereafter.
Incoterms 2000
are internationally accepted commercial terms defining the respective roles of the
buyer (Importer) and seller (Exporter) in the arrangement of transportation and
other responsibilities and clarify when the ownership of the merchandise takes place.
These terms are incorporated into export-import sales agreements
and contracts worldwide and are a necessary part of foreign trade.
The main objective of Incoterms2000 defines the responsibilities
and the obligations of a seller (Exporter) and a buyer (Importer) within the framework
of international contracts of trade concerning loading, transport, type of transport,
insurances and delivery. Its first function is about a distribution of
transport charges.
The second role of the Incoterms2000 is to define the place of transfer and the
transport risks involved in order to justify the ownership for support and damage
of goods by shipments sent by the seller (exporter) or the buyer (importer) in an
event of execution of transport.
Incoterms safeguard the following issues in the Foreign
Trade contract or International Trade Contract:
a) To determine the critical point of the transfer of the
risks of the seller to the buyer in the process forwarding of the goods (risks of
loss, deterioration,robbery of the goods) allow the person who supports these risks
to make arrangements in particular in term of insurance.
b) To specify is going to subscribe the contract
of carriage that is to say the seller or the buyer.
c) To distribute between the seller and the buyer
the logistic and administrative expenses at the various stages of the process.
d) To define who is responsible for packaging, marking,
operations of handling, loading and unloading of the goods or the potting and the
discharge of the containers as well as the operations of inspection.
e) To fix respective obligations for the achievement
of the formalities of exportation and /or importation, the payment of the rights
and taxes of importation as well as the supply of the documents.
International Commercial Terms are a series of international
trade terms that are used worldwide to divide the transaction costs and responsibilities
between the seller and the buyer and reflect state-of-the-art transportation practices.
Incoterms deal with the
questions related to the delivery of the products from the seller (exporter) to
the buyer (importer). This includes the carriage of products, export and import
clearance responsibilities, who pays for what, and who has risk for the condition
of the products at different locations within the transport process.
Incoterms are always linked to a physical location and
has nothing to do with the transfer of ownership.
INCOTERMS
are most frequently listed by category. Below are the 13 international Incoterms
adopted by the International Chamber of Commerce.
Group E (Departure):
1) EXW - Ex Works (...named
place):
Ex works means that the seller (exporter) delivers when
he places the goods at the disposal of the buyer (importer) at the seller's premises
or another named place (i.e. works, factory, warehouse, etc.) not cleared for export
and not loaded on any collecting vehicle.
This term thus represents the minimum obligation for the
seller (exporter), and the buyer (importer) has to bear all costs and risks involved
in taking the goods from the seller's premises. However, if the parties wish the
seller (exporter) to be responsible for the loading of the goods on departure and
to bear the risks and all the costs of such loading, this should be made clear by
adding explicit wording to this effect in the contract of sale.
Group F (Main carriage unpaid):
2) FCA - Free Carrier (...named
place):
Free Carrier means that the seller (exporter) delivers
the goods, cleared for export, to the carrier nominated by the buyer (importer)
at the named place. It should be noted that the chosen place of delivery has an
impact on the obligations of loading and unloading the goods at that place. If delivery
occurs at the seller's premises, the seller (exporter) is responsible for loading.
If delivery occurs at any other place, the seller (exporter) is not responsible
for unloading.
This term may be used irrespective of the mode of transport,
including multimodal transport.
A Carrier means any person who, in a contract of carriage,
undertakes to perform or to procure the performance of transport by rail, road,
air, sea, inland waterway or by a combination of such modes.
If the buyer (importer) nominates a person other than a
carrier to receive the goods, the seller (exporter) is deemed to have fulfilled
his obligation to deliver the goods when they are delivered to that person.
3) FAS - Free Alongside Ship
(...named port of shipment): Free Alongside
Ship means that the seller (exporter) delivers when the goods are placed alongside
the vessel at the named port of shipment. This means that the buyer (importer) has
to bear all costs and risks of loss of or damage to the goods from that moment.
The FAS term requires the seller (exporter) to clear the
goods for export. However, if the parties wish the buyer (importer) to clear the
goods for export, this should be made clear by adding explicit wording to this effect
in the contract of sale.
This term can be used only for sea or inland waterway transport.
4) FOB - Free On Board (...named
port of shipment): Free on Board means that the seller (exporter) delivers
when the goods pass the ship's rail at the named port of shipment. This means that
the buyer (importer) has to bear all costs and risks of loss of or damage to the
goods from that point.
The FOB term requires the seller (exporter) to clear the
goods for export. If the parties do not intend to deliver the goods across the ship's
rail, the FCA term should be used.
This term can be used only for sea or inland waterway transport.
Group C (Main carriage paid)
5) CFR - Cost & Freight
(...named port of destination): Cost and Freight
means that the seller (exporter) delivers when the goods pass the ship's rail in
the port of shipment. The seller (exporter) must pay the costs and freight necessary
to bring the goods to the named port of destination but the risk of loss of or damage
to the goods, as well as any additional costs due to events occurring after the
time of delivery, are transferred from the seller (exporter) to the buyer (importer).
The CFR term requires the seller (exporter) to clear the
goods for export. If the parties do not intend to deliver the goods across the ship's
rail, the CPT term should be used.
This term can be used only for sea and inland waterway
transport.
6) CIF - Cost, Insurance
& Freight (...named port of destination): Cost, Insurance
and Freight means that the seller (exporter) delivers when the goods pass the ship's
rail in the port of shipment. The seller (exporter) must pay the costs and freight
necessary to bring the goods to the named port of destination but the risk of loss
of or damage to the goods, as well as any additional costs due to events occurring
after the time of delivery, are transferred from the seller (exporter) to the buyer
(importer).
However, in CIF the seller (exporter) also has to procure
marine insurance against the buyer's risk of loss of or damage to the goods during
the carriage.
Consequently, the seller (exporter) contracts for insurance
and pays the insurance premium. The buyer (importer) should note that under the
CIF term the seller (exporter) is required to obtain insurance only on minimum cover.
Should the buyer (importer) wish to have the protection of greater cover, he would
either need to agree as much expressly with the seller (exporter) or to make his
own extra insurance arrangements.
The CIF term requires the seller (exporter) to clear the
goods for export. If the parties do not intend to deliver the goods across the ship's
rail, the CIP term should be used.
This term can be used only for sea and inland waterway
transport.
7) CPT - Carriage Paid To
(...named place of destination): "Carriage paid
to..." means that the seller (exporter) delivers the goods to the carrier nominated
by him but the seller (exporter) must in addition pay the cost of carriage necessary
to bring the goods to the named destination. This means that the buyer (importer)
bears all risks and any other costs occurring after the goods have been so delivered.
Carrier means any person who, in a contract of carriage,
undertakes to perform or to procure the performance of transport, by rail, road,
air, sea, inland waterway or by a combination of such modes. If subsequent carriers
are used for the carriage to the agreed destination, the risk passes when the goods
have been delivered to the first carrier. The CPT term requires the seller (exporter)
to clear the goods for export.
This term may be used irrespective of the mode of transport
including multimodal transport
8) CIP - Carriage and Insurance
Paid To (...named place of destination): "Carriage and
Insurance paid to..." means that the seller (exporter) delivers the goods to the
carrier nominated by him but the seller (exporter) must in addition pay the cost
of carriage necessary to bring the goods to the named destination. This means that
the buyer (importer) bears all risks and any additional costs occurring after the
goods have been so delivered. However, in CIP the seller (exporter) also has to
procure insurance against the buyer's risk of loss of or damage to the goods during
the carriage.
Consequently, the seller (exporter) contracts for insurance
and pays the insurance premium. The buyer (importer) should note that under the
CIP term the seller (exporter) is required to obtain insurance only on minimum cover.
Should the buyer (importer) wish to have the protection of greater cover, he would
either need to agree as much expressly with the seller (exporter) or to make his
own extra insurance arrangements.
Carrier means any person who, in a contract of carriage,
undertakes to perform or to procure the performance of transport, by rail, road,
air, sea, inland waterway or by a combination of such modes. If subsequent carriers
are used for the carriage to the agreed destination, the risk passes when the goods
have been delivered to the first carrier. The CIP term requires the seller (exporter)
to clear the goods for export.
This term may be used irrespective of the mode of transport
including multimodal transport.
Group D (Arrival):
9) DAF - Delivered at Frontier
(...named place):
Delivered at Frontier means that the seller (exporter)
delivers when the goods are placed at the disposal of the buyer (importer) on the
arriving means of transport not unloaded, cleared for export, but not cleared for
import at the named point and place at the frontier, but before the customs border
of the adjoining country. The term "frontier" may be used for any frontier including
that of the country of export. Therefore, it is of vital importance that the frontier
in question be defined precisely by always naming the point and place in the term.
However, if the parties wish the seller (exporter) to be
responsible for the unloading of the goods from the arriving means of transport
and to bear the risks and costs of unloading, this should be made clear by adding
explicit wording to this effect in the contract of sale.
This term may be used irrespective of the mode of transport
when goods are to be delivered at a land frontier. When delivery is to take place
in the port of destination, on board a vessel or on the quay (wharf), the DES or
DEQ terms should be used.
10)
DES - Delivered Ex-Ship (...named port of destination):
Delivered Ex Ship means that the seller (exporter) delivers when the goods are placed
at the disposal of the buyer (importer) on board the ship not cleared for import
at the named port of destination. The seller (exporter) has to bear all the costs
and risks involved in bringing the goods to the named port of destination before
discharging.
If the parties wish the seller (exporter) to bear the costs
and risks of discharging the goods, then the DEQ term should be used.
This term can be used only when the goods are to be delivered
by sea or inland waterway or multimodal transport on a vessel in the port of destination.
11)
DEQ - Delivered Ex-Quay (...named port of destination):
Delivered Ex Quay means that the seller (exporter) delivers when the goods are placed
at the disposal of the buyer (importer) not cleared for import on the quay (wharf)
at the named port of destination. The seller (exporter) has to bear costs and risks
involved in bringing the goods to the named port of destination and discharging
the goods on the quay (wharf).The DEQ term requires the buyer (importer) to clear
the goods for import and to pay for all formalities, duties, taxes and other charges
upon import.
If the parties wish to include in the seller's obligations
all or part of the costs payable upon import of the goods, this should be made clear
by adding explicit wording to this effect in the contract of sale.
This term can be used only when the goods are to be delivered
by sea or inland waterway or multimodal transport on discharging from a vessel onto
the quay (wharf) in the port of destination. However if the parties wish to include
in the seller's obligations the risks and costs of the handling of the goods from
the quay to another place (warehouse, terminal, transport station, etc.) in or outside
the port, the DDU or DDP terms should be used.
12)
DDU - Delivered Duty Unpaid (...named port of destination):
Delivered duty unpaid means that the seller (exporter) delivers the goods to the
buyer (importer), not cleared for import, and not unloaded from any arriving means
of transport at the named place of destination. The seller (exporter) has to bear
the costs and risks involved in bringing the goods thereto, other than, where applicable,
any "duty" (which term includes the responsibility for and the risks of the carrying
out of customs formalities, and the payment of formalities, customs duties, taxes
and other charges) for import in the country of destination. Such "duty" has to
be borne by the buyer (importer) as well as any costs and risks caused by his failure
to clear the goods for import in time.
However, if the parties wish the seller (exporter) to carry
out customs formalities and bear the costs and risks resulting therefrom as well
as some of the costs payable upon import of the goods, this should be made clear
by adding explicit wording to this effect in the contract of sale.
This term may be used irrespective of the mode of transport
but when delivery is to take place in the port of destination on board the vessel
or on the quay (wharf), the DES or DEQ terms should be used.
13)
DDP - Delivered Duty Paid (...named port of destination):
Delivered duty paid means that the seller (exporter) delivers the goods to the buyer
(importer), cleared for import, and not unloaded from any arriving means of transport
at the named place of destination. The seller (exporter) has to bear all the costs
and risks involved in bringing the goods thereto including, where applicable (Refer
to Introduction paragraph 14), any "duty" (which term includes the responsibility
for and the risk of the carrying out of customs formalities and the payment of formalities,
customs duties, taxes and other charges) for import in the country of destination.
Whilst the EXW term represents the minimum obligation for
the seller (exporter), DDP represents the maximum obligation. This term should not
be used if the seller (exporter) is unable directly or indirectly to obtain the
import license.
However, if the parties wish to exclude from the seller's
obligations some of the costs payable upon import of the goods (such as VAT), this
should be made clear by adding explicit wording to this effect in the contract of
sale.
If the parties wish the buyer (importer) to bear all risks and costs of the import,
the DDU term should be used. This term may be used irrespective of the mode of transport
but when delivery is to take place in the port of destination on board the vessel
or on the quay (wharf), the DES or DEQ terms should be used.