INCOTERMS in the short form for International Commercial Terms. It is the Trademark of International Chamber of Commerce. The Incoterms rules are an internationally recognized standard and are used worldwide in international and domestic contracts for the sale of goods. There are thirteen Incoterms, and they are divided into four groups.
Group E: Departure Term has only one term (EXW).
>> Where the seller makes the goods available to the buyer at the seller’s own premises.
Group F (“Free”): Shipment Terms – Main carriage unpaid includes 3 incoterms to be used in shipment contracts. The seller bears neither the risks nor main transport costs (FCA, FAS and FOB contracts).
>> Where the seller is called on to deliver the goods to a carrier named by the buyer.
>> These are shipment contracts with the shipment point named, and carriage is unpaid by the seller.
Group C (“Cost/Carriage”): Shipment Terms – Main carriage paid includes 4 incoterms (CFR, CIF, CPT and CIP). Main transport cost are borne by the seller but not the risk.
>> Where the seller has to contract for carriage, but does not assume the risk of loss of or damage to the goods or additional costs due to events occurring after shipment and dispatch.
>> These are shipment contracts with the destination point named, and carriage paid by the seller.
>> There are two critical division points, one for the division of costs, the other for the division of risk.
Group D (“Delivered”): Arrival Terms includes 4 incoterms to be used in the arrival contracts (DES, DEQ, DDU and DDP. DAF is an exception). The seller bears the cost and risks on the main trasport. DDP assigns the most obligation on the seller.
>> Where the seller has to bear all costs and risk needed to bring the goods to the country of destination.
>> Carriage is arranged by the seller.
>> These are arrival contracts.
Group E (Departure):
1) EXW – Ex Works (…named place): Ex works means that the seller delivers when he places the goods at the disposal of the buyer 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.
However, if the parties wish the seller 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.
This term Ex Works thus represents the minimum obligation for the seller, and the buyer has to bear all costs and risks involved in taking the goods from the seller’s premises.
Group F (Main carriage unpaid):
2) FCA – Free Carrier (…named place): Free Carrier means that the seller delivers the goods, cleared for export, to the carrier nominated by the buyer at the named place.
If delivery occurs at the seller’s premises, the seller is responsible for loading. If delivery occurs at any other place, the seller 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 the transportation by rail, road, air, sea, inland waterway or by a combination of such modes.
If the buyer nominates a person other than a carrier to receive the goods, the seller 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 delivers when the goods are placed alongside the vessel at the named port of shipment cleared for export. This means that the buyer has to bear all costs and risks of loss of or damage to the goods from that moment.
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 delivers when the goods pass the ship’s rail at the named port of shipment cleared for export. This means that the buyer has to bear all costs and risks of loss of or damage to the goods from that point.
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 delivers when the goods pass the ship’s rail in the port of shipment cleared for export.
The seller 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 to the buyer.
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 delivers when the goods pass the ship’s rail in the port of shipment cleared for export. The seller 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 to the buyer.
However, in CIF the seller 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 contracts for insurance and pays the insurance premium.
The buyer should note that under the CIF term the seller is required to obtain insurance only on minimum cover. Should the buyer wish to have the protection of greater cover, he would either need to agree as much expressly with the seller or to make his own extra insurance arrangements.
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 delivers the goods to the carrier nominated by the buyer but the seller must in addition pay the cost of carriage necessary to bring the goods to the named destination. This means that the buyer 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 the transportation 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 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 delivers the goods to the carrier nominated by him but the seller must in addition pay the cost of carriage necessary to bring the goods to the named destination. This means that the buyer bears all risks and any additional costs occurring after the goods have been so delivered. However, in CIP the seller also has to procure insurance against the buyer’s risk of loss of or damage to the goods during the carriage.
Consequently, the seller contracts for insurance and pays the insurance premium. The buyer should note that under the CIP term the seller is required to obtain insurance only on minimum cover. Should the buyer wish to have the protection of greater cover, he would either need to agree as much expressly with the seller or to make his own extra insurance arrangements.
Carrier means any person who, in a contract of carriage, undertakes to perform the transportation 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 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 delivers when the goods are placed at the disposal of the buyer 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.
This term may be used irrespective of the mode of transport when goods are to be delivered at a land frontier.
10) DES – Delivered Ex-Ship (…named port of destination): Delivered Ex Ship means that the seller delivers when the goods are placed at the disposal of the buyer on board the ship not cleared for import at the named port of destination. The seller has to bear all the costs and risks involved in bringing the goods to the named port of destination before discharging.
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 delivers when the goods are placed at the disposal of the buyer not cleared for import on the quay (wharf) at the named port of destination.
The seller 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 to clear the goods for import and to pay for all formalities, duties, taxes and other charges upon import.
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.
12) DDU – Delivered Duty Unpaid (…named port of destination): Delivered duty unpaid means that the seller delivers the goods to the buyer, not cleared for import, and not unloaded from any arriving means of transport at the named place of destination. The seller has to bear the costs and risks involved in bringing the goods thereto.
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 delivers the goods to the buyer, cleared for import, and not unloaded from any arriving means of transport at the named place of destination. The seller has to bear all the costs and risks involved in bringing the goods thereto including, where applicable, any “duty” for import in the country of destination.
Whilst the EXW term represents the minimum obligation for the seller, DDP represents the maximum obligation. This term should not be used if the seller is unable directly or indirectly to obtain the import license.
