International Commercial Terms or better known as Incoterms were created by the International Chamber of Commerce.
Incoterms define the terms of shipment and delivery, as well as the transfer of risk, between the buyer and seller.
The Incoterm must be stated with the specific place plus “Incoterms 2010.” The named place is where the seller’s cost ends and is also the seller’s delivery point with the exception of the “C” terms.
The latest edition is the Incoterms 2010 which are effective January 1, 2011.
Contract of Carriage
The Incoterm used in a transaction will dictate which party is responsible for each transportation segment and its corresponding contract of carriage.
- Pre-Carriage: the transportation segment from the seller’s location to the point where the cargo would leave from the seller’s side.
- Main Carriage: the transportation segment from the seller’s side to the buyer’s side.
- On-Carriage: the transportation segment from the point of arrival on the buyer’s side to the designated ultimate receiver.
Delivery
Delivery is the point where the risk transfers from the seller to the buyer.
Group of Terms
“E” term: seller’s obligation and control of shipment is at its minimum
“F” terms: require the buyer to arrange for main carriage
“C” terms: require the seller to arrange for main carriage
“D” terms: seller’s obligation and control is at its maximum
There are 11 Incoterms which can be segregated as follow:
7 Incoterms which apply for all modes of transportation.
- EXW - Ex Works
- FCA – Free Carrier
- CPT – Carriage Paid To
- CIP – Carriage and Insurance Paid To
- DAT – Delivered at Terminal
- DAP – Delivered at Place
- DDP – Delivered Duty Paid
4 Incoterms which apply for Sea only.
- FAS – Free Alongside Ship
- FOB – Free On Board
- CFR – Cost and Freight
- CIF – Cost, Insurance and Freight
EXW Ex Works(……….named place)
The seller’s obligation is fulfilled when the buyer has been notified, and the goods (suitably packed for export) are made available to the buyer, at the named place.
The buyer is responsible for all costs and risks, including the loading of the goods from the named/specified point although it is not uncommon that the seller loads the cargo. Buyer is also responsible to arrange the entire contract of carriage of the goods (pre-carriage, main carriage, on-carriage), export and import clearance of the goods.
FCA Free Carrier(……….named place)
The seller’s risk, cost and responsibility end when he delivers the goods, cleared for export, to the carrier nominated by the buyer at the named place. The named place could be the seller’s premises or another place named for delivery on the seller’s side.
The buyer must contract at his own expense the carriage of the goods from the named place and import clearance.
CPT Carriage Paid T0 (……….named place of destination)
The seller’s risk and responsibility for the condition of the cargo end when the goods are delivered to the first carrier. The seller must bear all transportation costs to the named destination on the buyer’s side and export clearance.
The buyer is responsible for the import clearance of the goods.
CIP Carriage and Insurance Paid To……… (named Place of destination)
The seller’s risk and responsibility for the condition of the cargo end when the goods are delivered to the first carrier. The seller must bear all transportation costs to the named destination on the buyer’s side, export clearance and minimum insurance.
The buyer is responsible for the import clearance of the goods.
DAT Delivered At Terminal (……….named place)
The seller’s obligation ends when he has delivered the goods to the disposal of the buyer, unloaded from the arriving carrier at the named destination terminal, cleared for export, but not cleared for import.
The buyer is responsible for the import clearance of the goods.
DAP Delivered At Place (……….named place)
The seller’s obligation ends when he has delivered the goods to the disposal of the buyer at the named destination place, cleared for export. The buyer is responsible for the import clearance of the goods.
DDP Delivered Duty Paid (……….named place of destination)
The seller’s obligation is fulfilled when the goods have been made available to the buyer at the named place of destination, cleared for import. Seller is to arrange all carriage to the named place and payment of Duty, taxes and fees.
The buyer is responsible to take delivery of the goods.
FAS Free Alongside Ship (…….named Port of Shipment)
The seller’s obligation is to deliver the goods alongside the vessel at the named port of shipment and export clearance.
The buyer is responsible for all costs and risks to load and transport the goods to their final destination once the cargo is delivered alongside the vessel and import clearance.
FOB Free On Board (…….Named Port of shipment)
The seller’s obligation is fulfilled once the goods have been placed on board the vessel at the named port and export clearance.
The buyer is responsible for all costs and risks associated with the goods after they have been loaded on board the ship at the named port. He is to arrange carriage to final destination and import clearance.
CFR Cost and Freight (…..named port of destination)
The seller’s risk and responsibility for the condition of the cargo end when the goods are placed on board the vessel. The seller must bear all transportation costs to the named port on the buyer’s side and arranged export clearance
The buyer is responsible for the import clearance of the goods and on-carriage to final destination.
CIF Cost, Insurance and Freight (….named port of destination)
The seller’s risk and responsibility for the condition of the cargo end when the goods are placed on board the vessel. The seller must bear all transportation costs to the named port on the buyer’s side, completes export clearance and insurance.
The buyer is responsible for the import clearance of the goods and on-carriage.
