Incoterms

The Basics of Incoterms

Why are Incoterms Important ?

Sets international rules for commonly used terms in foreign trade
Identifies obligations of both parties and determines the distribution and transfer of risks
Implements contract of sale
Incoterms can be very useful, but their use has limitations. If you use them incorrectly, your contract may be ambiguous, if not impossible to perform. Therefore it is important to understand the scope and purpose of Incoterms before you rely on them to define such important issues as mode of delivery, customs clearance and transfer of risk.
Purpose of Incoterms

Payment Terms PAYMENT TERMS TIME OF PAYMENT GOODS/DOCUMENT OF TITLE AVAILBLE TO BUYER RISK TO EXPORTER RISK TO IMPORTER CASH IN ADVANCE Before shipment After payment None. Payment received prior to shipment. High. Pays in advance of shipment. Relies on exporter to ship as agreed. DOCUMENTARY LETTER OF CREDIT -Sight Draft Following shipment and presentation of documents. After payment Low. However, documents presented must comply with L/C terms. Low. Documents presented evidence of shipment; however, goods shipped may not be as described in documents. DOCUMENTARY LETTER OF CREDIT - Time Draft On maturity date of draft. Draft may be discounted for early payment. After “acceptance” of time draft by bank. Low. However, documents presented must comply with L/C terms. Low. Documents presented evidence shipment; however, goods shipped may not be as described in documents. COLLECTION Documents Against Payment – Sight Draft On presentation of draft to buyer, provided buyer agrees to pay. After payment. High. No guarantee that buyer will pay for goods. If unpaid, exporter must dispose of goods. Low. However, banks do not review documents and goods shipped may not be as described in documents. COLLECTION Documents Against Payment – Time Draft On collection at maturity of time draft. Before payment, after “acceptance” of time draft by buyer. High. No guarantee that buyer will pay upon maturity of draft and buyer has possession of goods. None; although buyer had accepted draft and agreed to pay upon maturity of draft. OPEN ACCOUNT As agreed. Possibly before payment; it depends on terms granted. Very high. Completely relies on buyer to pay as agreed. None.

Two Key Points of Incoterms
Focusing on the Seller’s obligation to deliver the goods, Incoterms establish…
At what point the risk of loss o r damage to the goods shifts from seller to buyer.
At what point responsibility for transportation/customs related costs shift from seller to buyer.

Incoterms 2000

How Incoterms Are Organized
Incoterms are grouped into four different categories:
“ E” Terms: Seller/exporter makes the goods available to the buyer at the seller’s own premises.
“ F” Terms: Seller/exporter is responsible to deliver the goods to a carrier named by the buyer.
“ C” Terms: Seller/exporter is responsible for contracting and paying for carriage of the goods, but not responsible for additional costs or risks of loss or damage to the goods once they have shipped.
“ D” Terms: Seller/exporter is responsible for all costs and risks associated with bringing the goods to the place of destination.

EXW – Ex Works (…named place) The The
SELLER
MULTIMODAL
RESPONSIBILITY IS TO PLACE THE GOODS AT THE DISPOSAL OF THE BUYER AT THE SELLER’S PREMISES.
GOODS MUST BE READILY IDENTIFIED AS THE BUYER’S
UPON PLACING THE GOODS AT THE BUYER’S DISPOSAL, RISK TRANSFERS.
EXW REPRESENTS THE MINIMUM OBLIGATION FOR THE SELLER.
BUYER
MUST HANDLE ANY EXPORT LICENSE REQUIREMENTS.
MUST ACCEPT DELIVERY, COST AND RISKS INVOLVED IN TAKING FROM THE SELLER’S PREMISES TO THE DESIRED LOCATION.
MUST PAY THE COST OF LOADING THE GOODS

FCA – Free Carrier (…named place)
SELLER
MULTIMODAL
DELIVERS THE GOODS INTO THE CUSTODY OF THE CARRIER, OR IF THERE ARE SUBSEQUENT CARRIERS, TO THE FIRST CARRIER AT THE POINT OF LOADING. RISK TRANSFERS TO BUYER.
OBTAINS AT OWN RISK AND EXPENSE ANY EXPORT LICENSE OR OTHER OFFICIAL AUTHORIZATIONS.
RETAINS NO OBLIGATION FOR CONTRACT OF CARRIAGE AFTER DELIVERY AT THE NAMED PLACE.
PAYS ALL COSTS RELATING TO THE GOODS UNTIL SUCH TIME AS THEY HAVE BEEN DELIVERED TO THE FIRST CARRIER.
PROVIDES THE BUYER, UPON REQUEST, WITH THE NECESSARY INFORMATION FOR PROCURING INSURANCE
BUYER
ACCEPTS DELIVERY, COST AND RISKS INVOLVED IN TAKING THE GOODS FROM THE DELIVERY POINT TO THE DESIRED DESTINATION.

FAS – Free Alongside Ship (…named port of shipment)
SELLER
ALL WATER ONLY
DELIVERS THE GOODS ALONGSIDE THE VESSEL AT THE NAMED PORT OF SHIPMENT.
MUST CLEAR THE GOODS FOR EXPORT.
PAYS FOR ALL COSTS RELATING TO THE GOODS UNTIL SUCH TIME AS THEY HAVE BEEN DELIVERED ALONGSIDE THE VESSEL.
BUYER
BEARS ALL COSTS AND RISKS OF LOSS OR DAMAGE FROM ALONGSIDE THE VESSEL TO THE DESIRED DESTINATION.

FOB – Free On Board (…named port of shipment)
SELLER
ALL WATER ONLY
DELIVERS THE GOODS ON BOARD THE VESSEL (OVER THE RAIL) AT THE NAMED PORT OF SHIPMENT. RISK TRANSFERS TO BUYER.
OBTAINS AT OWN RISK AND EXPENSE ANY EXPORT LICENSE OR OTHER OFFICIAL AUTHORIZATIONS AND CARRIES OUT ALL CUSTOMS FORMALITIES NECESSARY FOR THE EXPORTATION OF THE GOODS.
PAYS ALL COSTS RELATING TO THE GOODS UNTIL SUCH TIME AS THEY HAVE BEEN DELIVERED ON BOARD THE VESSEL (OVER THE RAIL).
BUYER
ACCEPTS DELIVERY, COST AND RISKS INVOLVED IN TAKING THE GOODS FROM ON BOARD THE VESSEL (OVER THE RAIL) TO THE DESIRED DESTINATION.

CFR – Cost and Freight (…named port of destination)
SELLER
ALL WATER ONLY
PAYS ALL COSTS RELATING TO THE GOODS UNTIL SUCH TIME AS THEY HAVE BEEN DELIVERED TO THE CARRIER ON BOARD THE VESSEL (OVER THE RAIL), PLUS THE COST OF ANY OFFICIAL CHARGE FOR EXPORTATION, THE FREIGHT AND ANY CHARGES FOR UNLOADING AT THE PORT OF DISCHARGE.
BUYER
BEARS ALL RISKS OF LOSS OF OR DAMAGE TO THE GOODS FROM THE TIME THEY HAVE PASSED THE SHIP’S RAIL AT THE PORT OF SHIPMENT.
OBTAINS ANY IMPORT LICENSE, COST OF CUSTOMS, DUTIES, TAXES AND OTHER OFFICIAL CHARGES FOR IMPORTATION.

CIF – Cost, Insurance and Freight (…named port of destination)
SELLER
ALL WATER ONLY
PAYS ALL COSTS RELATING TO THE GOODS UNTIL SUCH TIME AS THEY HAVE BEEN DELIVERED TO THE CARRIER ON BOARD THE VESSEL (OVER THE RAIL), PLUS THE COST OF ANY CHARGES FOR EXPORTATION, THE FREIGHT AND ANY CHARGES FOR UNLOADING AT THE PORT OF DISCHARGE.
CONTRACTS FOR INSURANCE AND PAYS THE INSURANCE PREMIUM FOR THE CONTRACT OF CARRIAGE.

CIF – Cost, Insurance and Freight (…named port of destination )
BUYER
BEARS ALL RISKS OF LOSS OF OR DAMAGE TO THE GOODS FROM THE TIME THEY HAVE PASSED THE SHIP’S RAIL AT THE PORT OF SHIPMENT.

CPT – Carriage Paid To…. ( na med place of destination )
SELLER
MULTIMODAL
DELIVERS THE GOODS INTO THE CUSTODY OF THE CARRIER OR, IF THERE ARE SUBSEQUENT CARRIERS, TO THE FIRST CARRIER AT POINT OF LOADING. RISK TRANSFERS TO BUYER.
PAYS ALL COST RELATING TO THE GOODS UNTIL SUCH TIME AS THEY HAVE BEEN DELIVERED TO THE CARRIER, PLUS THE COST OF ANY CHARGES FOR EXPORTATION, THE FREIGHT AND ANY CHARGES FOR UNLOADING AT THE PORT OF DISCHARGE.
BUYER
BEARS ALL RISKS OF LOSS OF OR DAMAGE TO THE GOODS FROM THE TIME THEY HAVE BEEN DELIVERED TO THE CUSTODY OF THE CARRIER.

CIP – Carriage and Insurance Paid To (…named place of destination )
SELLER
MULTIMODAL
DELIVERS THE GOODS INTO THE CUSTODY OF THE CARRIER OR, IF THERE ARE SUBSEQUENT CARRIERS, TO THE FIRST CARRIER AT THE POINT OF LOADING. RISK TRANSFERS TO BUYER.
PAYS ALL COSTS RELATING TO THE GOODS INCLUDING DELIVERY TO THE CARRIER, PLUS THE COST OF ANY EXPORTATION CHARGES, THE FREIGHT AND ANY CHARGES FOR UNLOADING AT THE PORT OF DISCHARGE.
CONTRACTS FOR INSURANCE AND PAYS THE INSURANCE PREMIUM FOR THE CONTRACT OF CARRIAGE.

CIP – Carriage and Insurance Paid To (…named place of destination )
BUYER
BEARS ALL RISKS OF LOSS OF OR DAMAGE TO THE GOODS AFTER RISK PASSES AT THE FIRST CARRIER.

DAF – Delivered At Frontier (…named place)
SELLER
MULTIMODAL
DELIVERS WHEN THE GOODS ARE PLACED AT THE DISPOSAL OF THE BUYER OF THE ARRIVING MEANS OF TRANSPORT, NOT UNLOADED, CLEARED FOR EXPORT AT THE NAMED PORT OR PLACE OF FRONTIER. THE TERM “FRONTIER” MAY BE USED TO DESIGNATE ANY FRONTIER INCLUDING THAT OF THE COUNTRY OF EXPORT.
BUYER
BEARS ALL RISKS OF LOSS OF OR DAMAGE TO THE GOODS AFTER RISK PASSES AT THE NAMED PLACE OF FRONTIER.
OBTAINS ANY IMPORT LICENSE, PAY FOR COST OF CUSTOMS, DUTY AND TRANSPORTATION COSTS TO DESTINATION.

DES – Delivered Ex Ship (…named port of destination)
SELLER
ALL WATER ONLY
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.
BEARS ALL COSTS AND RISKS INVOLVED IN BRINGING THE GOODS TO THE DESTINATION PORT BEFORE DISCHARGING
BUYER
MUST PAY FOR ALL CHARGES AFTER SHIP’S ARRIVAL AT DESTINATION PORT, INCLUDING OFFLOADING, CUSTOM CLEARANCE, ANY IMPORT LICENSING, DUTIES, TAXES AND DELIVERY.

DEQ – Delivered Ex Quay (…named port of destination)
SELLER
ALL WATER ONLY
DELIVERS WHEN THE GOODS ARE PLACED AT THE DISPOSAL OF THE BUYER, NOT CLEARED FOR IMPORT AT THE QUAY (WHARF) AT NAMED PORT OF DESTINATION.
BEARS COSTS AND RISKS INVOLVED IN BRINGING THE GOODS TO THE NAMED PORT AND DISCHARGING THE GOODS ON THE QUAY.
BUYER
MUST PAY FOR IMPORT CLEARANCE, ALL FORMALITIES, DUTIES, TAXES AND ANY OTHER IMPORT CHARGES.

DDU – Delivered Duty Unpaid (…named place of destination)
SELLER
MULTIMODAL
DELIVERS GOODS TO THE BUYER, NOT CLEARED FOR IMPORT AND NOT UNLOADED TO NAMED PLACE OF DESTINATION.
SELLER BEARS ALL COSTS AND RISKS OTHER THAN ANY “DUTY” FOR IMPORT IN THE COUNTRY OF DESTINATION.
THE TERM, “DUTY” INCLUDES THE RESPONSIBILITY FOR AND THE RISKS OF THE CARRYING OUT OF CUSTOMS FORMALITIES, THE PAYMENT OF FORMALITIES, DUTIES, TAXES AND OTHER CHARGES.
BUYER
SUCH “DUTY” MUST BE BORNE BY THE BUYER AS WELL AS ANY COSTS AND RISKS CAUSED BY FAILURE TO CLEAR GOODS FOR IMPORT IN TIME.

DDP – Delivered Duty Paid (…named place of destination)
SELLER
MULTIMODAL
DELIVERS GOODS TO THE BUYER, CLEARED FOR IMPORT AND NOT UNLOADED AT NAMED DESTINATION.
SELLER HAS TO BEAR ALL COSTS AND RISKS INVOLVED INCLUDING ANY “DUTY” FOR IMPORT IN COUNTRY OF DESTINATION.
THE TERM, “DUTY” INCLUDES THE RESPONSIBILITY FOR AND THE RISKS OF THE CARRYING OUT OF CUSTOMS FORMALITIES, THE PAYMENT OF FORMALITIES, DUTIES, TAXES AND OTHER CHARGES.
DDP REPRESENTS THE MAXIMUM OBLIGATION FOR THE SELLER.

Incoterms 2000

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Incoterms

by Credit Management Association on Aug 03, 2010

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