INCOTERM OF TRADE
A set of international rules for the interpretation of the most commonly used trade terms.
Applying Incoterms to sale and purchase contracts makes global trade easier and helps
partners in different countries understand one another. Incoterms are recognized globally
by courts and other authorities. Frequently, parties to a contract are unaware of the
different trading practices in their respective countries. This lack of knowledge can lead to
misunderstandings and disputes between customer and supplier. The incorporation of
Incoterms in international sales contracts reduces this risk.
1. FOB (Free On Board) named port of shipment:
The Seller delivers the goods on board the ship and clears the goods for export. From that
point, the Buyer bears all costs and risks of loss or damage. One of the most commonly
used-and misused-terms, FOB means that the shipper/seller uses his freight forwarder to
move the merchandise to the port or designated point of origin. Though frequently used to
describe inland movement of cargo, FOB specifically refers to ocean or inland waterway
transportation of goods. "Delivery" is accomplished when the shipper/seller releases the
goods to the buyer's forwarder. The buyer's responsibility for insurance and transportation
begins at the same moment
2. CFR (Cost and Freight) named port of destination:
The Seller clears the goods for export and pays the costs of moving the goods to destination.
The Buyer bears all risks of loss or damage. This term formerly known as CNF (C&F) defines
two distinct and separate responsibilities-one is dealing with the actual cost of merchandise
"C" and the other "F" refers to the freight charges to a predetermined destination point. It is
the shipper/exporter/seller's responsibility to get goods from their door to the port of
destination. The seller, or exporter, is responsible for clearing the goods for export,
delivering the goods past the ships rail at the port of shipment, and paying international
freight charges. The buyer assumes risk of loss once the goods cross the ship's rail, and must
purchase insurance the port of origin or port of shipment to buyer's door, unload the goods,
clear customs, and pay for transport to deliver the goods to their final destination.
3. CIF (Cost, Insurance and Freight) named port of destination:
The seller, or exporter, is responsible for delivering the goods onto the vessel of transport
and clearing customs in the country of export. The exporter also is responsible for
purchasing insurance, with the buyer (importer) named as the beneficiary. Risk of loss
transfers to buyer as the goods cross the ship's rail. If these goods are damaged or stolen
during international transport, the buyer owns the goods and must file a claim based on
insurance procured by the seller. The buyer must clear customs in the country of import and
pay for all other transport and insurance in the country of import. CIF can be used as an
Incoterm only when the international transport of goods is at least partially by water. If FOB
is the customs valuation basis, the international insurance and freight costs must be
deducted from the CIF price. A CIF transaction will read CIF, port of destination.
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4. C&F (COST AND FREIGHT):
Term of sale signifying that the price invoiced or quoted by a seller for a shipment does not
include insurance charges, but includes all expenses up to a named port of destination.
In comparison, carriage paid to (CPT) terms include all transport charges (but not insurance)
up to a named place (usually the buyer's warehouse) of destination."Cost and Freight"
means that the stated value of a shipment of goods includes all costs and freight involved in
shipping the goods to their destination.C & F Price Includes the Vehicle Price + Shipping
freight to the port of your country.
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