Have you ever wondered about the meaning of commodity trading terms, or Incoterms? FOB…DES…DDP. Say What?!? Incoterms were established by the International Chamber of Commerce (ICC), a non-governmental organization, to standardize the interpretation of major trade terms. Sales contracts using Incoterms define the obligations and risks of both the seller and the buyer. The obligations cover the period while the merchandise is in transit, whether by land, sea, air or a combination of modes.

1. Freight Trading Lingo Demystified
By Simon Jacques
May 31, 2015
Simplifying how oil traders make deals on various freight transactions terms.
Have you ever wondered about the meaning of commodity trading terms, or
Incoterms? FOB…DES…DDP. Say What?!?
Incoterms were established by the International Chamber of Commerce (ICC),
a non-governmental organization, to standardize the interpretation of major
trade terms.
Sales contracts using Incoterms define the obligations and risks of both the
seller and the buyer. The obligations cover the period while the merchandise is
in transit, whether by land, sea, air or a combination of modes.
Incoterms are divided into four categories:
1. “E” terms
seller makes the goods available to the buyer at
the seller’s premises

2. 2. “F” terms
seller is called upon to deliver the goods to a
carrier appointed by the buyer
3. “C” terms
seller has to contract for carriage, but without
assuming the risk of loss or of damage to the
goods or additional costs due to events occurring
after shipment and dispatch
4. “D” terms
seller has to bear all costs and risks needed to
bring the goods to the country of destination
The listing below summarizes the various Incoterms used today and the
responsibilities of the selling and purchasing party.
CFR: Cost and Freight
Means that the seller must pay the costs and freight necessary to bring the
goods to the named port of destination. The risk of loss or damage to the
goods, as well as any additional costs due to events occurring after the time
the goods have been delivered on board the vessel, is transferred from the
seller to the buyer when the goods pass the ship’s rail in the port of shipment.

3.  Requires the seller to clear the goods for export
 Can only be used for sea or inland waterway transport
CIF: Cost, Insurance and Freight
Means that the seller has the same obligations as under CFR but with the
addition that he has to procure marine insurance against the buyer’s risk of
loss or of damage to the goods during the carriage. The seller contracts for
insurance and pays the insurance premium.
 Requires the buyer to clear the goods for export
 Can only be used for sea and inland waterway transport
CIP: Carriage and Insurance Paid
Means that the seller has the same obligation as under CPT, but with the
addition that the seller has to procure cargo insurance against the buyer’s risk
of loss of or damage to the goods during the carriage.
 Seller contracts for insurance and pays the insurance premium
 Requires the seller to clear the goods for export
 Can be used for any mode of transport including multimodal transport
CPT: Carriage Paid To
Means that the seller pays the freight for the carriage of the goods to the
named destination. The risk of loss of or damage to the goods, as well as any
additional costs due to events occurring after the time the goods have been
delivered to the carrier, is transferred from the seller to the buyer when the
goods have been delivered into the carrier’s custody.

4. If subsequent carriers are used for carriage to the agreed destination, the risk
passes when the goods have been delivered to the first carrier.
 Requires the seller to clear the goods for export
 Can be used for any mode of transport, including multimodal transport
DAF: Delivered At Frontier
Means that the seller fulfills his obligation when the goods have been made
available, cleared for export, 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 very important that the frontier in question be
precisely defined by always naming the point and place in the term.
 Used primarily when goods are to be carried by rail or road, but may
theoretically be use for any mode of transport
DAP: Delivered at Place
Seller is responsible for arranging carriage and for delivering the goods, ready
for unloading from the arriving conveyance, at the named place.
Risk transfers from seller to buyer when the goods are available for unloading;
so unloading is at the buyer’s risk. The buyer is responsible for import
clearance and any applicable local taxes or import duties.

5. This rule can often be used to replace the Incoterms 2000 rules:
 Delivered At Frontier (DAF)
 Delivered Ex Ship (DES)
 Delivered Duty Unpaid (DDU)
DAP can be differentiated from Delivered At Terminal (DAT), whereby the
seller is responsible for unloading.
DDP: Delivered Duty Paid
Means that the seller fulfills his obligation to deliver when the goods have been
made available at the named place, in the country of importation. The seller
has to bear the risks and costs, including duties, taxes and other charges of
delivering the goods thereto, cleared for importation.
 Whereas EXW term represents the minimum obligation for the seller,
DDP represents the maximum
 Cab be used for any mode of transport
DDU: Delivered Duty Unpaid
Means that the seller fulfills his obligation to deliver when he has made the
goods available at the named place in the country of importation.
The seller bears the risks and costs involved in bringing the goods thereto
(excluding duties, taxes, and other official charges payable upon importation),
as well as the costs and risks of carrying out customs formalities. The buyer

6. has to pay any additional costs and to bear any risks caused by his failure to
clear the goods for import in time.
 Can be used for any mode of transport
DES: Delivered Ex Ship
Means that the seller fulfills his obligation to deliver when the goods have been
made available to the buyer on board the ships uncleared 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.
 Can only be used for sea or inland waterway transport.
 Requires the seller to clear the goods for export.
DEQ: Delivered Ex Quay (Duty Paid)
Means that the seller fulfills his obligation to deliver when he has made the
goods available to the buyer on the Quay (i.e. wharf) or at the named port of
destination, cleared for importation.
 Seller bears all risks and costs including duties, taxes and other charges
of delivering the goods
 Can only be used for sea or inland waterway transport
EXW: Ex works
Means that the seller fulfills his obligations to deliver when he had made the
goods available at the premises (i.e. factory, warehouse, etc.) to the buyer. In

7. particular, he is not responsible for loading the goods onto the vehicle
provided by the buyer or for clearing the goods for export, unless otherwise
agreed.
The buyer bears all costs and risks involved in taking the goods from the
seller’s premises to the desired destination.
 Represents the minimum obligations for the seller
 Can be used for any mode of transport, including multimodal transport
FAS: Free Alongside Ship
Means that the seller fulfills his obligation to deliver when the goods have been
placed alongside the vessel on the wharf or in lighters at the named port of
shipment. This means that the buyer has to bear all costs and risks of loss or
damage to the goods from that moment.
 Requires the buyer to clear the goods for export
 Can only be used for sea and inland waterway transport
FCA: Free Carrier
Means that the seller fulfills his obligation to deliver when he has handed the
goods, cleared by export, into the charge of the carrier named by the buyer at
a named place or point. If no precise point is indicated by the buyer, the seller
may choose within the place or range stipulated where the carriers shall take
the goods into his charge.
 Can be used for any mode of transport, including multimodal transport

8. FOB: Free on Board
Means that the seller fulfills his obligation to deliver when the goods have
passed over the ship’s rail at the named port of shipment. This means that the
buyer has to bear all costs and risks of loss or damage to the goods from that
point onwards.
 Requires the seller to clear the goods for export
 Can only be used for sea and inland waterway transport
Confusingly, a FOB transaction can mean pretty much anything. Depending on
which version of Incoterms referenced, pre-2010 and post-2010 FOB
definitions can signify different location of risk and payment transfers.
Illustrated below is a comparison of North American FOB usage vs Incoterms.
Now that we have armed you with some useful knowledge, you can be less
stupefied the next time a trader blurts out a string of Incoterms.
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