INCOTERMS
INCOTERMS are a set of uniform rules that define the trade terms in international arena. These define the rights and obligations of parties involved in an international transaction.
The INCOTERMS are drafted and published by ICC (International Chamber of Commerce)
INCOTERMS do not cover ownership or the transfer of title of goods. It is crucial to agree on the INCOTERMS at the start of the negotiation between the buyer and seller, as it affects the costs and responsibilities involved in shipping, insurance and tariffs.
Following, are the standard INCOTERMS 2010 :
EXW (Ex-Works) (…Named Place)
The seller fulfills his obligation to deliver by making the goods available for transportation at his premises (Factory, Warehouse, Works etc). Generally, the seller is not responsible for loading the goods in the carrier provided by the buyer or for clearing the goods for export purposes, unless otherwise agreed. Thus, the buyer bears all the risks and costs from taking the goods from the seller’s premises to the desired final destination.
FCA (Free Carrier) (…Named Place)
The seller fulfills his obligation to deliver when he hands over the cleared goods into the charge of the carrier at the nominated place by the buyer. If no precise place has been mentioned, the buyer hands over the goods at the place where the carrier accepts the goods and takes the charge of the same.
FAS (Free Alongside) (…Named Port of shipment)
The seller fulfills his obligation to deliver when the goods have been placed alongside the vessel on the quay at the named port of the shipment. The buyer has to bear all costs and risks involved from that moment onwards.
FOB (Free On Board) (…Named Port of shipment)
The seller fulfills his obligation to deliver when the goods have been placed over the Ship’s rail at the named port of the shipment. The buyer has to bear all costs and risks involved from that point onwards. The seller is required to clear the goods for export.
CFR (Cost & Freight) (…Named Port of Destination)
The seller pays for the costs and freight to transport the goods to the named port of destination. All costs and risks involved after the delivery of goods on the vessel, is transferred from the seller to the buyer when the goods pass the Ship’s rail in the port of the shipment. The seller is required to clear the goods for export.
CIF (Cost Insurance & Freight) (…Named Port of Destination)
In addition to the obligations under CFR, the seller has to procure the marine insurance against the buyer’s risk of loss or damage to the goods under carriage. Thus, the seller contracts for insurance and pays the insurance premium.
CPT (Carriage Paid To) (…Named Place of Destination)
The seller pays for the costs and freight to transport the goods to the named port of destination. All costs and risks involved after the delivery of goods to the carrier, is transferred from the seller to the buyer when the goods have been delivered into the custody of the carrier. If subsequent carriers are involved, the risk passes when the goods have been delivered to the first carrier. The seller is required to clear the goods for export.
CIP (Carriage and Insurance Paid To) (…Named Place of Destination)
In addition to the obligations under CPT, the seller has to procure the marine insurance against the buyer’s risk of loss or damage to the goods under carriage. Thus, the seller contracts for insurance and pays the insurance premium but is required to obtain insurance under minimum coverage.
DAT (Delivered at Terminal) (…Named place of Destination)
The seller pays all costs and freight until the goods are unloaded at the named terminal in the country of importation and placed them at the disposal of the buyer. The seller has the responsibility to clear the goods for export, but does not have the obligation to deal with import duties or other formalities.
DAP (Delivered at Place) (…Named place of Destination)
The seller fulfills his obligation to deliver when the goods have been made available to the buyer at the named place in the country of importation; the unloading of goods from the carrier is the responsibility of the buyer. The seller has the responsibility to clear the goods for export, but is not responsible for import clearance.
DDP (Delivered Duty Paid) (…Named place of Destination)
The seller fulfills his obligation to deliver when the goods have been made available to the buyer at the named place in the country of importation. The seller has to bear all costs and risks involved in delivering the goods thereto including duties and taxes and other official charges payable upon importation. Whilst the EXW term represents the minimum obligation for the seller, DDP represents the maximum obligation.
INCOTERMS are designed to arrange for the transfer of risk from seller to buyer at an unambiguous convenient place where goods can be inspected.
The Final choice of INCOTERM used in the contract is for negotiation between buyer and seller.
