Incoterms 2010

ICC Publication No.715

Lawrence Tan
Head of Trade Advisory, Asia Pacific

An Introduction to Incoterms

INCOTERMS
Stand
for?

What
is it?

International Commercial Terms

A set of international rules for interpretation of the most

commonly used trade terms in foreign trade.
Denoted by three letters that compiled and published by
International Chamber of Commerce (ICC)

To determine at which point will the risks of loss or damage

to the goods be passed on from seller to buyer

Why?

To explain how the costs of the goods be divided between

the buyer and seller in connection with delivery of the goods
RBS00000

INCOTERMS Group

E
C

EXW

Ex-works

CFR

Cost and Freight

CIF

Cost Insurance and Freight

CPT
CIP

Carriage Paid To
Carriage and Insurance Paid To

F
D

FCA

Free Carrier

FAS

Free Along Side

FOB

Free On Board

DAT

Delivered at Terminal

DAP

Delivered at Place

DDP

Delivered Duty Paid

INCOTERMS specify:
Point in the journey at which responsibilities passes from the seller to the buyer
The various costs that are associated with every import or export transactions
RBS00000

Why are Incoterms necessary?

Sellers factory

-Distance
2. Pre-carriage

-Local practices
1. Export duty / taxes

8. Insurance for the

transport of goods
3. Loading

-Clarification of
duties and
responsibilities

4. Main carriage
5. Unloading

7. On-carriage

6. Import duty / taxes

Buyers premises

Incoterms DO NOT

Define a complete contract

Bind other parties beyond seller and buyer

Define transfer of title or ownership

Define payment

Address breach of contract

Fully detail loading and unloading obligations

Apply by default. The use of Incoterms must be

specified in the contract.

Points to Ponder
Is the use of Incoterms mandatory for all trade transactions?
No. They are used only if agreed upon in the sales contract.
Do Incoterms address ownership of goods?
No. Incoterms do not address ownership of the goods. It only addresses the
risks and responsibilities of parties in relation to the delivery of goods.
Can Incoterms be used for domestic trade?
Yes. Incoterms may be applied to both international and domestic trade.
Where should Incoterms be incorporated in order to be effective?
Sales contract.
Can Incoterms be used for any kind of sales contract?
Yes. They can be used for sale for all sorts of goods except for invisible trade
like software, services etc.

Incoterms 2000 v Incoterms 2010

Summary of Main Changes

Number of terms reduced from 13 to 11
The categories E, F, C and D have been changed to:
Rules for any Mode of Transport (7 terms) and
Rules for Sea and Inland Waterway Transport (4 terms)
The following new Incoterms have been introduced:
9 DAT
9 DAP
The following terms in Incoterms 2000 have been removed:
8 DAF
8 DES
8 DEQ
8 DDU
Reference to goods crossing the ships rail has been removed in FOB,
CFR and CIF. Instead, goods are delivered once on board the ship.
9

Terms used for any mode of transport

EXW - Ex works
FCA - Free carrier
CIP - Carriage and insurance paid to
CPT - Carriage paid to
DAT - Delivered at terminal
DAP - Delivered at place
DDP - Delivered duty paid

10

Terms used for Sea and Inland waterways ONLY

FOB Free on Board

FAS Free alongside ship
CFR - Cost and Freight to
CIF - Cost, Insurance and Freight to

11

A Short Explanation of the 11

terms in Incoterms 2010

ICC 2010 Rules for Any Mode or Modes

Rules for any mode(s)
EXW

Ex Works

FCA

Free Carrier

CPT

Carriage Paid To

CIP

Carriage & Insurance Paid To

DAT

Delivered At Terminal

DAP

Delivered At Place

DDP

Delivered Duty Paid

13

Ex Works - EXW (named place)

Point of risk transfer
Risk transfers when the goods are placed at the disposal of the buyer at the
sellers premises or another named place (E.g. Factory, warehouse etc.)

Sellers primary duties

Buyers primary duties

Documents

9Deliver the goods at the

agreed place (usually at their
factory/warehouse)

9Take delivery of the goods

at the agreed place

9Commercial Invoice

9Arrange for export and

import clearance

9Delivery receipt

9Pay all cost involved to

bring goods to the final
destination
9Arrange for insurance of
goods

14

EXW

Ex-works

Used
Usedfor
forany
anymode
modeofoftransport
transport
3. Loading

4. Freight

5. Unloading

1.Transport to
dock / carrier

7.Transport from
dock / carrier

2. Export license
& duties

Exporter

Exporter:
Exporter:Make
Makegoods
goods
available
availableatatpremises
premises

6. Import license
& duties

8. Insurance

Typical
Typicaldocuments:
documents:
Invoice,
Invoice,Deliverys
Deliverys
Receipt
Receipt

RBS00000

Importer:(1-8)
Importer:(1-8)All
All
arrangements
arrangementsfor
for
transport
/
insurance
transport / insurance

Importer

15

EXW - Questions
Who is responsible for loading goods on the vehicle for on-transport?
The Seller is not responsible, unless otherwise agreed by the buyer.
Who is responsible for obtaining Export Clearance?
Buyer.
If no specific point is agreed at the named place, where can the seller
deliver goods?
At any point that is available.
Who is responsible for the packing of goods?
Seller.
Contract requires shipment by air from New Delhi with the importer
bearing export duty and all cost associated with the transport of goods.
How must the incoterm be mentioned?
EXW Sellers Warehouse, New Delhi.
16

Free Carrier - FCA (named place of delivery)

Point of risk transfer
Risk transfers when the goods have been delivered to the carrier at the named
place (of receipt).
FCA is usually used with a named place (sellers premises, freight forwarder, port
of export) in the sellers country.

Sellers primary duties

Buyers primary duties

Documents Required

9Deliver the goods at the

named place into the custody
of the carrier named by the
buyer

9Arrange for carriage of the

goods to the final destination

9Commercial invoice

9Provide export clearance

9Arrange for insurance of

goods

9Usual document
evidencing delivery of the
goods to the carrier

9Arrange for import

clearance

9Export license, if
necessary
17

FCA

Free Carrier

Used
Usedfor
forany
anymode
modeofoftransport
transport
3. Loading

4. Freight

5. Unloading

1.Transport to
dock / carrier

7.Transport from
dock / carrier

2. Export license
& duties

Exporter

8. Insurance

Importer:(3-8)
Importer:(3-8)Nominate
Nominate
carrier,
carrier,arrange
arrangefreight
freight
and
insurance
and insurance

Importer

Typical
Typicaldocuments:
documents:Commercial
Commercial
invoice,
Usual
document
invoice, Usual document
evidencing
evidencingdelivery
deliveryofofthe
thegoods
goodstoto
the
thecarrier,
carrier,Export
Exportlicense
license(if(if
necessary)
necessary)
RBS00000

Exporter:
Exporter:(1-2)
(1-2)Cleared
Clearedfor
for
export,
export,delivered
deliveredtotocarrier
carrier
nominated
by
importer
nominated by importeratat
the
thenamed
namedplace
place

6. Import license
& duties

18

FCA - Questions
Who is responsible for obtaining Export Clearance?
Seller.
Who is responsible for loading goods onto the buyers vehicle?
FCA Sellers premises.
Seller.
FCA named port of export.
Buyer. Delivery is complete once goods are made available at the
named port on the sellers means of transport ready for unloading.

19

Carriage Paid To - CPT (named place of destination)

Point of risk transfer
Risk transfers when the goods have been delivered to the carrier at the place of
departure.

Sellers primary duties

Buyers primary duties

Documents Required

9Contract for the carriage

and pay the freight

9Arrange to collect goods

from the named destination

9Commercial invoice

9Provide export clearance

9Arrange to insure goods

9Transport document

9Pay loading costs

9Pay the inland transport

cost

9Export license, if
necessary

9Arrange for import

clearance

20

CPT

Used
Usedfor
forall
allmodes
modesofoftransport.
transport.Common
Commonfor
for
multi-modal
multi-modaltransport
transport

Carriage Paid To

3. Loading

4. Freight

5. Unloading

1.Transport to
dock / carrier

7.Transport from
dock / carrier

2. Export license
& duties

Exporter

8. Insurance

Importer:
Importer:(5-8)
(5-8)Arrange
Arrangefor
for
insurance
and
unloading,
insurance and unloading,
accept
acceptdelivery
deliveryatatnamed
named
placed
placedofofdestination
destination

Importer

Typical
Typicaldocuments:
documents:
Commercial
Commercialinvoice,
invoice,
Transport
document,
Transport document,Export
Export
license
(if
necessary)
license (if necessary)
RBS00000

Exporter:
Exporter:(1-4)
(1-4)Cleared
Clearedfor
for
export,
delivered
the
goods
export, delivered the goodstoto
the
thecarrier,
carrier,paid
paidfreight
freighttotothe
the
named
place
destination
named place destination

6. Import license
& duties

21

CPT - Questions
Goods are to be transported from Bangalore to Chennai via road and
then to Singapore via sea. Incoterms used is CPT Singapore. When does
the risk transfer from the Seller to Buyer?
When subsequent carriers are used for the carriage to the agreed destination,
the risk passes once the goods have been delivered to the first carrier.
When the CPT term is used, the seller fulfils its obligation once goods
reach the named place of destination. True of False?
False. The seller fulfils its obligation once goods have been handed over to
the carrier.

22

Carriage and Insurance Paid To

CIP (named place of destination)
Point of risk transfer
Risk transfers when the goods have been delivered to the carrier at the place of
departure.

Sellers primary duties

Buyers primary duties

Documents Required

9Contract for the carriage

and pay the freight

9Accept delivery of the

goods at the named
destination

9Commercial invoice.

9Provide export clearance

9Pay the inland transport

cost which is not under the
contract of carriage

9Transport document.

9Contract for cargo

insurance and pay premium

9Arrange for import

clearance

9Export license, if
necessary

9Pay loading costs

9Insurance document

23

CIP

Carriage and Insurance Paid To

3. Loading

Used
Usedfor
forall
allmodes
modesofoftransport.
transport.Common
Commonfor
for
multi-modal
multi-modaltransport
transport
4. Freight

5. Unloading

1.Transport to
dock / carrier

7.Transport from
dock / carrier

2. Export license
& duties

Exporter

8. Insurance

Importer:
Importer:(5-7)
(5-7)Arrange
Arrange
for
unloading,
accept
for unloading, accept
delivery
deliveryatatnamed
named
placed
placedofofdestination
destination

Importer

Typical
Typicaldocuments:
documents:
Commercial
Commercialinvoice,
invoice,
Transport
document,
Transport document,
Insurance
InsurancePolicy,
Policy,Export
Export
license
license(if(ifnecessary)
necessary)
24

RBS00000

Exporter:
Exporter:(1-4,
(1-4,8)
8)Cleared
Clearedfor
for
export,
delivered
the
goods
export, delivered the goodstoto
the
thecarrier,
carrier,paid
paidfreight
freighttotothe
the
named
namedplace
placeofofdestination
destinationand
and
insured
the
goods
insured the goods

6. Import license
& duties

CIP - Questions
What is the percentage of insurance coverage that must be obtained
by the seller?
Seller is required to only obtain MINIMUM insurance coverage (110% of
the contract value) unless otherwise agreed with the buyer.
Shipment to be effected from New York to Tokyo. Incoterms given in
the contract is CIP New York. Has the term been given correctly?
No. CIP must be followed by a named place of destination. Therefore the
right way to indicate this term will be CIP Tokyo, Japan.

25

Delivered at Terminal - DAT (named destination terminal)

Point of risk transfer
Risk transfers once the goods are unloaded from the arriving means of transport
and placed at the disposal of the buyer at a named terminal, port or place of
destination.

Sellers primary duties

Buyers primary duties

Documents Required

9Contract for the carriage

and pay the freight

9Arrange for Import

clearance

9Commercial invoice

9Provide export clearance

9Pay the inland transport

cost

9Document needed for

taking delivery

9Pay loading costs

9Arrange to unload goods
at the named terminal

Terminal includes quays, warehouses, container yard or road, rail or air terminal.
26

DAT

Delivered at Terminal (named destination terminal)

Used
Usedfor
forany
anymode
modeofoftransport
transport
3. Loading

4. Freight

5. Unloading

1.Transport to
dock / carrier

7.Transport from
dock / carrier

2. Export license
& duties

Exporter

Exporter:
Exporter:(1-5,8)
(1-5,8)Deliver
Delivergoods
goodson
on
the
theterminal
terminal(includes
(includesquays,
quays,
warehouses,
container
warehouses, containeryard
yardor
or
road,
rail
or
air
terminal)
at
road, rail or air terminal) at
destination
destinationport,
port,arrange
arrangecarriage
carriage&&
insurance
insurance

6. Import license
& duties

8. Insurance

Importer:
Importer:(6-7)
(6-7)Accept
Accept
delivery
deliveryon
onthe
theterminal
terminal

Importer

Typical
Typicaldocuments:
documents:
Commercial
Commercialinvoice,
invoice,
Document
needed
Document neededfor
for
taking
delivery
taking delivery
27

DAT - Questions
The buyer realises that goods are to be transported from Chennai to
London via Sea and London to Leeds via train. The Incoterm 2010 used is
DAT London freight station. Who is responsible for the following:
Carriage of goods from London to Leeds
Buyer
Unloading goods from the sea vessel at London
Seller
Loading goods on the train at London
Buyer
Unloading goods at Leeds
Buyer
Insurance of goods
The buyer and seller are not obliged to obtain insurance. However the seller will
be responsible for any loss / damage to the goods until goods are unloaded at
London. From then on, the buyer will be responsible.
28

Delivered at Place - DAP (named place of destination)

Point of risk transfer
Risk transfers once goods are placed at the disposal of the buyer on the arriving
means of transport ready for unloading at the named place of destination.

Sellers primary duties

Buyers primary duties

Documents Required

9Contract for the carriage

and pay the freight

9Arrange to unload goods

from the arriving means of
transport

9Commercial invoice

9Provide export clearance

9Arrange for Import

clearance

9Document needed for

taking delivery

9Pay the inland transport

cost

29

DAP

Delivered at Place (named place of destination)

Used
Usedfor
forany
anymode
modeofoftransport
transport
3. Loading

4. Freight

5. Unloading

1.Transport to
dock / carrier

7.Transport from
dock / carrier

2. Export license
& duties

Exporter

Exporter:
Exporter:(1-5,7-8)
(1-5,7-8)Deliver
Delivergoods
goods
atatnamed
namedplace
placeofofdestination,
destination,
not
cleared
for
import
not cleared for import

6. Import license
& duties

8. Insurance

Importer:
Importer:(6)
(6)Accept
Accept
delivery
deliveryatatdestination,
destination,
pay
import
duty
pay import duty

Importer

Typical
Typicaldocuments:
documents:
Commercial
Commercialinvoice,
invoice,
Document
needed
Document neededfor
for
taking
delivery
taking delivery
30

DAP - Questions
Can DAP be used for shipment via rail?
Yes
Who is responsible for payment of import custom duties?
Buyer
Contract states DAP Jakarta, Indonesia and calls for 1) Invoice, 2) Bill of
Lading, 3) Insurance policy. Is the contract framed correctly?
No. Buyer must not request for an insurance policy (unless otherwise agreed
and mentioned in the sales contract) as the seller is not obligated to insure
goods. (It must remembered that it is in the sellers best interest to arrange for
insurance till the point of destination.)
In a DAP contact, how should freight charges be mentioned in the
transport document?
Transport document must indicate that freight has been PREPAID.

31

Delivered Duty Paid - DDP (named place of destination)

Point of risk transfer
Risk transfer from the seller to the buyer when the goods are placed at the disposal
of the buyer with duty paid by seller.

Sellers primary duties

9Deliver goods at named
place of destination

Buyers primary duties

9Take delivery of the goods
from the named place of
destination

Documents Required
9Commercial invoice

9Arrange export and import

clearance

9Document needed for

taking delivery

9Provide documents for

buyer to take delivery

9Import license, if
necessary

32

DDP

Delivered Duty Paid (named place of destination)

Used
Usedfor
forany
anymode
modeofoftransport
transport
3. Loading

4. Freight

5. Unloading

1.Transport to
dock / carrier

7.Transport from
dock / carrier

2. Export license
& duties

Exporter

8. Insurance

Importer:
Importer:Accept
Acceptdelivery
delivery
atatthe
thename
nameplaced
placedofof
destination
destination

Importer

Typical
Typicaldocuments:
documents:
Commercial
Commercialinvoice,
invoice,
Document
needed
Document neededfor
for
taking
takingdelivery,
delivery,Import
Import
license
license(if(ifnecessary)
necessary)
33

RBS00000

Exporter:
Exporter:(1-8)
(1-8)Deliver
Delivergoods
goodsatat
named
namedplace
placeofofdestination,
destination,
cleared
for
import
cleared for importincluding
including
payment
of
import
duties
payment of import duties

6. Import license
& duties

DDP - Questions
Who is responsible for unloading of goods at the named place of
destination?
Buyer

34

ICC 2010 Rules for Sea & Inland Waterway

Marine Rules
FAS Free Alongside Ship
FOB Free On Board
CFR Cost and Freight
CIF

Cost Insurance & Freight

35

Free Alongside Ship - FAS (named port of loading)

Point of risk transfer
Risk transfers when the goods have been placed alongside the ship (e.g. On a
quay or a barge) at the named port of loading.

Sellers primary duties

Buyers primary duties

Documents Required

9Deliver the goods

alongside the ship
nominated by the buyer

9Arrange for the Contracts

of carriage and insurance

9Commercial invoice

9Provide export clearance

9Arrange for import

clearance

9Usual document
evidencing delivery of the
good to the carrier

9Pay unloading costs

9Export license, if
necessary

36

FAS

Free Alongside Ship

Used
Usedfor
forsea
sea&&inland
inlandwaterway
waterwaytransport
transport
3. Loading

4. Freight

5. Unloading

1.Transport to
dock / carrier

7.Transport from
dock / carrier

2. Export license
& duties

Exporter

8. Insurance

Importer:(3-8)
Importer:(3-8)Nominate
Nominate
carrier,
carrier,arrange
arrangefreight
freight
and
insurance
and insurance

Importer

Typical
Typicaldocuments:
documents:
Commercial
Commercialinvoice,
invoice,Usual
Usual
document
evidencing
document evidencing
delivery
deliveryofofthe
thegood
goodtotothe
the
carrier,
Export
license
(if
carrier, Export license (if
necessary)
necessary)
37

RBS00000

Exporter:
Exporter:(1-2)
(1-2)Cleared
Clearedfor
for
export,
placed
the
goods
export, placed the goods
alongside
alongsidethe
thevessel
vesselatatthe
the
named
namedport
portofofshipment
shipment(on
(onaa
quay
quayor
oraabarge)
barge)

6. Import license
& duties

FAS - Questions
What documents can the Buyer call for under an FAS contract?
Invoice and proof that goods have been delivered along side the ship.
The seller is responsible for loading goods on board the ship in an FAS
contract. True of False?
False.

38

Free on Board - FOB (named port of loading)

Point of risk transfer
Risk transfers when the goods are placed on board the vessel at the named port of loading

Sellers primary duties

Buyers primary duties

Documents Required

9Deliver the goods on

board the vessel

9Arrange for contracts of

carriage and insurance

9Commercial invoice

9Provide export clearance

9Arrange for import

clearance

9Customary clean receipt

9Provide clean on board

receipt (bill of lading)

9Pay unloading costs

9Export license, if
necessary

9Pay loading cost

39

FOB

Free On Board (named port of loading)

Used
Usedfor
forsea
sea&&inland
inlandwaterway
waterwaytransport
transport
3. Loading

4. Freight

5. Unloading

1.Transport to
dock / carrier

7.Transport from
dock / carrier

2. Export license
& duties

Exporter

8. Insurance

Importer:
Importer:(4-8)
(4-8)Nominate
Nominate
carrier,
carrier,arrange
arrangefreight
freight
and
insurance
and insurance

Importer

Typical
Typicaldocuments:
documents:
Commercial
Commercialinvoice,
invoice,
Customary
clean
Customary cleanreceipt,
receipt,
Export
license
(if
necessary)
Export license (if necessary)
40

RBS00000

Exporter:
Exporter:(1-3)
(1-3)Cleared
Clearedfor
for
export,
export,goods
goodsare
areloaded
loaded
on
the
vessel
at
the
on the vessel at thenamed
named
port
of
shipment
port of shipment

6. Import license
& duties

FOB - Questions
Goods shipped via a container have been lifted by the crane and moved
past the ships rail when the goods are accidentally dropped. Who bears
the risk of damage?
Seller. Buyer will be responsible only once the goods have been placed on board
the ship.

41

Cost and Freight CFR (named port of discharge)

Point of risk transfer
Risk transfers when the goods are placed on board the vessel at the named port of loading.

Sellers primary duties

Buyers primary duties

Documents Required

9Contract for the carriage

and pay freight

9Accept delivery of the

goods upon arrival of the
vessel at destination port

9Commercial invoice

9Deliver goods on board

the vessel

9Pay unloading costs

9Transport document

9Provide export clearance

9Contract of insurance

9Export license, if
necessary

9Pay loading costs

9Arrange for import

clearance

42

CFR

Cost and Freight (named port of discharge)

Used
Usedfor
forsea
sea&&inland
inlandwaterway
waterwaytransport
transport
3. Loading

4. Freight

5. Unloading

1.Transport to
dock / carrier

7.Transport from
dock / carrier

2. Export license
& duties

Exporter

8. Insurance

Importer:
Importer:(5-8)
(5-8)Arrange
Arrange
insurance
and
insurance and
unloading,
unloading,accept
accept
delivery
deliveryatatport
portofof
destination
destination

Importer

Typical
Typicaldocuments:
documents:
Commercial
Commercialinvoice,
invoice,
Transport
document.
Transport document.Export
Export
license
license(if(ifnecessary)
necessary)
43

RBS00000

Exporter:
Exporter:(1-4)
(1-4)Cleared
Clearedfor
for
export,
delivered
the
goods
export, delivered the goods
on
onboard
boardthe
thevessel
vesseland
and
paid
paidfreight
freighttotothe
thenamed
named
port
portofofdestination
destination

6. Import license
& duties

CFR - Questions
Contact details as follows:
9 Port of Loading: India
9 Port of Discharge: Japan
9 Documents required: Invoice, Inspection Cert and Air Waybill
indicating Freight Collect
9 Incoterms: CFR India.
Identify what is wrong with the contract details.
9 CFR must be followed with a port of discharge.
9 CFR must be used for Sea shipment only. Hence the contract must not call for
an Air Waybill.
9 Transport document must indicate Freight Prepaid in a CFR contract.

44

Cost Insurance and Freight CIF (named port of

discharge)
Point of risk transfer
Risk transfers when the goods are placed on board the vessel at the named port of
loading.

Sellers primary duties

Buyers primary duties

Documents Required

9Contract for the carriage

and pay the freight

9Accept delivery of the

goods upon arrival of the
vessel at destination port

9Commercial invoice

9Deliver the goods on board

the vessel

9Pay unloading costs

9Transport document

9Provide export clearance

9Arrange for import

clearance

9Export license, if
necessary

9Contract for cargo

insurance and pay the
premium

9Insurance document

9Pay loading costs

45

CIF

Cost, Insurance and Freight (named port of discharge)

Used
Usedfor
forsea
sea&&inland
inlandwaterway
waterwaytransport
transport
3. Loading

4. Freight

5. Unloading

1.Transport to
dock / carrier

7.Transport from
dock / carrier

2. Export license
& duties

Exporter

8. Insurance

Importer:
Importer:(5-7)
(5-7)Arrange
Arrange
unloading,
unloading,accept
accept
delivery
at
port
delivery at portofof
destination
destination

Importer

Typical
Typicaldocuments:
documents:
Commercial
Commercialinvoice,
invoice,
Transport
document,
Transport document,
Insurance
Insurancepolicy,
policy,Export
Export
license
(if
necessary)
license (if necessary)
46

RBS00000

Exporter:
Exporter:(1-4,
(1-4,8)
8)Cleared
Clearedfor
for
export,
export,delivered
deliveredthe
thegoods
goodson
on
board
boardthe
thevessel,
vessel,paid
paidfreight
freighttoto
the
thenamed
namedport
portofofdestination
destination
and
insured
the
goods
and insured the goods

6. Import license
& duties

CIF - Questions
Terms: CIF Calcutta with final destination being Delhi.
9 Who bears the risk of loss to damage of goods when transported from
Calcutta to Delhi?
Buyer

9 Who is responsible for insurance of goods?

Seller must insure goods up to the point agreed with the buyer.

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FAS, FOB, CFR & CIF - NOT FOR CONTAINERS

The above marine terms are intended for cargo that the seller can deliver
alongside or onto the vessel. Historically this was how all cargo was
delivered.

Today containerized cargo is tendered to a carriers container or rail yard

well before arriving at the vessel.

In these instances the FCA, CPT or CIP terms are more appropriate.

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Sales Contract and Incoterms

Sales Contract
Introduction

In any trade transaction, there are 2 different

parties entering into a contract.

In order for the contract to be enforceable, one

party must offer (Offeror) and the other party
must accept (Acceptor).

What is an Offer?
Various Forms

Acknowledgement of order

Proforma Invoice

Purchase Order

Indents

Sales Contract

The Buyer receives the quotation and if he

decided to buy, then he places an order.
Such order is known as an OFFER.

What is an Acceptance?

When Seller accepts the offer, it becomes a

Contract of Sale which will be binding &
enforceable in law by both parties.
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Sales Contract
Terms

Type of credit sight or usance L/C

Tenor - if usance : state the period

Shipment / Delivery date - it is advisable to insert a clause stating that the

shipment/delivery date is given in good faith and that it may have to be amended due
to circumstances beyond the control of the Seller.

Expiry date

Latest L/c issuing date

Advising bank (if possible)

Documents requirement (if any )

Charges are for whose A/C - especially for usance L/C, who should pay the discount
charges and acceptance commission.

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Sales Contract
Indicate clearly that the Contract is subject to INCOTERM
When drawing up Sales Contract, Seller & Buyer should specifically refer to one of the ICC
Incoterms.
The Objectives are 2 Folds namely :
(i) To define the respective responsibilities
of Buyer & Seller. (Refer to Incoterms)
(ii) To eliminate any possibility of misunderstanding & subsequent dispute .
There are many different trade terms e.g. Revised American Foreign Trade Definitions
(USA) & The Combiterms (Sweden)

Incoterms only relate to trade used in Sales Contract and they do not deal with
terms which may be used in contract of carriage, particularly as terms of various
charter-parties will differ.

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Summary of Marine Trade Terms

Transportation to
port of shipment
Cost of
Goods

Export
Clearance

Loading

Unloading

At port of
shipment

At port of
destination

PRE-CARRIAGE

Freight
Charges

MAIN CARRIAGE

Import Duties &

Transportation to
Buyer (or named
point)

ON CARRIAGE
Sellers Risk
Sellers Cost

FAS
FOB
CFR
CIF
+ Insurance

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Summary of Other Trade Terms

Transportation to
port of shipment
Cost of
Goods

Export
Clearance

Loading

Unloading

At named
place

At place of
destination

PRE-CARRIAGE

Freight
Charges

MAIN CARRIAGE

Import Duties &

Transportation to
Buyer

ON CARRIAGE
Sellers Risk
Sellers Cost

FCA
CPT
CIP
+ Insurance

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Summary

55

Q&A

56

Disclaimer
This document was prepared by The Royal Bank of Scotland N.V. (renamed from ABN AMRO Bank N.V.) (RBS) exclusively for your
use and is solely for discussion purposes. This document should not be construed as an offer, invitation to offer, or solicitation, or any advice or
recommendation to buy, subscribe for, issue or sell any product, financial instrument or derivative thereof which may be referred to in this
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