INTERNATIONAL COMMERCIAL TERMS

EIDL Areej Aftab

INTRODUCTION
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Incoterms are the most commonly accepted terms of sale in international business Published and developed by the International Chamber of Commerce (ICC) Incoterms have been adopted by most countries Defines the responsibilities and risks for transactions. First established in 1936, updated periodically with the latest version being Incoterms 2000 They are used as part of the overall sales agreement.

INCO TERMS:Terms
E EXW FCA FAS FOB CFR CIF C CPT CIP DAF DES DEQ DDU DDP Ex Works Free Carrier Free Alongside Ship Free On Board Cost and Freight Cost, Insurance and Freight Carriage Paid To Carriage and Insurance Paid To Delivered At Frontier Delivered Ex Ship Delivered Ex Quay Delivered Duty Unpaid Delivered Duty Paid

Inco Terms 2010(Eight Edition)

RULES FOR ANY MODE OR MODES OF TRANSPORT y EXW Ex Works (Named Place) y FCA Free Carrier (Named Place) y CPT Carriage Paid To (Named Place) y CIP Carriage And Insurance Paid To (Named Place) y DAT Delivered At Terminal (Named Place) y DAP Delivered At Place (Named Place) y DDP Delivered Duty Paid (Named Place) RULES FOR SEA AND INLAND WATERWAY TRANSPORT y FAS Free Alongside Ship (Named Loading Port) y FOB Free On Board (Named Loading Port) y CFR Cost And Freight (Named Destination port) y CIF Cost, Insurance and Freight (Named Destination port)

Purpose
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Define the roles of the buyer and seller in the arrangement of international transportation and other responsibilities related to the international shipment of tangible goods. Provides a set of international rules for the interpretation of the most commonly used trade terms in foreign trade. Limited to matters relating to the obligations of the parties with respect to the delivery of the goods sold Incoterms deal only with the relation between the sellers and buyers under the contract of sale

Why Incoterms?
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Reduces or removes uncertainties arising from differing interpretations of shipping terms in different countries. Reference to a proper Incoterm in a contract clearly defines each partys obligations, costs and risks in the international transaction and reduces the risk of legal complications. They can assist in defining what costs the purchase price includes (e.g. prepaid international freight, prepaid duties, insurance, etc.), and clarify the risks & liabilities.
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Main Functions
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Eliminate barriers caused by distance, language, and local business practices Eliminate uncertainties and different interpretations of trade terms on a world-wide scale Provide universally accepted vocabulary Reduce risk of misunderstanding, disputes, and litigation Facilitate international commercial exchanges Define the importers and exporters costs, risk and obligations regarding delivery of the goods
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Common Terms
Pre-carriage: Initial transport of goods from the seller to the main carrier Usually by truck, rail, or inland waterway y Main carriage: Primary transport of goods Longest part of the journey & from one country to another Usually by sea or air, but may be by truck, or rail y On-carriage: Transportation from arrival point in the destination country to buyer, which can be by any mode y Carrier: Any party who arranges for the primary transportation by truck, plane, ship, rail, etc.
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E - Group: Used where the seller does not want to arrange transport.
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"Ex-Works" means the seller's only responsibility is to make the goods available at the seller's premises, i.e., the works or factory. The seller is not responsible for loading the goods on the vehicle provided by the buyer and if he does so will do so as agent of the buyer. The buyer bears the full costs and risk involved in bringing the goods from there to the desired destination. Ex - Works represents the minimum obligation of the seller.

EXW
Ex Works (named place)
SELLER BUYER

Seller/ Export Exporter Documents Premises Formalities

Delivered at named place of: Frontier/ Terminal/ Quay

Loading Port of Shipment

Onboard Ship Rail Plane Ships Ships Rail Rail

Discharging Delivery at Import Port of named place of Documents destination: Formalities Arrival Frontier/ Terminal/Quay Buyers Risks

Buyer/ Importer Premises

Sellers Risks

Sellers Cost

Buyers Cost

F - Group: Used where the seller can arrange some transport within his/her own country.
2. FCA or "Free Carrier

This INCO term should be selected in place of FOB when road transport is employed or where multimodal container operations are used on a door-to-door basis rather than port-to-port. It is also now recommended usage for rail replacing FOR/FOT and for air replacing FOA. In fact, FCA can be used for any mode of transport. Under the "free carrier" INCO term, the seller fulfils his/her obligations when the goods are delivered to the custody of the carrier at a named point. If no precise point can be named at the time of the contract of sale, the parties should refer to the place where the carrier should take the goods into its charge. The risk of loss or damage to the goods is transferred from seller to buyer at that time.

FCA
Free Carrier (named place)
SELLER BUYER

Seller/ Export Exporter Documents Premises Formalities

Delivered at named place of: Frontier/ Terminal/ Quay

Loading Port of Shipment

Onboard Ship Rail Plane Ships Ships Rail Rail

Discharging Delivery at Import Port of named place of Documents Arrival destination: Formalities Frontier/ Terminal/Quay

Buyer/ Importer Premises

Sellers Risks

Buyers Risks Buyers Cost

Sellers Cost

3. FAS or "Free Alongside Ship requires the seller to deliver the goods alongside the ship on the quay. From that point on, the buyer bears all costs and risks of loss and damage to the goods. FAS requires the buyer to clear the goods for export and pay the cost of loading the goods.

FAS
Free Alo gsi e ( ame lace)
Seller/ ort orter oc me ts remises Formalities elivere at ame lace of: Fro tier/ ermi al/ ay oa i g ort of Shi me t Shi s ail oar Shi ail la e Shi s ail ischargi g ort of Arrival elivery at Im ort ame lace of oc me ts esti atio : Formalities Fro tier/ ermi al/ ay yer/ Im orter remises

Sellers isks

yers isks yers ost

Sellers ost

4. FOB or "Free On Board" The goods are placed on board the ship by the seller at a port of shipment named in the sales agreement. The risk of loss of or damage to the goods is transferred to the buyer when the goods pass the ship's rail (i.e., off the dock and placed on the ship). The seller pays the cost of loading the goods.

FOB
Free On Board(named port of shipment)
SELLER BUYER

Seller/ Export Exporter Documents Premises Formalities

Delivered at named place of: Frontier/ Terminal/ Quay

Loading Port of Shipment

Onboard Ship Rail Plane Ships Ships Rail Rail

Discharging Delivery at Import Port of named place of Documents Arrival destination: Formalities Frontier/ Terminal/Quay

Buyer/ Importer Premises

Sellers Risks

Buyers Risks Buyers Cost

Sellers Cost

C - Group: Used where the seller can arrange and pay for most of the freight charges up to the foreign country.
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5. CFR (or C & F) "Cost and Freight requires the seller to pay the costs and freight necessary to bring the goods to the named destination, but the risk of loss or damage to the goods, as well as any cost increases, are transferred from the seller to the buyer when the goods pass the ship's rail in the port of shipment. Insurance is the buyers responsibility.

CFR
Cost a Freight ( ame ort of esti atio )

Seller/ ort orter oc me ts remises Formalities

elivere at ame lace of: Fro tier/ ermi al/ ay

oa i g ort of Shi me t Shi s Rail

oar Shi Rail la e Shi s Rail

ischargi g ort of Arrival

elivery at Im ort ame lace of oc me ts Formalities esti atio : Fro tier/ ermi al/ ay yers Risks

yer/ Im orter remises

Sellers Risks

Sellers Cost

yers Cost

Copyright@ Amity University

6. CIF "Cost, Insurance, and Freight this is CFR with the additional requirement that the seller procure transport insurance against the risk of loss or damage to goods. The seller must contract with the insurer and pay the insurance premium. Insurance is generally important in international shipping because transport companies have restricted liability for loss or damage.

CIF
Cost, I s ra ce a Freight ( ame ort of esti atio )

Seller/ ort orter oc me ts remises Formalities

elivere at ame lace of: Fro tier/ ermi al/ ay

oa i g ort of Shi me t Shi s Rail

oar Shi Rail la e Shi s Rail

ischargi g ort of Arrival

elivery at Im ort ame lace of oc me ts Formalities esti atio : Fro tier/ ermi al/ ay yers Risks

yer/ Im orter remises

Sellers Risks

Sellers Costs

yers Cost

7. CPT "Freight/Carriage Paid To" This INCO term should be selected in place of CFR when through road transport is employed or in the case of multimodal transport this term means the seller pays the freight (transport cost) for the carriage of the goods to the named destination. The risk of loss or damage to the goods and any cost increases transfers from the seller to the buyer when the goods have been delivered to the custody of the first carrier, and not at the ship's rail. When the seller is required to furnish a bill of lading, way bill, or carrier receipt, the seller duly fulfils its obligation by presenting such a document issued by the person contracted with for carriage to the main destination. The seller retains the risk in the goods until they have been handed over to the first carrier, whereupon the risk passes to the buyer. The buyer is responsible for customs duties at the destination.

CPT
Carriage Paid To (named port of destination)
SELLER BUYER

Seller/ Export Exporter Documents Premises Formalities

Delivered at named place of: Frontier/ Terminal/ Quay

Loading Port of Shipment

Onboard Ship Rail Plane Ships Ships Rail Rail

Discharging Delivery at Port of named place of Arrival destination: Frontier/ Terminal/Quay

Import Documents Formalities

Buyer/ Importer Premises

Sellers Risks

Buyers Risks

Sellers Cost

Buyers Costs

8. CIP "Freight/Carriage
And Insurance Paid To"

This term (also abbreviated CIP) is the same as "freight/carriage paid to" but with the additional requirement that the seller has to procure transport insurance against the risk of loss or damage to the goods during the carriage. The seller contracts with the insurer and pays the insurance premium.

CIP
Carriage and Insurance Paid To (named port of destination)
SELLER BUYER

Seller/ Export Exporter Documents Premises Formalities

Delivered at named place of: Frontier/ Terminal/ Quay

Loading Port of Shipment

Onboard Ship Rail Plane Ships Ships Rail Rail

Discharging Delivery at Port of named place of Arrival destination: Frontier/ Terminal/Quay Buyers Risks

Import Documents Formalities

Buyer/ Importer Premises

Sellers Risks

Sellers Cost

Buyers Cost

D - Group: Used where the seller can pay for most of the delivery charges to the destination country.
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9. DAF. "Delivered At Frontier" (named place)

means that the seller's obligations are fulfilled when the goods have arrived at the frontier but before the customs border of the country named in the sales contract. The term is primarily used when goods are carried by rail or truck. The seller bears the full cost and risk in delivering the goods up to this point, but the buyer must arrange and pay for the goods to clear customs.

DAF
Delivered At Frontier(named place)
SELLER BUYER

Seller/ Export Exporter Documents Premises Formalities

Delivered at named place of: Frontier/ Terminal/ Quay

Loading Port of Shipment

Onboard Ship Rail Plane Ships Ships Rail Rail

Discharging Delivery at Import Port of named place of Documents Arrival destination: Formalities Frontier/ Terminal/Quay

Buyer/ Importer Premises

Sellers Ris s

Buyers Ris s Buyers ost

Sellers ost

10. DES "Delivered Ex-Ship" (named port) means the seller makes the goods available to the buyer on board the ship at the destination named in the sales contract. The seller bears the full cost and risk involved in bringing the goods there. The cost of unloading the goods and any customs duties must be paid by the buyer.

DES
Delivered exShip(named port of destination)
SELLER BUYER

Seller/ Export Exporter Documents Premises Formalities

Delivered at named place of: Frontier/ Terminal/ Quay

Loading Port of Shipment

Onboard Ship Rail Plane Ships Ships Rail Rail

Discharging Delivery at Import Port of named place of Documents Arrival destination: Formalities Frontier/ Terminal/Quay

Buyer/ Importer Premises

Sellers Risks

Buyers Risks Buyers Cost

Sellers Cost

11. DEQ "Delivered Ex-Quay" (named port) means the seller has agreed to make the goods available to the buyer on the quay or the wharf at the destination named in the sales contract. The seller bears the full cost and risks in delivering the goods to that point including unloading. There are two variations of ex quay contracts: "ex quay duty paid" and "ex quay duty on buyer's account." In the first, the duty is paid by the seller. In the second, the duty also is paid by the seller, but the buyer must reimburse the seller.

DEQ
Delivered Ex Quay(named port of destination)
SELLER BUYER

Seller/ Export Exporter Documents Premises Formalities

Delivered at named place of: Frontier/ Terminal/ Quay

Loading Port of Shipment

Onboard Ship Rail Plane Ships Ships Rail Rail

Discharging Delivery at Import Port of named place of Documents Arrival destination: Formalities Frontier/ Terminal/Quay

Buyer/ Importer Premises

Sellers Risks

Buyers Risks Buyers Cost

Sellers Cost

12. DDU "Delivery Duty Unpaid" (named destination place)

This new INCO term can be used irrespective of the mode of transport. The seller bears the risk and expense of getting the goods to a named destination, but excluding duties, taxes and other official charges payable on import. Under these terms, the seller fulfils his obligation to deliver when the goods have been available to the buyer uncleared for import at the point or place of the named destination. The seller bears all costs and risks involved in bringing the goods to the point or place of named destination. There is no obligation for import clearance.

DDU
Delivere Duty Unpai (name place of estination)
Seller/ port porter Documents remises Formalities Delivere at name place of: Frontier/ erminal/ uay oa ing ort of Shipment Ships Rail nboar Ship Rail lane Ships Rail Discharging Delivery at Import name place of Documents ort of estination: Formalities Arrival Frontier/ erminal/ uay uyer/ Importer remises

Sellers Risks

uyers Risks uyers Cost

Sellers Cost

13. DDP "Delivery/Duty Paid

(named destination place)

represents the seller's maximum obligation. The term "DDP." is generally followed by words indicating the buyer's premises. It notes that the seller bears all risks and all costs until the goods are delivered. This term can be used irrespective of the mode of transport. If the parties wish to make clear that the seller is not responsible for certain costs, additional word should be added (for example, "delivered duty paid exclusive of VAT and/or taxes").

DDP
Delivered Duty Paid(named place of destination)
SELLER BUYER

Seller/ Export Exporter Documents Premises Formalities

Delivered at named place of: Frontier/ Terminal/ Quay

Loading Port of Shipment

Onboard Ship Rail Plane Ships Ships Rail Rail

Discharging Delivery at Import Port of named place of Documents Arrival destination: Formalities Frontier/ Terminal/Quay

Buyer/ Importer Premises

Sellers Risks

Buyers Risks Buyers Cost

Sellers Cost