INCOTERMS

An overviewINCOTERMS define the mutual obligations of seller and buyer arising from the movement of goods under an international contract from the standpoint of risks, costs and documents-UNCTAD, 1990.It is a set of international rules for the interpretation of the most commonly used foreign trade terms . It reduces the uncertainty caused by trade practices in different countries, simplify the negotiations involved in international commerce and ensure common understanding of obligations.

The current set of Incoterms a copy of the full terms is available from the International Chamber of Commerce.

The Terms

The “E” Term is the term in which seller’s obligation is at its minimumThe “F” Term require the seller to deliver as instructed by the buyerThe “C” Term require the seller to contract for carriage at his expenseThe “D” Term signifies arrival contracts

EXW (‘Ex Works’)

The seller makes the goods available to be collected at their premises and the buyer is responsible for all other risks, transportation costs, taxes and duties from that point onwards. This term is commonly used when quoting a price.

ExampleGoods are being picked up by the buyer from the seller’s premises in Nashik. The term used in the contract is ‘EXW Nashik’.

FCA (‘Free Carrier’)

The seller gives the goods, cleared for export, to the buyer’s carrier at a specified place. The buyer is then responsible for getting transported to the specified place of final delivery. This term is commonly used for

containers travelling by more than one mode of transport.

FAS (‘Free Alongside Ship’)

The seller places the goods along side the carrier at a named place at his cost while buyer pays freight, insurance and other risk of carriage.

FOB (‘Free onboard’)Delivery of goods on board the vessel at the port of origin is at the seller’s expense. Buyer is responsible for loading fee, main carriage/freight, cargo insurance and other costs risks.

CPT (‘Carriage Paid To’)

The seller pays to transport the goods to the specified destination. Responsibility for the goods transfers to the buyer when the seller passes them to the first carrier.

CFR (‘Cost and Freight)

Seller pays the costs and freight to bring the goods to the port of destination and the risk transferred once the goods have crossed the ship’s rail.

CIF (‘Cost Insurance and Freight’)Used exactly the same way as CFR except that Seller must in addition procure and pay for insurance for the cargo insurance and delivery of goods to the port of destination. Buyer responsible for the import customs clearance & other costs and risks

CIP (‘Carriage and Insurance Paid’)

The seller pays for insurance as well as transport to the specified destination. Responsibility for the goods transfers to the buyer when the seller passes them to the first carrier.

CIP (‘Carriage and Insurance Paid’) is commonly used for goods being transported by container by more than one mode of transport. If transporting only by sea, CIF is often used (see above).

DAF (‘Delivered at Frontier’)Delivery of goods is done at the specified point at the frontier at the seller's expense. Buyer is responsible for the import customs clearance, payment of customs duties and taxes. The transfer of risk is made at the frontier

DES (‘Delivered ex Ship’)

Seller assumes expenses linked to the delivery of goods. At the arrival of the ship, the risk is transferred to the buyer. Buyer is accountable for the unloading fee, import customs clearance, payment of customs duties and taxes, cargo insurance, and other costs

DDU (‘Delivered Duty Unpaid’)

Delivery of goods and the cargo insurance to the final destination, which is often the project site or buyer's premises, is done at the seller's expense. Buyer is responsible for the import customs clearance and payment of customs duties and taxes

DDP (‘Delivered Duty Paid’)Seller is responsible for most of the expenses, which include the cargo insurance, import customs clearance, and payment of customs duties and taxes at the buyer's end, and the delivery of goods to the final point at destination, which is often the project site or the buyer's premises. It is a “door to door” delivery. Risk is transferred when the goods are delivered.