TRADE LOGISTICS / Incoterms

93

GUIDE TO Incoterms

TRADE LOGISTICS / Incoterms

www.tradelogistics.co.za • info@tradelogistics.co.za • 0861 0 TRADE (87233)

International Commercial Terms

When global companies enter into contracts to buy and sell goods they are free to

negotiate specific terms. These terms include the price, quantity, and characteristics of

the goods. Every international contract also contains what is referred to as an Incoterm,

or international commercial term. Incoterms are not laws but precise definitions of the

costs, risks and obligations of both parties (the seller and the buyer) in a contract where

an international transaction takes place. Applying Incoterms to sale and purchase

contracts makes global trade easier and helps partners in different countries

understand one another. Note that when we refer to the ‘seller’ it means the seller,

manufacturer or exporter, and when we refer to the ‘buyer’ we mean the buyer or

importer.

The parties to the transaction select the Incoterms, which determine who pays the cost

of each transportation segment, who is responsible for loading and unloading of goods,

and who bears the risk of loss at any given point during an international shipment.

Incoterms are not mandatory and therefore not implied by default in an international

sales contract. If a contractor wants to use them, they must be specifically included in

the contract.

Incoterms are revised periodically. The current version is called Incoterms 2010. All

contracts made under Incoterms 2000 (the previous version) remain valid. Although we

recommend using Incoterms 2010, parties can agree to choose any version of the

Incoterms rules. It is important, however, to clearly specify which version you have

chosen. A summary of the main difference between the 2000 and 2010 incoterms is

given here.

Below is a summary of the most commonly used 2000 and 2010 incoterms.

TRADE LOGISTICS / Incoterms

TRADE LOGISTICS / Incoterms

Incoterms 2010

Below are some of the key points to consider regarding the 2010 incoterms. A summary

of the differences between incoterms 2000 and 2010 is given here.

EXW Ex works

Any transport Mode

Where there is more than one mode of transport

FCA Free Carrier

Any transport Mode

Where there is more than one mode of transport

SELLER

Make sure that the goods are

available

suitably packaged and

at the specified place (this is usually

the seller’s factory/ storage area)

BUYER

Responsibilities include:

loading the goods onto a vehicle

all export procedures

taking care of costs for all onward

transport and costs after collecting

the goods

LOOK OUT FOR:

The seller does not have to load the goods, but if he does so, it is at the buyer’s risk

SELLER

Delivers the goods, cleared for

export, to the carrier selected by

the Buyer

Loads the goods if the carrier

pickup is at the Seller's premises

BUYER

After goods have been delivered at

the named place, buyer bears the

costs and risks of moving the goods

to destination

NOTE:

FCA is the rule of choice for containerised goods where the buyer arranges for

the main carriage

TRADE LOGISTICS / Incoterms

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FAS Free Alongside Ship

Goods transported by sea or inland waterway

FOB Free on Board

Goods transported by sea or inland waterway

CFR Cost and Freight

Goods transported by sea or inland waterway

SELLER

The Seller delivers the goods

(cleared for export) to the origin

port

BUYER

from that point, the Buyer bears all

costs and risks of loss or damage

the buyer is responsible for loading

the goods

NOTE:

For containerised goods, consider FCA instead.

SELLER

delivers the goods on board the

ship and clears the goods for export

BUYER

from that point, the Buyer bears all

costs and risks of loss or damage

NOTE: For containerised goods, consider FCA instead

SELLER

clears the goods for export and

pays the costs of moving the goods

to destination

BUYER

bears all risks of loss or damage

once the goods have been loaded

on board

NOTE:

The seller is not responsible for insurance of the goods on the main carriage

For containerised goods, consider CPT instead

TRADE LOGISTICS / Incoterms

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CIF Cost Insurance and Freight

Goods transported by sea or inland waterway

CPT Carriage Paid To

Any transport Mode

Where there is more than one mode of transport

CIP Carriage and Insurance Paid To

Any transport Mode

Where there is more than one mode of transport

SELLER

Arrange carriage to the named

place

NOT responsible for insuring goods

to the named place

BUYER

From the time the goods are

transferred to the first carrier, the

Buyer bears the risks of loss or

damage

LOOK OUT FOR:

Terminal Handling Charges (THC) are charges collected by the terminal authorities

at each port against handling equipments and maintenance. The buyer should fine

out whether these charges have been added to the carrier’s freight rates, so as to

avoid any surprises.

SELLER

clears the goods for export and

pays the costs of moving the goods

to destination

purchases the cargo insurance

BUYER

bears all risks of loss or damage

once the goods have been loaded

on board

NOTE:

Although the seller is responsible for the insurance, the rule only requires a

minimal level of cover which might be unrealistic. It might be necessary to deal

with the level of cover elsewhere in the commercial agreement.

For containerised goods, consider CIP instead

TRADE LOGISTICS / Incoterms

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DAT Delivered at Terminal

Any transport Mode

Where there is more than one mode of transport

SELLER

Responsible for

arranging carriage to the named

place

insuring the goods

BUYER

From the time the goods are

transferred to the first carrier, the

Buyer bears the risks of loss or

damage

SELLER

delivers when the goods, once

unloaded from the arriving means

of transport, are placed at the

Buyer's disposal at a named

terminal at the named port or place

of destination.

bears all risks involved in bringing

the goods to and unloading them

at the terminal at the named port or

place of destination

BUYER

Risk transfers from seller to buyer

when the goods have been

unloaded

Buyer is responsible for:

import clearance

any applicable local taxes or

import duties

LOOK OUT FOR:

Terminal Handling Charges (THC) are charges collected by the terminal

authorities at each port against handling equipments and maintenance. The

buyer should fine out whether these charges have been added to the carrier’s

freight rates, so as to avoid any surprises.

Although the seller is responsible for the insurance, the rule only requires a

minimal level of cover which might be unrealistic. It might be necessary to deal

with the level of cover elsewhere in the commercial agreement.

LOOK OUT FOR:

Many ports are very large, therefore it is important to clearly specify the place for

delivery

Parties should clarify who would bear the costs of Terminal Handling Charges (if

they apply)

TRADE LOGISTICS / Incoterms

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DAP Delivered at Place

Any transport Mode

Where there is more than one mode of transport

DDP Delivered Duty Paid

Any transport Mode

Where there is more than one mode of transport

SELLER

responsible for arranging carriage

and for delivering the goods (which

is ready for unloading from the

arriving carriage) at the named

place

bears all risks involved in bringing

the goods to the named place

BUYER

Risk transfers from seller to buyer

when the goods are available for

unloading

Unloading is at buyer’s risk

Is responsible for:

import clearance

any applicable local taxes or

import duties

NOTE:

This rule can be used to replace the Incoterms 2000 rules DAF, DES and DDU

SELLER

delivers the goods -cleared for

import - to the Buyer at destination

bears all costs and risks of moving

the goods to destination, including

the payment of customs duties and

taxes

BUYER

Risk transfers from seller to buyer

when the goods are available for

unloading

NOTE: This rule places the maximum responsibility on the seller.

It is the only rule that requires the seller to take responsibility for import clearance

and payment of taxes and/ or import duty

TRADE LOGISTICS / Incoterms

www.tradelogistics.co.za • info@tradelogistics.co.za • 0861 0 TRADE (87233)

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