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IncotermsInternational Co-operation TermsThese trading terms were created by the International Chamber of Commerce in 1936 as a standard for international trading to reduce legal complications. Incoterms specify at what point risk passes from the Exporter to the Importer. They also specify which services the Importer and Exporter are responsible for and indicate who is responsible for which documents. In global trade "delivery" refers to fulfilment by the Exporter of his contractual obligation in terms of the sale. Incoterms boil down to:
It is crucial for the responsible party to arrange insurance to cover the goods while in their "legal" possession to protect relationships and prevent expensive lawsuits. The four categories of Incoterms are:
"D" terms usually involve the services of a customs broker and a freight forwarder. "D" terms also deal with pier or docking charges at ports and determining who is responsible for each charge.
EXW - Ex WorksThe Importer arranges for the collection of the goods from the exporter's premises and pays for all the costs from the time the goods leave the Exporter's premises till they reach the Importer. The Importer acquires title to the goods at the time of loading.Costs to the Exporter include, but are not limited to:
Costs to the Importer include, but are not limited to:
Cost of carriage paid by the ImporterFCA – Free CarrierThis term is used instead of FOB when through road transport is used and includes roll-on and roll-off (ro/ro) ferries. It is also used for container shipments where different type of transport are used on a door-to-door basis instead of port-to-port. The Exporter delivers the goods customs cleared for export to the carrier nominated by the Importer at the place it is required to be delivered to the carrier (eg a container yard or CFS) in order for it to be shipped. This becomes more pertinent when the carrier is doing the landside movement on behalf of the client. The goods pass to the Importer at the time and place stated in the sales contract. This may be an inland port. The Exporter must notify the Importer, by means of a quick communication, when the goods are to be handed over to the carrier in accordance with the instructions from the Importer. Risk passes to the Importer at the time and place that the goods are handed over.Costs to the Exporter include, but are not limited to:
Costs to the Importer include, but are not limited to:
Risk passes from Exporter to the Importer when the Exporter delivers the cargo to the carrier. FAS – Free Alongside ShipThe Exporter must deliver the goods customs cleared for export, to an area usually a shed, warehouse or berth where the vessel is expected to berth. This term is generally used in transactions that are mainly by sea and is one of the old terms that are used and is usually used for conventional (uncontainerised) cargo. The Importer must arrange shipment including payment and clearance for export, export and import duties, loading, transport, insurance and import clearance. Costs to the Exporter include, but are not limited to:
Costs to the Importer include, but are not limited to:
Delivery is accomplished when the goods are turned over to the Importer's forwarder. Risk passes from the Exporter to the Importer at the point that the cargo is placed alongside a named ship at a named area within a named port. FOB – Free On BoardThe Exporter is obliged to deliver the goods customs cleared for export, port dues & taxes paid, on board the named ship at the port specified by the Importer. The Importer may also stipulate the line or vessel to be used. Costs to the Exporter include, but are not limited to:
Costs to the Importer include, but are not limited to:
Risk passes from the Exporter to the Importer at the point that the cargo has passed the ship's rail, and he must advise the Importer of all shipping information when the goods are on board. Cost of carriage paid by the ExporterCFR – Cost And Freight (Formerly known as CNF or C&F)Defines two distinct and separate responsibilities - "C" deals with the cost of the merchandise, and "F" refers to the freight charges to a predetermined destination port. The Exporter is obliged to take responsibility/risk for all costs and freight till the cargo is loaded on board the ship at the port of loading, but the cost factor only passes from the Exporter to the Importer at the named discharge port. "Delivery" is accomplished at this time. The Importer is responsible for insurance from the port of origin. The shipper chooses the forwarder, because the shipper is responsible for transportation. Costs to the Exporter include, but are not limited to:
Costs to the Importer include, but are not limited to:
Risk passes from the Exporter to the Importer at the point that the cargo passes the ships rail at the port of loading. CIF – Cost, Insurance, FreightEssentially the same as CFR with the exception that the Exporter is responsible for insurance of the cargo during transit to the named port of destination. This insurance should be for the CIF price plus 10 per cent to cover the costs of goods if they have to be returned. The Importer should insist on all risks insurance which, if possible, should be in the same currency as the sales contract. CPT – Carriage Paid ToThis is common in Europe when road transport or multi-modal transport is used. The Exporter is responsible for all costs till the place of delivery named on the Bill of Lading, which could be inland. However, risk passes from the Exporter to the Importer when the cargo is loaded on board the ship at the port of loading. This term is common in Europe when road transport or multi-modal transport is used. The Exporter obtains any necessary licences and arranges transport. Costs to the Exporter include, but are not limited to:
Costs to the Importer include, but are not limited to:
The Exporter should inform the importer by rapid communication, eg fax, as soon as the goods have been loaded on board ship at the port of loading. CIP – Freight, Carriage And Insurance Paid ToEssentially the same as CPT with the exception that the Exporter is responsible for insurance of the cargo to the agreed delivery point. The Importer may also claim under the exporter's insurance policy and he must be advised of the nature and extent of the insurance policy. Terms at place of DestinationDAF – Delivered At FrontierMostly used for road and multi-modal transport. The Exporter must deliver the cargo at the named border post with the Exporter clearing customs on his side for exports and the Importer doing the same on his side of the border. If there are many borders, then the Exporter can terminate his contract at the first border and the Importer will have to carry on from there. Costs to the Exporter include, but are not limited to:
Costs to the Importer include, but are not limited to:
DES – Delivered Ex ShipThe Exporter is responsible to deliver the cargo to the named port of discharge uncleared. "Delivery" occurs at this time. Any destination charges that occur after the ship is docked are the Importer's responsibility. This is mostly used in port to port shipments. Under this term the Importer has full control of the carriage and the shipper takes all the risk and cost till it is delivered at the named port of discharge. Costs to the Exporter include, but are not limited to:
Costs to the Importer include, but are not limited to:
Risk passes from the Exporter to the Importer at the point that the cargo passes the ships rail at the port of discharge. DEQ – Delivered Ex QuayEssentially similar to DES except that in DEQ the Exporter also pays for the discharge costs from ship to shore at the named port of discharge, therefore the Exporter must arrange and pay for customs clearance. DDU – Delivered Duty Unpaid Any mode of transport may be stipulated. The Exporter must deliver the cargo at the named place of delivery excluding the payment of customs duty, however at the same time, being dependent on the Importer to be able to arrange for customs clearance at the first port of entry for that named destination. The Exporter must advise the Importer as soon as the goods are received by the first carrier. Costs to the Exporter include, but are not limited to:
Costs to the Importer include, but are not limited to:
Risk passes from the Exporter to the Importer at the point that the cargo reaches the place of delivery. DDP – Delivered Duty PaidAny mode of transport may be stipulated. The Exporter must advise the Importer as soon as the goods are received by the first carrier. The benefit to the Importer of DDP is that he knows accurately the price of the goods and so can calculate his own cost and profit margin with confidence. Essentially the same terms as DDU except that in DDP, the Exporter also undertakes to pay the customs duties, vat etc as per the local regulations in force. Costs to the Exporter include, but are not limited to:
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