What are INCOTERMS?

Posted by George Muha on Dec 21, 2015 11:04:52 AM

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The Incoterms rules or International Commercial Terms are a series of pre-defined commercial terms published by the International Chamber of Commerce (ICC). They are widely used in International commercial transactions or procurement processes. A series of three-letter trade terms related to common contractual sales practices, the Incoterms rules are intended primarily to clearly communicate the tasks, costs, and risks associated with the transportation and delivery of goods.

The Incoterms rules are accepted by governments, legal authorities, and practitioners worldwide for the interpretation of most commonly used terms in international trade. They are intended to reduce or remove altogether uncertainties arising from different interpretation of the rules in different countries. As such they are regularly incorporated into sales contracts worldwide.

First published in 1936, the Incoterms rules have been periodically updated, with the eighth version— Incoterms 2010 —having been published on January 1, 2011. "Incoterms" is a registered trademark of the ICC.

Definitions of INCOTERMS

EXW (Ex Works) 

A Term of Sale which means that the seller fulfills the obligation to deliver when he or she has made the goods available at his/her premises (i.e., works, factory, warehouse, etc.) to the buyer. In particular, the seller is not responsible for loading the goods in the vehicle provided by the buyer or for clearing the goods for export, unless otherwise agreed. The buyer bears all costs and risks involved in taking the goods from the seller’s premises to the desired destination. This term thus represents the minimum obligation for the seller.

FCA (Free Carrier) 

A Term of Sale which means the seller fulfills their obligation when he or she has handed over the goods, cleared for export, into the charge of the carrier named by the buyer at the named place or point. If no precise point is indicated by the buyer, the seller may choose, within the place or range stipulated, where the carrier should take the goods into their charge.

FAS (Free Alongside Ship) 

A Term of Sale which means the seller fulfills his obligation to deliver when the goods have been placed along­side the vessel on the quay or in lighters at the named port of shipment. This means that the buyer has to bear all costs and risks of loss of or damage to the goods from that mo­ment.

FOB (Free On Board) 

An International Term of Sale that means the seller fulfills his or her obligation to deliver when the goods have passed over the ship’s rail at the named port of shipment. This means that the buyer has to bear all costs and risks to loss of or damage to the goods from that point. The FOB term re­quires the seller to clear the goods for export. (Note: The U.S. Government sometimes uses a made–up term “FOB Destination” to require the seller to take responsibility for delivering the goods at destination rather than the correct Incoterm of DDP.)

CFR (Cost and Freight) 

A Term of Sale where the seller pays the costs and freight necessary to bring the goods to the named port of destina­tion, Terms of Sale but the risk of loss of or damage to the goods, as (continued) well as any additional costs due to events occurring after the time the goods have been delivered on board the vessel, is transferred from the seller to the buyer when the goods pass the ship’s rail in the port of shipment. The CFR term requires the seller to clear the goods for export.

CIF (Cost, Insurance and Freight) 

A Term of Sale where the seller has the same obligations as under the CFR but also has to procure marine insurance against the buyer’s risk of loss or damage to the goods during the carriage. The seller contracts for insurance and pays the insurance premium. The CIF term requires the seller to clear the goods for export.

CPT (Carriage Paid To) 

A Term of Sale which means the seller pays the freight for the carriage of the goods to the named destination. The risk of loss of or damage to the goods, as well as any additional costs due to events occurring after the time the goods have been delivered to the carrier, is transferred from the seller to the buyer when the goods have been delivered into the custody of the carrier. If subsequent carriers are used for the carriage to the agreed upon destination, the risk passes when the goods have been delivered to the first carrier. The CPT term requires the seller to clear the goods for export.

CIP (Carriage and Insurance Paid To)

A Term of Sale which means the seller has the same obligations as under CPT, but with the addition that the seller has to procure cargo insurance against the buyer’s risk of loss of or damage to the goods during the carriage. The seller contracts for insurance and pays the insurance premium. The buyer should note that under the CIP term the seller is required to obtain insurance only on minimum coverage. The CIP term requires the seller to clear the goods for export.

DAF (Delivered At Frontier) 

A Term of Sale which means the sell­ers fulfill their obligation to deliver when the goods have been made available, cleared for export, at the named point and placed at the frontier, but before the customs Terms of Sale border of the adjoining country.

DDU (Delivered Duty Unpaid) 

A Term of Sale where the seller fulfills his obligation to deliver when the goods have been made available at the named place in the country of importation. The seller has to bear the costs and risks involved in bringing the goods thereto (excluding duties, taxes and other official charges payable upon importation) as well as the costs and risks of carrying out customs formali­ties. The buyer has to pay any additional costs and to bear any risks caused by failure to clear the goods for in time.

DDP (Delivered Duty paid) 

“Delivered Duty Paid” means that the seller fulfills his obligation to deliver when the goods have been made avail­able at the named place in the country of importation. The seller has to bear the risks and costs, including duties, taxes and other charges of delivering the goods thereto, clear for importation. While the EXW term represents the minimum obligation for the seller, DDP represents the maximum.

DES (Delivered Ex Ship) 

A Term of Sale where the seller fulfills his/her obligation to deliver when the goods have been made available to the buyer on board the ship, uncleared for import at the named port of destination. The seller has to bear all the costs and risks involved in bringing the goods to the named port destination.

DEQ (Delivered Ex Quay, [Duty Paid]) 

A Term of Sale which means the DDU term has been fulfilled when the goods have been available to the buyer on the quay (wharf) at the named port of destination, cleared for importa­tion. The seller has to bear all risks and costs including duties, taxes and other charges of delivering the goods thereto.

We hope these definitions are helpful to your business.  For more defintions in the freight andlogistics space, download our comprehesnive Ultimate Glossary of Shipping Terms.FREE Download: Ultimate Glossary of Shipping Terms

Topics: freight terms, International Shipping, freight glossary, Incoterms, KDL Logisitcs

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