Understanding Incoterms
Incoterms are standard trade definitions most commonly used in
international sales contracts. Devised and published by the
International Chamber of Commerce, they are at the heart of world trade.
Among the best known Incoterms are EXW (Ex works), FOB (Free on Board),
CIF (Cost, Insurance and Freight), DDU (Delivered Duty Unpaid), and CPT
(Carriage Paid To).
ICC introduced the first version of Incoterms - short for
"International Commercial Terms" - in 1936. Since then, ICC expert lawyers
and trade practitioners have updated them six times to keep pace with the
development of international trade.
Most contracts made after 1 January 2000 will refer to the latest
edition of Incoterms, which came into force on that date. The correct
reference is to "Incoterms 2000". Unless the parties decide otherwise,
earlier versions of Incoterms - like Incoterms 1990 - are still binding
if incorporated in contracts that are unfulfilled and date from before
1 January 2000.
Versions of Incoterms preceding the 2000 edition may still be
incorporated into future contracts if the parties so agree. However,
this is course is not recommended because the latest version is designed
to bring Incoterms into line with the latest developments in commercial
practice.
Correct use of Incoterms goes a long way to providing the legal certainty
upon which mutual confidence between business partners must be based. To be
sure of using them correctly, trade practitioners need to consult the full
ICC texts, and to beware of the many unauthorized summaries and approximate
versions that abound on the web.
2000 are internationally accepted commercial terms defining the respective
roles of the buyer and seller in the arrangement of transportation and other
responsibilities and clarify when the ownership of the merchandise takes place.
They are used in conjunction with a sales agreement or other method of transacting
the sale.
- EXW - Ex Works -- Title and risk pass to buyer including payment of
all transportation and insurance cost from the seller's door. Used for
any mode of transportation.
- FCA - Free Carrier -- Title and risk pass to buyer including
transportation and insurance cost when the seller delivers goods cleared
for export to the carrier.Seller is obligated to load the goods on the
Buyer's collecting vehicle; it is the Buyer's obligation to recieve the
Seller's arriving vehicle unloaded.
- FAS - Free Alongside Ship --Title and risk pass to buyer including
payment of all transportation and insurance cost once delivered
alongside ship by the seller. Used for sea or inland waterway
transportation. The export clearance obligation rests with the seller.
- FOB - Free On Board and risk pass to buyer including payment of all
transportation and insurance cost once delivered on board the ship by
the seller. Used for sea or inland waterway transportation.
- CFR - Cost and Freight -- Title, risk and insurance cost pass to
buyer when delivered on board the ship by seller who pays the
transportation cost to the destination port. Used for sea or inland
waterway transportation.
- CIF - Cost, Insurance and Freight -- Title and risk pass to buyer when
delivered on board the ship by seller who pays transportation and insurance
cost to destination port. Used for sea or inland waterway transportation.
- CPT - Carriage Paid To -- Title, risk and insurance cost pass to buyer
when delivered to carrier by seller who pays transportation cost to
destination. Used for any mode of transportation.
- CIP - Carriage and Insurance Paid To --Title and risk pass to buyer
when delivered to carrier by seller who pays transportation and insurance
cost to destination. Used for any mode of transportation.
- DAF - Delivered at Frontier -- Title, risk and responsibility for import clearance pass to buyer when delivered to named border point by seller. Used for any mode of transportation.
- DES - Delivered Ex Ship -- Title, risk, responsibility for vessel discharge and import clearance pass to buyer when seller delivers goods on board the ship to destination port. Used for sea or inland waterway transportation.
- DEQ - Delivered Ex Quay (Duty Paid) -- Title and risk pass to buyer when delivered on board the ship at the destination point by the seller who delivers goods on dock at destination point cleared for import. Used for sea or inland waterway transportation.
- DDU - Delivered Duty Unpaid -- Title, risk and responsibility of import clearance pass to buyer when seller delivers goods to named destination point. Used for any mode of transportation. Buyer is obligated for import clearance.
- DDU - Delivered Duty Unpaid -- Seller fulfills his obligation when goods have been made available at teh named place in the country of importation
- DDP - Delivered Duty Paid -- Title and risk pass to buyer when seller delivers goods to named destination point cleared for import. Used for any mode of transportation.
- Note: EXW, CPT, CIP, DAF, DDU and DDP are commonly used for any mode of transportation. FAS, FOB, CFR, CIF, DES, and DEQ are used for sea and inland waterway.
