INCOTERMS

Incoterms are a set of regulations for the definition of the most commonly used international trade terms

– International Commercial Terms.

Traders are often unaware that the terms can have different meanings across different countries, for example CIP for a Chinese trader may have a different meaning to CIP for an American company. The aim of Incoterms is to increase understanding and minimise the risk of costly confusion by standardising these terms.

The basic purpose of the Incoterms is to clarify costs, functions and risks to buyers and sellers and ensure the sending and receiving of the goods as stated in the contract. The critical points in these terms lay with the risks and costs and the actual delivery of the goods. The responsibilities of the buyer and seller are clearly explained by the terms and ranges from the sole responsibility being with the buyer, right through to the seller having full accountability.

When incorporating Incoterms into contracts, it is very important to ensure that a direct reference is made to the most recent edition of Incoterms. For the use of a quote referencing an Incoterm, it must fully state FOB (place name) Incoterms 2000, as opposed to just the three-letter abbreviation. If the correct usage of Incoterms is not adhered to, it could lead to a dispute regarding the contract.

The thirteen Incoterms are split into four distinct groups

• Group C – where the seller must contract for distribution, without assuming risk of loss of, or damage to the goods or any additional charges due to events that may take place after shipment;
• Group D – where the seller takes full responsibility for the goods;
• Group E – where the goods are available to the buyer at the seller’s premises;
• Group F – where the seller delivers goods to a carrier designated by the buyer.

Below is a list of all the Incoterms and the groups they belong to with a short description of each Incoterm and its related responsibilities. Whilst the following definitions give a general outline, traders should read Incoterms 2000 to gain a full understanding of its policies and practices

Group E Departure

EXW – Ex Works
Named place

The seller must make the goods available to the buyer at the seller’s premises or another agreed place not used for export

Group F Main Carriage Unpaid

FCA – Free Carrier

Named place
The seller must deliver the goods, cleared for export, to the carrier designated by the buyer at the agreed location

FAS – Free Alongside Ship

Named port of shipment – Maritime and inland waterway transport only

The seller must deliver the goods, cleared for export, alongside the vessel at the named port.

FOB – Free on Board

Named port of shipment – Maritime and inland waterway transport only

The seller delivers the goods, cleared for export, when they pass the ship’s rail at the named port

Named port of destination – Maritime and inland waterway transport only
The seller delivers the goods when they pass the ship’s rail in the port and must pay the costs and freight necessary to bring the goods to the named destination. The buyer bears all additional risks and costs after the goods have been delivered at the port of shipment

Named port of destination – Maritime and inland waterway transport only

The obligations are the same as CFR but adding that the seller must provide insurance against the buyer’s risk of loss or damage to the goods during shipment

Named place of destination

The seller brings the goods to the designated carrier and must also pay the necessary costs to bring the goods to the agreed destination. The buyer takes responsibility for any additional costs and risks after the goods have been delivered to the named carrier

Group C Main Carriage Paid

CFR – Cost and Freight

CIF – Cost Insurance and Freight

CPT – Carriage Paid To

CIP – Carriage and Insurance Paid To

Named place of destination

The obligations are the same as CPT but adding that the seller must provide insurance against the buyer’s risk of loss or damage to the goods during shipment.

Named place

The seller must place the goods with the buyer on the agreed and available means of transport not unloaded, cleared for export but not import, at the previously named point and place

Named port of destination – Maritime and inland waterway transport only
The seller delivers when the goods are placed with the buyer on board the ship, not cleared for import, at the named destination

Named port of destination – Maritime and inland waterway transport only

The seller delivers when the goods are placed with the buyer, not cleared for import, on the quay at the named destination

Named place of destination
The seller must deliver the goods to the buyer, not cleared for import, and not unloaded at the named destination

Named place of destination

The seller must deliver the goods to the buyer, cleared for import, and not unloaded at the named destination

Group D Arrival

DAF – Delivered at Frontier

DES – Delivered Ex Ship

DEQ – Delivered Ex Quay

DDU – Delivered Duty Unpaid

DDP – Delivered Duty Paid

RULES FOR SEA AND INLAND WATERWAY TRANSPORT

• FAS – Free Alongside Ship

“Free Alongside Ship” means that the seller delivers when the goods are placed alongside the vessel (e.g., on a quay or a barge) nominated by the buyer at the named port of shipment. The risk of loss of or damage to the goods passes when the goods are alongside the ship, and the buyer bears all costs from that moment onwards.

• FOB – Free On Board

“Free On Board” means that the seller delivers the goods on board the vessel nominated by the buyer at the named port of shipment or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel, and the buyer bears all costs from that moment onwards.

• CFR – Cost and Freight

“Cost and Freight” means that the seller delivers the goods on board the vessel or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel. the seller must contract for and pay the costs and freight necessary to bring the goods to the named port of destination.

• CIF – Cost, Insurance and Freight

“Cost, Insurance and Freight” means that the seller delivers the goods on board the vessel or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel. The seller must contract for and pay the costs and freight necessary to bring the goods to the named port of destination. The seller also contracts for insurance cover against the buyer’s risk of loss of or damage to the goods during the carriage. The buyer should note that under CIF the seller is required to obtain insurance only on minimum cover. Should the buyer wish to have more insurance protection, it will need either to agree as much expressly with the seller or to make its own extra insurance arrangements.