December 22nd in 3PL, Logistics by .

Incoterms: International Commercial terms

International Commercial Terms, (abbreviated, Incoterms ) a set of three-letter trade terms used in International trade. Basically, when you enter international trade the first barrier you face is the different culture, languages, etc.
In today’s world to achieve ‘Comparative Cost Advantage’ it is essential for a county to be part of international trade for their economic growth. But at the same time it’s important to have a smooth transaction of goods and services. To overcome the language and cultural barriers, the International Chamber …

International Commercial Terms, (abbreviated, Incoterms ) a set of three-letter trade terms used in International trade. Basically, when you enter international trade the first barrier you face is the different culture, languages, etc.
In today’s world to achieve ‘Comparative Cost Advantage’ it is essential for a county to be part of international trade for their economic growth. But at the same time it’s important to have a smooth transaction of goods and services. To overcome the language and cultural barriers, the International Chamber of Commerce (ICC) published these pre-defined commercial terms. Incoterms, informs the sales contract by defining the respective obligations, costs and risk involved in the delivery of goods from the Seller to the Buyer.

Incoterms, came into existence in the year 1936, when ICC published the first set of these commercial terms. ICC keeps a close tab in making additional amendments and expansions. There are 11 different terms, each of which helps users deal with different situations involving the moments of goods. Among these 11 terms, only 7 terms are applied for all mode(s) of transport, the rest 4 terms are used for sea shipments only.

Terms for Any Transport Mode.

1.     EXW- EX Works ( named place of delivery) The seller’s only responsibility is to make the goods available at the seller’s premises. The Buyer bares full cost and risks of moving the goods from there to destination. For better understanding apart from definitions, I have summarized the obligations of both parties (seller/buyer).

Summary: Seller’s Obligation. 

  1. Provide goods according to contract.
  2. Assist buyer to obtain necessary export license.
  3. Arrange transport from premises.
  4. Deliver goods at his premises.
  5. Bear risk of loss or damage until delivery.
  6. Pay all costs until delivery.
  7. Advise buyer of availability of goods.
  8. Pay for necessary checking, packing, making before delivery.
  9. Assist buyer to obtain documentation and advise buyer on insurance.

Summary: Buyer’s Obligation. 

  1. Pay the price.
  2. Obtain licenses and export/import permits.
  3. Arrange transport from premises.
  4. Take delivery at seller’s premises.
  5. Bear risk of loss or damage after delivery.
  6. Pay all costs after delivery including duties and taxes.
  7. Advise seller of the place and time of taking delivery.
  8. Give seller proof of having taken delivery.
  9. Pay pre-shipment inspection costs.
  10. Reimburse seller for documentation costs. 
  1. 2.     FCA (free carrier)

The seller is responsible for arranging transportation, but he is acting at the risk and the expense of the buyer.  In FCA the seller chooses and works with the freight forwarder or the carrier, where in FOB the freight forwarder or carrier is the choice of the buyer. “Delivery” is accomplished when the goods are turned over to the Buyer is responsible for Insurance.

Summary: Seller’s Obligation. 

  1. Provide goods according to contract.
  2. Comply with export licenses and customs formalities.
  3. Arrange, if buyer requests, for carriage of goods at buyer’s risk and expense.
  4. Deliver the goods to the carrier agreed.
  5. Bear risk of loss or damage until delivery.
  6. Pay all costs until delivery.
  7. Give buyer adequate notice that goods have been delivered to carrier.
  8. Advice buyer of delivery of goods in agreed manner.
  9. Pay costs of packaging, checking and marking.
  10. Assist with obtaining import licenses and insurance if necessary.

            Summary: Buyer’s Obligation

  1. Pay the price.
  2. Comply with import licenses and customs formalities
  3. Arrange for carriage of goods.
  4. Accept delivery of the goods.
  5. Bear risk of loss or damage after delivery.
  6. Pay all costs after delivery.
  7. Give seller adequate notice of preferred carrier and date and point of delivery.
  8. Accept proof of delivery.
  9. Pay cost of pre-shipment expenses were necessary.
  10. J.     Pay all costs relating to import license, etc and give seller appropriate carriage instructions. 
  1. 3.     CPT- (Carriage Paid to)

The seller delivers the goods to the carrier of his/her choice but the seller must in addition pay the cost of carriage necessary to transport the goods to the named destination. This means that the buyer bears all risk and any other costs occurring after the goods have been delivered. If subsequent carriers are used for carriage to the agreed destination, the risk passes when the goods have been delivered to the first carrier. Its seller’s responsibility to clear the goods for export. 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.

Summary:  Seller’s obligations.

  • Provide goods in accordance with contract.
  • Assist buyer to obtain necessary export license.
  • Pay cost of delivery to agreed point and make the contract of carriage.
  • Deliver goods to first carrier.
  • Bear risk of loss or damage until delivery.
  • Pay all costs until delivery.
  • Give buyer adequate notice that goods have been delivered.
  • Advise buyer of delivery of goods in agreed manner.
  • Pay costs of packaging, checking and marking.
  • Assist with obtaining import license and insurance if necessary.

Summary: Buyer’s obligations

  • Pay the price.
  • Obtain licenses and official permission for export/import.
  • Take delivery at named point. E. Bear risk of loss or damage after delivery.
  • Pay all costs after delivery including duties and taxes.
  • Give seller adequate notice of time and place of delivery.
  • Accept proof of delivery.
  • Pay cost of pre-shipment expenses where necessary.
  • Pay all costs relating to import licenses, etc.
  1. 4.     CIP – Carriage And Insurance paid (named place of destination)

In CIP terms, it specifies that the seller delivers the goods to the carrier nominated by him/her but the seller must in addition pay the cost of carriage necessary to bring the goods to the named destination. This means that the buyer bears all risks and any additional costs occurring after the goods have been so delivered. However, in CIP the seller also has to procure insurance against the buyer’s risk of loss of or damage to the goods during the carriage. Consequently, the seller is responsible 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 cover. If buyer wishes to have the protection of a more comprehensive cover, he/she would either need to agree to as much with the seller or to make his/her own extra insurance arrangements. If subsequent carriers are used for carriage to the agreed destination, the risk passes to the buyer when the goods have been delivered to the first carrier.

Summary: Seller’s obligations

  1. Provide goods in accordance with contract.
  2. Assist buyer to obtain necessary export license.
  3. Pay cost of delivery to agreed point and make the contract of carriage.
  4. Deliver goods to first carrier.
  5. Bear risk of loss or damage until delivery.
  6. Pay all costs until delivery.
  7. Give buyer of delivery of goods in agreed manner.
  8. Pay costs of packaging, checking and marking.
  9. Assist with obtaining import licenses and insurance if necessary.

Summary: Buyers’ obligation.

  1. Pay the price
  2. Obtain license and official permission for export/import.
  3. Take delivery at named port.
  4. Bear the risk of loss or damage after delivery.
  5. Pay all costs after delivery including duties and taxes.
  6. Give seller adequate notice of ship and port of loading.
  7. Accept proof of delivery, pay cost of pre-shipment expenses where necessary.
  8. Pay all costs relating to import licenses, etc.
  1. 5.     DAT – Delivered At Terminal (…. Named terminal at port or place of destination) 

The 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. “Terminal” includes any place, whether covered or not. Such as quay, warehouse, container yard or road, rail or air cargo terminal. The seller bears all risks involved in bringing the goods to and unloading them at the terminal at the named port or place of destination.

Summary: Seller’s obligation

  1. Seller is responsible for the costs and risk to bring the goods to the point specified in the contract.
  2. Seller is responsible for export procedures.

Summary: Importer’s obligation

  1. Clear the goods for import
  2. Arrange import customs formalities
  3. Pay import duty
  1. 6.           DAP – Delivered At Place (named place of destination)

The Seller delivers when the goods are placed at the buyer’s disposal on the arriving means of transport ready for unloading at the names place of destination. The Seller bears all risk involved in bringing the goods to the named place. Both the parties are advised to specify as clearly as possible the point within the agreed place of destination, because risks transfer at this point from seller to buyer.

Summary: Seller’s obligation

  1. Sellers bear the responsibility and risks to deliver the goods to the named place.
  2. The seller is advised to obtain contracts of carriage that match the contract of sale.
  3. The seller is required to clear the goods for export.
  4. If the seller incurs unloading cost at place of destination, unless previously agreed that they are entitled to recover any such costs.

Summary: Buyer’s obligation

  1. Effecting customs clearance
  2. Paying any customs duties. 
  1. 7.     DDP – Delivered Duty Paid (named place of destination)

‘Delivered duty paid’ means that the seller delivers the goods to the buyer, cleared for import, and not unloaded from any arriving means of transport to the named destination. The seller has to bear all costs and risk involved with brining the goods thereto, including, where applicable, any ‘duty’ (Which includes the responsibility for and the risk of carrying out customs formalities and the payment of these formalities, customs duties, taxes and other charges) for import into the country of destination.

Whilst the EXW term represents the minimum obligation for the seller, DDP represents the maximum obligation. If the parties wish to exclude from the seller’s obligations some of the costs payable upon the import of the goods ( such as value-added tax: VAT), this should be made clear by adding explicit wording to this effect in the contract of sale.

Summary: Seller’s Obligation

  1. Provide goods according to contract.
  2. Obtain necessary export licence.
  3. Arrange carriage to port of destination to own expense.
  4. Deliver goods at named port.
  5. Bear risk of loss or damage until time of delivery.
  6. Pay all costs until delivery on ship including duties and taxes.
  7. Give buyer adequate notice that goods have been delivered to port.
  8. Advise buyer of delivery of goods in agreed manner.
  9. Pay costs of packaging, checking and marking.
  10. Pay all cost connected with import licenses and assist buyer with insurance procedures.

Summary: Buyer’s obligations

  1. Pay the price.
  2. Assist seller with obtaining permission for export/import.
  3. Take delivery at named port.
  4. Bear the risk of loss or damage after delivery.
  5. Pay all costs after delivery.
  6. Give seller adequate notice of destination port.
  7. Accept proof of delivery.
  8. Pay cost of pre-shipment expenses where necessary.
  9. Assist sell with information necessary to deliver goods.

Maritime- Only Terms

  1. 1.     FAS – Free Along Side Ship (Named port of shipment)

‘Free Alongside Ship’ means that the seller has delivered when the goods have been placed alongside the vessel 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 good from that point on. 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 water way transportation. The export clearance obligation rests with the seller. 

Summary; Seller’s obligation.

  1. Provide goods according to contract.
  2. Assist buyer to obtain necessary export license.
  3. Deliver goods alongside named vessel at named port.
  4. Bear risk of loss or damage until time of delivery alongside on ship.
  5. Pay all costs until delivery alongside ship.
  6. Give buyer adequate notice that goods have been delivered to ship.
  7. Advice buyer of delivery of goods in agreed manner.
  8. Pay costs of packaging, checking and marking.
  9. Assist with obtaining import licenses and insurance if necessary.

Summary: Buyer’s obligation.

  1. Pay the price agreed.
  2. Obtain licences and official permission for export/import.
  3. Arrange for shipment at own expense
  4. Take delivery alongside ship
  5. Bear risk of loss or damage after delivery alongside ship.
  6. Pay all costs after delivery including duties and taxes.
  7. Give seller adequate notice of ship and port of loading
  8. Accept proof of delivery.
  9. Pay cost of pre-shipment expenses where necessary.
  10. Pay all costs relating to import licenses, etc.

2.     FOB – Free On Board (…. Named port of shipment)

‘Free on Board’ means that the seller delivers the goods past the ship’s rail at the named port of shipment.  This means that the buyer has to bare all costs and risks of loss or damage to the goods from that point on. The FOB term requires the seller to clear the goods for export. Title and risk pass to the buyer including the payment of all transportation and insurance cost once delivered on board the ship by the seller.

Summary: Seller’s obligation

  1. Provide goods according to contract.
  2. Assist buyer to obtain necessary export licence.
  3. Deliver goods on board named vessel at named port.
  4. Bear risk of loss or damage until time of delivery on ship.
  5. Pay all costs until delivery on ship.
  6. Give buyer adequate notice that goods have been delivered to ship
  7. Pay costs of packaging, checking and marking.
  8. Assist with obtaining import licences and insurance if necessary.

Summary: Buyer’s obligations

  1. Pay the price.
  2. Obtain licences and official permission for export/import.
  3. Arrange for shipment at own expense.
  4. Take delivery at named port.
  5. Bear risk of loss or damage after delivery at ship side.
  6. Pay all costs after delivery including duties and taxes.
  7. Give seller adequate notice of ship and port of loading.
  8. Accept proof of delivery.
  9. Pay cost of pre-shipment expenses where necessary.
  10. Pay all costs relating to import licenses, etc.
  1. 3.     CFR – Cost and Freight ( ….named port of destination)

‘Cost and Freight’ means that the seller delivers the goods past the ship’s rail in the port of destination. The seller must pay the costs and freight necessary to bring the goods to the named port of destination but the risk of loss of or damage to the goods, as well as any additional costs due to events occurring after the time of delivery, are transferred from the seller to the buyer. The CFR term requires the seller to clear the goods for export.

Summary: Seller’s obligations

  1. Provide goods according to contract.
  2. Assist buyer to obtain necessary export licence.
  3. Deliver goods on board vessel at name port.
  4. Bear risk of loss or damage until delivery on board of ship.
  5. Pay all costs until delivery
  6. Advise buyer of delivery of goods in agreed manner.
  7. Pay costs of packaging, checking and marking.
  8. Assist with obtaining import licences and insurance if necessary.

Summary: Buyer’s obligations

  1. Pay the price
  2. Obtain licences and official permission for export/import.
  3. Arrange delivery at his own expenses at agreed destination.
  4. Take delivery at named port. E. bear risk of loss or damage after delivery.
  5. Pay all costs after delivery including duties and taxes.
  6. Give seller adequate notice of ship and port loading.
  7. Accept proof of delivery.
  8. Pay cost of pre-shipment inspection where necessary.
  9. Pay all costs relating to import licenses, etc.
  1. 4.     CIF – Cost, Insurance and Freight (…..named port of destination)

‘Cost, Insurance and Freight’ indicates that the seller delivers when the goods pass the ship’s rail at the port of destination. The seller must pay the costs and freight necessary to bring the goods to the named port of destination But the Risk of loss of or damage to the goods, as well as any additional costs due to events occurring after the time of delivery, are transferred from the seller to buy the buyer. However, in CIF the seller also has to procure marine insurance against the buyer’s loss of or damage to the goods during carriage. Consequently, the seller is responsible for insurance and pays the insurance premium. The buyer should note that the CIF term the seller is required to obtain insurance only on minimum cover.

Summary: Seller’s obligations

  1. Provide goods in accordance with contract.
  2. Obtain necessary export license.
  3. Arrange at own expenses for shipment of goods to named port. Arrange insurance of goods.
  4. Deliver goods on board vessel at named port.
  5. Bear risk of loss or damage until delivery on board of ship.
  6. Pay all costs until delivery.
  7. Give buyer adequate notice that goods have been delivered.
  8. Advice buyer of delivery of goods in agreed manner.
  9. Pay costs of packaging, checking and marking.
  10. Assist with obtaining import licenses and insurance if necessary.

Summary: Buyer’s obligations

  1. Pay the price.
  2. Obtain any import license.
  3. Take delivery at named port.
  4. Bear the risk of loss or damage after delivery at port of shipment.
  5. Pay all costs after delivery including duties and taxes.
  6. Give seller adequate notice of time and port of loading.
  7. Accept proof of delivery.
  8. Pay all costs relating to import licenses, etc render assistance re insurance if necessary.
Source: http://www.iccwbo.org/
http://en.wikipedia.org/wiki/Incoterms

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