Decoding International Trade Terms: An Introduction to Incoterms

Incoterms

Definition:

The purpose of incoterms is to provide a set of international rules for the interpretation of the most commonly used trade terms in foreign trade (UNECE 20002 p3). They outline the obligations of the main parties to the contract of sale, the seller and buyer. These terms, currently thirteen, are devised and published by the International Chamber of Commerce and the first version was done in 1936 (ICC 2000). They are as follows:-

EXW (Ex-Works...named place): Carriage arranged by buyer.

Risk and cost are transferred from seller to buyer when the goods are at the disposal of the buyer at the seller’s premises.

FCA (Free Carrier…named place): Carriage arranged by buyer or seller on buyer’s behalf. Risk and cost transfer from seller to buyer when the goods have been delivered to the carrier at named place.

FAS (Free Alongside Ship…named port of shipment): Carriage arranged by buyer. Risk and cost transfer from seller to buyer when the goods have been placed alongside the ship.

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FOB (Free on Board…named port of shipment): Carriage arranged by buyer. Risk and cost transfer from seller to buyer when the goods pass the ship’s rail.

CFR (Cost and Freight…named port of destination): Carriage arranged by seller.

Risk transfer from seller to buyer when goods pass the ship’s rail. Cost transfer at port of destination and buyer pays costs that are not in the seller’s account as per the contract.

CIF (Cost, Insurance and Freight …named port of destination): Carriage and insurance arranged by seller. Risk transfer from seller to buyer when goods pass the ship’s rail. Cost transfer at port of destination and buyer pays costs that are not in the seller’s account.

CPT (Carriage Paid To …named place of destination): Carriage arranged by the seller. Risk transfer from seller to the buyer when the goods have been transferred to the carrier. Cost transfer at place of destination and buyer pays costs that are not in the seller’s account. CIP (Carriage and Insurance Paid …named port of destination): Carriage and insurance arranged by the seller. Risk transfer from seller to buyer when goods have been delivered to carrier. Cost transfer at place of destination and buyer pays costs that are not in the seller’s account.

DAF (Delivered at Frontier …named place): Carriage arranged by seller. Risk and cost transfer from seller to buyer when the goods have been delivered at the frontier.

DES (Delivered Ex-Ship …named port of destination): Carriage arranged by the seller. Risk and cost transfer from seller to buyer when the goods are placed at the disposal of the buyer on board the ship.

DEQ (Delivered EX-Quay…named port of Destination): Carriage arranged by the seller. Risk and cost transfer from seller to buyer when the goods are placed at the disposal of the buyer on the quay.

DDU (Delivered Duty Unpaid …named place of destination): Carriage arranged by the seller. Risk and cost transfer from seller to buyer when the goods are placed at the disposal of the buyer.

DDP (Delivered Duty Paid …named place of Destination): Carriage arranged by the seller. Risk and cost transfer from seller to buyer when the goods are placed at the disposal of the buyer.

References:

1)      International Chamber of Commerce (2000), “ICC Guide to Incoterms 2000” available at http://www.iccwbo.org/incoterms/wallchart/wallchart.pdf accessed on February 18, 2009

2)      International Chamber of Commerce (2009), The World Business Organization  Available at http://www.iccwbo.org/index_incoterms.asp accessed February 18, 2009

3) United Nations Economic Commission for Europe (2000), “Recommendation No.5       Abbreviation of Incoterms, Alphabetic Code for Incoterms 2000” available at http://www.unece.org/cefact/recommendations/rec05_ecetrd259.pdf accessed on February 18, 2009