Incoterms are internationally accepted
commercial terms, developed in 1936 by the International Chamber of
Commerce (ICC) in Paris. Incoterms 2000 define the respective roles of the
buyer and seller in the agreement of transportation and other
responsibilities and clarify when the ownership of the merchandise takes
place. These terms are incorporated into export-import sales agreements and
contracts worldwide and are a necessary part of foreign trade.
Incoterms are used in union with a sales agreement or other methods of
sales transactions and define the responsibilities and obligations of both,
the exporter and importer in Foreign Trade Transactions.
The main objectives of Incoterms 2000 revolve around the contract of
Foreign Trade concerned with the loading, transport, insurance and delivery
transactions. Its main function is the distribution of goods and regulation
of transport charges.
Another significant role played by Incoterms is to identify and define the
place of transfer and the transport risks involved in order to justify the
ownership for support and damage of goods by shipments sent by the seller
or the buyer in an event of execution of transport.
Incoterms make international trade easier and help traders in different
countries to understand one another. These International Commercial Terms
are the most widely used international contracts protected by the ICC
Incoterms safeguard the following issues in the Foreign Trade contract or
International Trade Contract:
determine the critical point of the transfer of the risks of the
seller to the buyer in the process forwarding of the goods (risks of
loss, deterioration, robbery of the goods) allow the person who
supports these risks to make arrangements in particular in term of
specify who is going to subscribe the contract of carriage that is to
say the seller (exporter) or the buyer (importer).
distribute between the seller and the buyer the logistic and
administrative expenses at the various stages of the process.
is important to define who is responsible for packaging, marking,
operations of handling, loading and unloading, inspection of the
To confirm and fix respective obligations for the achievement of the
formalities of exportation and importation, the payment of the rights
and taxes of importation as well as the sending of the documents. In
dealing Foreign Trade there are 13 Incoterms globally adopted by the
International Chamber of Commerce.
Incoterms or International commercial
terms make trade between different countries easier. International
Commercial Terms are a series of international trade terms that are used
are used worldwide to divide he transaction costs and responsibilities
between the seller and the buyer and reflect state-of-the-art
Incoterms directly deal with the questions related to the delivery of the
products from the seller to the buyer. This includes the carriage of
products, export and import responsibilities, who pays for what and who has
the risk for the condition of the products at different locations within
the transport process.
Incoterms and world customs Incoterms deal with the various trade
transactions all over the world and clearly distinguish between the
respective responsibilities of the seller and the buyers.
The 13 International Incoterms are:
Departure of goods by international transport with the risks and dangers to
the Seller (Exporter) and Buyers (Importers)
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.
Seller : In EXW shipment terms the Seller (Exporter) provides the goods for
collection by the Buyer (Importer) on the seller or exporter's promise.
Responsibility for the seller is to put the goods, in a good package which
is adaptable and disposable by the transport.
Buyer : The buyer or Importer arranges insurance for damage transit goods.
The Buyer or importer has to bear all costs and risks involved in shipment
(However, if the parties wish the seller to be responsible for the loading
of the goods on departure and to bear the risks and all the costs of such
loading, this should be made clear by adding explicit wording to this
effect in the contract of sale. )
- Free Carrier named point
Carrier named point: 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 receive the Seller's arriving vehicle
Seller : The Seller’s responsibility is to deliver the goods into the
custody of the transporters at defined points. It is important for the
chosen place of delivery to have an impact on the obligations of loading
and unloading the goods.
Buyer : The Buyer nominates the means of transport or shipping mode and
pays the shipment charges.
The seller and the buyer agree upon the place for delivery of goods. If the
buyer nominates a person other than a carrier or transporter to receive the
goods, the seller is deemed to fulfill his obligation to deliver the goods
when they are delivered to that person.
- Free Alongside Ship
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.
In FAS has price includes all the costs incurred in delivering the goods
alongside the vessel at the port or nominated place of the buyer but there
is not applicable charges to the seller for loading the goods on board of
vessel and no ocean freight charges and marine insurance.
Seller: The responsibility of the seller are fulfilled when the goods are
placed cleared along the ship.
Buyer: Buyer or Importer bear all the expenses and risks of loss or damage
of transit goods which are delivered along the ship.
- Free On Board
The FOB (Free on
Board) price is inclusive of Ex-Works price, packing charges,
transportation charges upto the place of shipment., Seller also responsible
for o clear customs dues, quality inspection charges, weight measurement
charges and other export related dues. It is important that the shipment
term in the Bill of Lading must carry the wording "Shipped on Board'
it must bear with signature of transporter or carrier or his authorized
representative with the date on which goods were "Boarded".
Seller :Seller responsible for clear customs dues, quality inspection
charges, weight measurement charges and other export related dues. It is
important that the shipment term in the Bill of Lading must carry the
wording "Shipped on Board' it must bear with signature of transporter
or carrier or his authorized representative with the date on which goods
Buyer : The buyer indicates the ship and pays freight, transfer expenses
and risks is done when the goods passes or forwarding to the buyers
warehouse by rail or ship.
- Cost And Freight
In this term the
exporter bears the cost of carriage or transport to the selected
destination port, in this term the risk transferable to the buyers at the
port of shipment.
Seller: The chooses the carrier, concludes and bears the expenses by paying
freight to the agreed port of destination, unloading not included. The
loading of the duty-paid goods on the ship falls on him as well as the
formalities of forwarding. On the other hand, the transfer of risks is the
same one as in FOB.
Buyer: The buyers supports all the risk of transport, when the goods are
delivered aboard by ship at the loading port, buyer receives it from the
carrier and takes delivery of the goods from nominated destination port.
- Cost, Insurance And Freight
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.
This Term involves insurance with FOB price and ocean freight. The marine
insurance is obtained by the exporter at his cost against the risk of loss
or damage to the goods during the carriage.
Seller: The CFR extends additional obligation to the seller for providing a
maritime So insurance against the risk of loss or damage to the goods. The
seller pays the insurance premium.
Buyer: He supports the risk of transportation, when the goods have been
delivered aboard the ship at the loading port. He takes delivery of the
goods from the carrier to the appointed port or destination.
7. "CPT" -
Carriage Paid To
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
This term uses land transport by rail, road and inland waterways. The
seller and exporter are responsible for the carriage of goods to the
nominated destination and have to pay freight up the first carrier.
Seller: The seller or exporter controls the supply chain after paying
customs clearance for export. Seller or Exporter select the carrier and pay
the expenses up to the destination.
Buyer: The risks of goods damages or loss are supported by the buyer as
goods are given by the first carrier. The buyer or importer has to pay
importation customs clearance and the unloading costs.
- Carriage And Insurance Paid To
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.
This term is similar to Carriage Paid To but the seller has to arrange and
pay for the insurance against the risk or loss or damage of the goods
during the shipment.
Seller: The seller or buyer has to provide insurance and seller pays the
freight and insurance premium.
Buyer: The buyer or importer supports the risks of damages or loss, as
goods are given to the first carrier. The buyer has to pay customs
clearance and unloading charges.
9. "DAF"- Delivered At Frontier
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
This term is used when the goods are to be carried by rail or road.
Seller : The seller
is responsible to make the goods available to the buyer by the carrier till
the customs border as defined in sales contract.
Buyer : The buyer takes delivery of the goods at the contract agreed point
border and he is responsible for bearing all customs formalities.
10. "DES" -
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.
Seller: The seller is responsible to make the goods available to the buyer
up to the named quay or after crossing the customs border.
Buyer: The buyer takes delivery of the goods from ship at destination port
and pays the expenses of unloading.
11. "DEQ" -
Ex-Quay: 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.
12. "DDU" -
Delivered Duty Unpaid
DDU- Delivered Duty
Unpaid: Seller fulfills his obligation when goods have been made available
at the named place in the country of importation.
Seller: The seller is responsible for all transportation cost and accept
the customs duty and taxes as per defined in customs procedures.
Buyer: The buyer is responsible of the importation customs formalities.
13. "DDP" -
Delivered Duty Paid
DDP- Delivered Duty
Paid: Title and risk pass to buyer when seller delivers goods to the named
destination point cleared for import. Used for any mode of transportation.
Seller: The seller is responsible to make the goods available to the buyer
at his risk and cost as promised by the buyer. All the Taxes and duty on
importation is promised by the buyer to the seller.
Buyer: The buyer is responsible to take delivery at a nominated place and
pays the expenses for unloading of goods.