Incoterms

Incoterms Explained

January 17, 2012

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Download Incoterms 2000: PROPORTION OF COST/RISK BETWEEN BUYER AND SELLER

Incoterms rules are international rules that are accepted by governments, legal authorities and practitioners worldwide for the interpretation of the most commonly used terms in international trade. They either reduce or remove altogether uncertainties arising from differing interpretations of such terms in different countries.

What do Incoterms cover?

Incoterms rules describe mainly the tasks, costs and risks involved in the delivery of goods – excluding intangibles -- from sellers to buyers.

What has changed since the release of Incoterms 2000?

New Incoterms take account of international traders' growing reliance on intermodal transport. Increased use of FCA (Free Carrier) prompted ICC to simplify delivery obligations under this term. A further advantage of the new Incoterms rules is that they clearly allocate the loading and unloading requirements of both buyer and seller.

Under FAS (FREE ALONGSIDE SHIP) the seller is required to clear the goods for export. This is a reversal from previous versions of Incoterms rules, which required the buyer to arrange for export clearance.

Under DEQ (DELIVERED EX QUAY) the buyer is required to clear the goods for import and to pay for all formalities, duties, taxes and other charges upon import. This is a reversal from previous versions of Incoterms rules, which required the seller to arrange for import clearance.

How is each letter “E, F, C, D” categorized?

  • Under the "E"-term (EXW), the seller only makes the goods available to the buyer at the seller's own premises. It is the only one of that category.
  • Under the "F"-terms (FAS and FOB), the seller is called upon to deliver the goods to a carrier appointed by the buyer.
  • Under the "C"-terms (CFR, CIF), the seller has to contract for carriage, but without assuming the risk of loss or damage to the goods or additional costs due to events occurring after shipment or dispatch.
  • Under the "D"-terms (DDU and DDP), the seller has to bear all costs and risks needed to bring the goods to the place of destination.

All terms list the Seller's and the Buyer's obligations. The respective obligations of both parties have been grouped where each heading on the seller's side "mirrors" the equivalent position of the buyer.

Understanding the Terminology

Origin Terms

EXW - Ex-Works, named place where shipment is available to the buyer, not loaded. The seller will not contract for any transportation.

International Carriage NOT Paid by Seller

FAS - Free Alongside Ship, named ocean port of shipment. Ocean shipments that are NOT containerized.

FOB - Free On Board vessel, named ocean port of shipment. This term is used for ocean shipments only where it is important that the goods pass the ship's rail.

International Carriage Paid by the Seller

CFR - Cost and Freight, named ocean port of destination. This term is used for ocean shipments that are not containerized.

CIF - Cost, Insurance and Freight, named ocean port of destination. This term is used for ocean shipments that are not containerized.

Arrival at Stated Destination

DDU - Delivered Duty Unpaid, named place of destination, not unloaded, not cleared. This term is used for any mode of transportation.

DDP - Delivered Duty Paid, named place of destination, not unloaded, cleared. This term is used for any mode of transportation.