INCOTERMS

The sale of any goods involves the exchange of ownership between a Seller and Buyer.  Insurance provides coverage on your goods under the terms of sale contract as long as you have a financial interest in the cargo.  This Contract of sale will state the responsibilities of each party and these responsibilities are normally referred to by using the INCOTERMS.

These terms of sale are used by all countries and are the standard terms used to avoid confusion.  Their purpose is to provide a set of international rules for commonly used trade terms and reduce uncertainty and "interpretation slippage".  The scope of these terms is limited to the rights and obligations of the seller and buyer.

Appended below are brief descriptions of some of the more typical terms of sale.

Each of the terms of sale spell out who is responsible for

1. risk of loss
2. delivery
3. export license and customs clearance
4. the contract of carriage, and
5. contract of insurance.

Prior to January 1 2000 the governing set of terms were implemented on July 1, 1990, and previous amendments occurred in 1953, 1967, 1976, 1980.  The International Chamber of Commerce first published these international rules in 1936.

INCOTERMS 2000 became applicable on January 1, 2000. 

There are six (minor) differences compared to the 1990 terms currently in existence.

[1] FAS terms of sale (i.e. Free Alongside Ship ... at the named port of sailing).  Under Incoterms 2000, the obligation of customs entry in obtaining an export license (where necessary) changes from the overseas buyer/importer (as in the 1990 version) to the seller/exporter.

[2] DEQ term (Delivered Ex Quay ... at the named port of destination).  As from January 1st, the obligation for customs clearance, and payment of import duties (where applicable), changes from the seller/exporter (as in the 1990 version) to the buyer/importer at destination.

[3] EXW term (Ex Works).  It contains two modifications.  Firstly, the seller/exporter is no longer responsible for loading the cargo onto the collecting vehicle at his premises, which responsibility now becomes the obligation of the buyer.  The 1990 rules were silent on this subject.  Secondly, if more than one place on the premises of the seller is suitable for delivery, the seller has the option to designate any one of them.

[4] FCA term (Free Carrier), which now contains a distinction between two possibilities.  Firstly, delivery to the carrier at the premises of the seller, when the latter is under the obligation to load the cargo onto the vehicle of the carrier.  Secondly delivery to the carrier at any other point (i.e. a terminal, quay, railway ramp, etc. where the carrier (on behalf of the buyer) is responsible for discharging the shipment from the vehicle sent by the seller.

[5] & [6] The fifth and sixth changes concern the DDU and DDP terms (Delivered Duty Unpaid and Delivered Duty Paid), which make a similar distinction. Firstly, delivery takes place on the premises of the buyer, still loaded on the arriving vehicle, when the latter is under the obligation to discharge the cargo from this vehicle.  Secondly, when delivery takes place anywhere else, delivery is completed by loading the cargo onto the collecting vehicle (sent by the buyer).

The main changes address the 1990 version's silence on the apportionment of certain handling costs. For example, the 1990 EXW was silent on the question of who should be responsible for loading the collecting vehicle sent by the buyer. In practice, sellers have often loaded the collecting vehicles, and made equipment available for this (e.g. forklift trucks, cranes etc.) The 2000 EXW term, by contrast, now states that delivery will take place by putting the cargo at the buyer's disposal, 'not loaded on any collecting vehicle'.

The terms of sale are:

E Terms

Ex W - Ex Work (...named place)

Under this term, the seller fulfills his obligation to deliver when the goods are available at seller's premises (i.e. factory, warehouse). The seller is not responsible for loading the goods and is not responsible for export clearance. This is the minimum obligation for the seller.

Under Incoterms 2000 the seller/exporter is no longer responsible for loading the cargo onto the collecting vehicle at his premises, which responsibility now becomes the obligation of the buyer.  The 1990 rules were silent on this subject.  Additionally, if more than one place on the premises of the seller is suitable for delivery, the seller has the option to designate any one of them.

F Terms

FCA, FAS, FOB

For all F terms, the seller fulfills his obligation to deliver when goods are handed over to the carrier. The carrier is named by the buyer and is at the buyer's expense.

FCA - Free Carrier (...named place)
Under these terms of sale, the seller fulfills his obligation to deliver when the goods are handed to the carrier at the named place or port and are cleared for export. There is no obligation for contract of carriage and no obligation for insurance. For FCA shipments, the delivery point is an important issue. Accordingly, the following are details for delivery by various modes of transit.

— Rail
For Full Load delivery is when the goods are accepted by the railroad.
For Partial Load delivery is when the goods are accepted at rail receiving point or loaded onto the vehicle provided by the railroad.

— Road
For delivery at seller's premises, delivery is made when the goods have been loaded onto the vehicle provided for by the buyer. For delivery at carrier's premises, delivery is made when the goods have been handed over to the carrier.

— Air
Delivery is made when goods have been handed over to the air carrier or another person acting on their behalf.

— Vessel
Full container delivery is made when goods are taken over by the sea carrier. For terminal operations, delivery is made when the container enters the premises of the terminal. For LCL (Less than container loads), delivery is made when the seller delivers the goods to the terminal and is accepted by the sea carrier.

FCA term (Free Carrier), under Incoterms 2000 now contains a distinction between two possibilities.  Firstly, delivery to the carrier at the premises of the seller, when the latter is under the obligation to load the cargo onto the vehicle of the carrier.  Secondly, delivery to the carrier at any other point (i.e. a terminal, quay, railway ramp, etc. where the carrier (on behalf of the buyer) is responsible for discharging the shipment from the vehicle sent by the seller.

FOB - Free on Board (...named port of shipment)
Under these terms of sale, the seller fulfills his obligation when the goods have passed over the ship's rail at the named port of shipment. The seller must obtain all export licenses and clearances. The seller has no obligation for insurance.  This term is very often used but should only be used for vessel shipments.

FAS - Free Alongside Ship (..named port of shipment)
Under these terms, the seller fulfills his obligation to deliver when goods are placed alongside the vessel or in lighters at the named port of shipment. There is no obligation for export clearance and no obligation for insurance.  Under Incoterms 2000, the obligation of customs entry in obtaining an export license (where necessary) changes from the overseas buyer/importer (as in the 1990 version) to the seller/exporter.

C Terms

CFR, CIF, CPT, CIP

Under these terms, the seller fulfills his obligation when the goods are delivered to the carrier and:  carriage is paid by the seller - obtain export licenses and clearances - CIP, CIF, obtain insurance and bear cost on behalf of the buyer.  The seller arranges contract of carriage but does not assume risks of loss or damage occurring after shipment or dispatch.

CFR - Cost and Freight (...named port of destination)
Under this term, the seller must pay the costs and freight necessary to bring the goods to the named point of destination. The seller retains the risk of loss until the goods pass the ship's rail. The seller is obligated to obtain export clearances. There is no obligation for insurance. Under this term, the seller must pay the costs and freight necessary to bring the goods to the named port of destination. The seller retains the risk of loss until the goods pass the ship's rail. The seller obtains the export clearance. The seller also obtains insurance that the buyer or any other party with insurable interest is entitled to claim directly from the insurer. The duration of insurance is to the point of named destination.

CIP - Carriage and Insurance Paid To (...named place of destination)
Under these terms, the seller must pay the costs and freight necessary to bring the goods to the named point of destination. The seller retains the risk of loss until the goods are delivered to the carrier. The seller is also obligated to obtain insurance on behalf of the buyer or any other party with an insurable interest.

CPT - Carriage Paid To (...named place of destination)
Under these terms, the seller pays the freight for the carriage of goods to the named destination. The seller's risk of loss ceases upon delivery to the carrier. the seller obtains the export clearances. There is no obligation for the seller to obtain insurance.

D Terms

DAF, DES, DDU, DEQ, DDP

These are arrival contacts in that the seller must bear all risks and costs in bringing the goods to the point of destination. The seller is responsible for all export clearances and, under DEQ and DDP, import clearances as well.

DAF - Delivered at Frontier (...named place)
Under these terms, the seller fulfills his obligation to deliver when the goods have been made available, cleared for export, at the named point and place at the frontier but before the customs border of the adjoining country. This term is used primarily for rail and road. There is no obligation for import clearances and no obligation for insurance.

DES - Delivered Ex Ship (...named port of destination)
Under these terms, the seller fulfills his obligation to deliver when the goods have been made available to the buyer on board the vessel uncleared for import at named port of destination. The seller bears all costs and risks involved in bringing the goods to the named port of destination. There is no obligation for import clearances and no obligation for insurance.

DEQ - Delivered Ex Quay (duty paid) (...named port of destination)
Under these terms, the seller fulfills his obligation to deliver when the goods are available on the wharf at the named port of destination. The seller is responsible for import clearances, duties, and fees. There is no obligation for insurance.   As from January 1st, the obligation for customs clearance, and payment of import duties (where applicable), changes from the seller/exporter (as in the 1990 version) to the buyer/importer at destination.

DDU - Delivery Duty Unpaid (...named place of destination)
Under these terms, the seller fulfills his obligation to deliver when the goods have been available to the buyer uncleared for import at the point or place of destination. The seller bears all costs and risks involved in bringing the goods to the point or place of destination. There is no obligation for import clearance. 

Under Incoterms 2000 DDU (Delivered Duty Unpaid). Firstly, delivery takes place on the premises of the buyer, still loaded on the arriving vehicle, when the latter is under the obligation to discharge the cargo from this vehicle.  Secondly, when delivery takes place anywhere else, delivery is completed by loading the cargo onto the collecting vehicle (sent by the buyer).

DDP - Delivered Duty Paid (...named place of destination)
Under this term, the seller fulfills his obligation to deliver when the goods have been made available at the named place in the country of importation. The seller has to bear all risks and costs including export and import duties, taxes and charges. This represents the maximum obligation for the seller

Under Incoterms 2000 DDP terms (Delivered Duty Paid). Firstly, delivery takes place on the premises of the buyer, still loaded on the arriving vehicle, when the latter is under the obligation to discharge the cargo from this vehicle.  Secondly, when delivery takes place anywhere else, delivery is completed by loading the cargo onto the collecting vehicle (sent by the buyer).