“Incoterms®” are a series of pre-defined internationally accepted commercial terms developed in 1936 by the International Chamber of Commerce (ICC) in Paris.
“Incoterms®” is an acronym standing for international commercial terms. “Incoterms®” is a trademark of International Chamber of Commerce, registered in several countries.
The Incoterms® rules feature abbreviations for terms, like FOB (“Free on Board”), DAP (“Delivered at Place”) EXW (“Ex Works”), CIP (“Carriage and Insurance Paid To”), which all have very precise meanings for the sale of goods around the world. These terms hold universal meaning for buyers and sellers around the world.
Incoterms, a widely-used terms of sale, are a set of 11 internationally recognized rules which define the responsibilities of sellers and buyers. Incoterms specifies who is responsible for paying for and managing the shipment, insurance, documentation, customs clearance, and other logistical activities.
The incoterms 2000 explain the respective responsibilities and obligation of the exporter & importer in the transportation agreement and also clarifies when the ownership of merchandise takes place. Incoterms are incorporated into import-export sales agreements world-wide and are necessary part of foreign trade.
Incoterms safeguard the following issues in the International Trade contract :
The 13 international accepted incoterms are:
1. “EXW” - Ex Works: Risk pass or title provided to the buyer including payment of all transportation and insurance cost, used for any mode of transport.
However, if the parties wish the exporter to be responsible for the loading of the goods on its departure and to bear the risks and all the costs of such loading, this should be made clear by adding clear and obvious wording to this effect in the contract of sale.
2. “FCA” - Free Carrier named point: Risk pass & title provided to buyer including transportation cost and insurance cost, when the seller delivers goods cleared for export. Seller is committed to load the goods on the buyer's collecting vehicle, it is the buyer's commitment to receive the seller's arriving vehicle unloaded.
The seller and the buyer agree upon the place for delivery of goods. If the buyer proposes a person other than a transporter to receive the goods, the seller is expected to fulfil his responsibility to deliver the goods.
3, “FAS" - Free Alongside Ship: Risk pass & title provided to buyer including the payment of all transportation and insurance cost once delivered along with the seller, used for sea or inland waterway transportation. The export clearance assignment rests with the seller. In FAS, the price includes all the costs included in delivering the goods along with the carrier at the port or the proposed place of the buyer. But there is no applicable charges of the seller for loading the goods on board of carrier and no freight charges and insurance.
4. “FOB” - Free on Board: It include the Ex-Works price; packaging charges and transportation charges up to the place of shipment. Seller is also responsible for zero clear customs dues, weight measurement charges, quality inspection charges and other export related dues. It is of major importance that the shipment term in the Bill of Lading must carry the wording "Shipped on Board' and must bear with the signature of transporter or his authorized representative with the date on which goods were loaded.
5. “CFR”- Cost and Freight: Here, the exporter bears all the cost of goods that are transported to the selected destination port, in this term the risk is transferable to the buyers at the port of shipment.
6. “CIF” - Cost, Insurance and Freight: Risk pass & title is provided to the buyer when the carrier is delivered or is boarded on the ship by the seller who pays for the 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 damage or loss to the goods during the transport.
7. “CPT " - Carriage Paid To: Risk, insurance cost pass & title is provided to buyer when carrier is delivered by seller who pays transportation cost at destination, used for any mode of transportation. This term uses land transport by road, rail and inland waterways. The seller and exporter are responsible for the transport of goods to the proposed destination and have to pay freight.
8. “CIP" - Carriage and Insurance Paid To: Risk pass & title provided to the buyer when delivered to carrier by seller who pays transportation and insurance cost at destination, used for any mode of transportation. This (CIP) term is similar to “Carriage Paid To” but the seller has to arrange and do the payment for the insurance against the risk of damage or loss of the goods during the shipment.
9. “DAF” - Delivered at Frontier: Risk and responsibility for import clearance pass or title is provided to the buyer when delivered to proposed border of point by seller, used for any mode of transportation. This term is used when the goods are to be carried by road or rail.
10. “DES” - Delivered Ex-Ship: Title, risk, responsibility for carrier dispatch and import clearance pass to buyer when seller delivers goods or on board the ship to destination port., used for sea or inland waterway transportation.
11. “DEQ” - Delivered Ex-Quay: Risk pass & title is provided to buyer when delivered on board the ship at the destination point by the seller who delivers goods on port at destination point cleared for import, used for sea or inland waterway transportation.
12, “DDU” - Delivery Duty Unpaid: Seller fulfils his responsibility when goods have been made available at the proposed place in the country of import.
13. “DDP” - Delivery Duty Paid: Risk pass & title is provided to the buyer when seller delivers goods to the proposed destination point cleared for import, used for any mode of transportation.