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Over the years, national differences in regulations, procedures and languages threatened to place ever-higher hurdles between exporters and importers. As far back as 1936, the Paris based International Chamber of Commerce (ICC) began publishing a set of international rules, which they called International Commercial Terms, or Incoterms for short, to reduce confusion between international buyers and sellers. Incoterms, which have been revised as needed since these early days, clearly define the responsibilities and division of costs between buyer and seller in any commercial transaction. More specifically Incoterms:
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| CFR |
"Cost and Freight" is the term used so that the seller must pay costs and freight in order to bring the goods to the specified destination port. The risk of loss or damage to the goods, as well as extra costs being incurred after delivery on board the vessel, is transferred from the seller to the purchaser after the consignment crosses the ship's rail in port of shipment. The CFR term necessitates the seller clearing the commodities for export.
It should be noted that this term is only valid for sea and inland waterway transport. It is more appropriate to use the CPT term in the case of roll-on/roll-off or container traffic, especially if the ship's rail serves no practical purpose.
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| CIF |
Cost, Insurance and Freight" is the term used to ensure that the seller works under the same rules as CFR, with the addition that he must ensure that they are insured against the purchaser's risk of loss of or damage to the consignment during transit. The seller must have cover for insurance and also pay the premium. The buyer must note that under the CIF term the seller need only get minimum insurance cover. CIF means that the seller has to clear the consignment for export.
This term is only used for sea and inland waterway transport. The CIP term is more appropriate when the ship's rail serves no practical purpose as in roll-on/roll off or container traffic.
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| CIP |
"Carriage and Insurance Paid to.." is the term used so that the seller has the same obligations as in CPT, except that the seller must get cargo insurance against the purchaser's risk of loss of or damage to the consignment during the travel. The seller must obtain and pay for the insurance premium. Under CIP the buyer must note that the term seller is only required to get insurance on minimum coverage, also the seller has to clear the consignment for export.
This term may be used for any kind of transport including multimodal.
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| CPT |
"Carriage Paid to.." is the term meaning that the seller pays for the freight to be carried to its destination. The risk of loss or damage, as well as any extra costs due to unforeseen circumstances happening after the goods have been delivered to the carrier, is given from the seller to the buyer after the consignment has been delivered to the carrier. "Carrier" means anyone (by either carriage or contract) who undertakes to perform or to procure the carriage of the goods by rail, road, air, sea, inland waterway or any of these combinations. If further carriers are used to finish the contract , the risk passes when the goods have been delivered by the carrier. CPT means that the seller must clear the goods for export.
This term applies to any kind of transport including multimodal.
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| DAF |
"Delivered at Frontier" means that the seller must deliver the goods when they are available, cleared customs at the frontier, but before the customs border of the adjoining country. The term "frontier" means any frontier including that of the country of export. It is therefore extremely important to name the frontier in question exactly. This term is mainly for use when goods are moved by rail or road,but can also be used for any kind of transport.
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| DDP |
"Delivered Duty Paid" means that the seller must deliver the goods to the destination when they are made available at the defined place in the country where they are being imported. The seller must pay for all costs including duties, taxes and all other official charges regarding importation. The seller also bears the risks. The EXW term means the minimum obligation for the seller, DDP means the maximum. This term must not be used if the seller cannot obtain an import licence. Should the purchaser want to clear the consignment for import and pay the duty, the term DDU must be used. If, however, those concerned want to exclude the sellers obligations ie VAT upon importation of the goods, this must be made clear by adding "Delivered Duty Paid, VAT unpaid, …(named place of destination)".
Use this term for any mode of transport.
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| DDU |
"Delivered Duty Unpaid" is the term used when the seller must deliver the goods once they have been made available at the agreed place in the country of import. The seller must pay for the costs and risks involved in importing the goods (excluding duties, taxes and other official charges which must be paid on importation), as well as any costs and risks and also any customs formalities that are carried out. The buyer must pay for any extra costs and take on any risks due to failure to clear the goods for importation at the allotted time. If the seller is required to carry out all customs formalities and take on all the costs and risk, this must be made clear by stating this in writing. If, however, the parties concerned want to include in the seller's obligations that they pay for some of the costs of importation (i.e. VAT), this must be made clear by using the words "Delivered Duty Unpaid, VAT paid … (named place of destination)".
This term applies to for any form of transport.
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| DEQ |
"Delivered Ex Quay (duty paid)" means that the seller must deliver the goods to the quay at the predefined port of destination as soon as they are available and clear them for importation. They must also take on all risks and costs including duties, taxes and any other charges involved.
This term must not be used if the seller is unable to obtain an import licence (either directly or indirectly).
If it is necessary for the buyer to clear the goods for import and pay the duty, the words "duty unpaid" must be used instead of "duty paid". If the seller does not wish to pay some of the costs payable, (ie VAT, this must be made clear be adding the words "Delivered ex quay, VAT unpaid (named port of destination)".
Only be used for sea and inland waterway transport.
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| DES |
"Ex Ship" means that the seller must deliver the consignment when available to the purchaser on board the ship, when uncleared for import at the port of destination. The seller must bear all the costs and risks involved so that the goods arrive at their destination.
This term can only be used for sea or inland waterway transport.
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| EXW |
"Ex Works" means that the seller must deliver once the goods are available for collection at the sellers premises (ie factory, works, warehouse etc.). The seller is not responsible for putting the consignment on to the vehicle provided or for clearing the consignment for export, unless this has already been agreed between the parties. The buyer is responsible for all costs and risks between the seller's premises and the consignment's destination. This term means that there is minimum obligation to the seller.
This term should not be used if the buyer is unable to resolve, directly or indirectly, the export formalities. If this is the case the FCA term should be used.
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| FAS |
"Free Alongside Ship" means that the seller must deliver when the goods are delivered next to the vessel on the quay or in lighters at the port specified. The buyer must bear all the costs and risks of loss of or damage to the goods from that moment. The FAS term requires the buyer to clear the goods for export. It should not be used when the purchaser cannot carry out the export formalities directly or indirectly.
This terms can only used for sea or inland waterway transport.
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| FCA |
"Free Carrier" means that the obligation of the seller in complete when the goods are in the possession of the carrier named by the buyer. This must happen at a named place agreed by both parties. The buyer may choose the place if the buyer does not name it. If, because it is normal commercial practice, the seller must be involved in the contract with the carrier then the seller acts at the buyers risk and expense.
Usable with any mode of transport, including multimodal transport.
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| FOB |
"Free on Board" means that the sellers part of the transaction is complete after the goods have passed the ship's rails at an agreed port of shipment. This means that the purchaser is responsible for all risk and costs of loss or damage to the goods from that point. Under the term FOB, the seller must clear the goods for export.
This term can only be used for sea or inland waterway transport. The FCA term is more appropriate when the ship's rail serves no practical purpose, such as with roll-on/roll-off or container traffic.
Usable with any mode of transport, including multimodal transport.
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