Introduction

“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 :

1. To ascertain the critical point of transfer of the risks of the seller to the buyer in the process of transportation of goods (robbery of the goods, collapse, risk of loss) allow the person who supports these risks to make arrangements in terms of insurance
2. To specify who is going to subscribe the contract or agreement of transport that is to the seller (exporter) or the buyer (importer)
3. To distribute the logistic and administrative expenses at the various stages of transportation process between the seller and the buyer
4. It is important to define who is responsible for marking, packaging, operations of handling, loading and unloading, inspection of the goods
5. The need to confirm and fix respective responsibilities for the achievement of the formalities of import and export, the payment of rights and taxes of import as well as the dispatch of documents. In Foreign Trade contract there are 13 Incoterms globally adopted by the International Chamber of Commerce.

International Incoterms : 

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.

• Seller: In EXW shipment terms the exporter (seller) provides the goods for collection by the importer (buyer) on the exporter's promise. Responsibility for the exporter is to pack the goods, in a way which is adaptable and disposable by the transport.
• Buyer: The importer arranges insurance for the damage of transit goods. The importer has to bear all the costs and risks involved in shipments.

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.

• Seller: The Seller’s responsibility is to deliver the goods into the custody of the transporters at designated points. It is very important for place of delivery to have an impact on the responsibility of loading and unloading the goods.
• Buyer: The Buyer proposes 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 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.

• Seller: The responsibility of the seller is fulfilled when the goods are placed and cleared along with the ship.
• Buyer: Buyer bears all the expenses and risks of loss or damage of transit goods which are delivered along with the ship.

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.

• Seller: The seller is responsible for all the clearance of custom dues, weight measurement charges, quality inspection charges and other export related dues. It is very important that the shipment term in the Bill of Lading must carry the wording "Shipped on Board' and must bear the signature of transporter or the authorized representative with the date on which goods were loaded.
• Buyer: The buyer specifies the ship and pays the freight as well as transfer expenses and risks are done when the goods pass or is forwarded to the buyer’s warehouse by ship or rail.

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.

• Seller: The seller chooses the carrier and bears the expenses by paying freight until the accepted port of destination, unloading is not included. The loading of the duty-paid goods on the ship and the formalities of forwarding fall on the seller. On the other hand, the transfer of risks is the same as in FOB.
• Buyer: The buyer supports all the risk of carrier, when the goods are delivered overseas by ship at the loading port, buyer receives it from the transporter and takes delivery of the goods from proposed destination port.

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.

• Seller: This term extends additional responsibility to the seller for providing a maritime and the insurance against the risk of damage to the goods. The seller pays the insurance premium.
• Buyer: The buyer supports the risk of transportation, when the goods have been delivered overseas by the ship at the loading port. Buyer takes delivery of the goods from the transport to the designated port or destination.

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.

• Seller: The seller controls the supply chain after paying custom clearance for export. Seller selects the carrier and pays the expenses up to the destination of the port.
• Buyer: The risks of goods damaged or loss are supported by the buyer as goods are given by the first carrier. The buyer has to pay import customs clearance and also the unloading costs.

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.

• Seller: The seller or buyer has to provide insurance and seller pays the freight and insurance premium.
• Buyer: The buyer supports the risks of damages or loss as goods are given to the first carrier. The buyer has to pay customs clearance and also the unloading charges.

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.

• Seller: The seller is responsible to make the goods available to the buyer by the carrier till the custom border as defined in sales contract.
• Buyer: The buyer takes delivery of the goods at the agreement agreed on the point of border and he is responsible for bearing all custom formalities.

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.

• Seller: The seller is responsible to make the goods available to the buyer up to the proposed port or after crossing the custom border.
• Buyer: The buyer takes delivery of the goods from ship at destination port and pays the expenses of unloading the goods.

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.

• Seller: The seller is responsible for all transportation cost and the custom duty and taxes as per defined in customs procedures.
• Buyer: The buyer is responsible for the import custom formalities.

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.

• 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 import is promised by the buyer to the seller.
• Buyer: The buyer is responsible to take delivery at a proposed place and pays the expenses for unloading of goods.