INCOTERMS

(As excerpted from The International Chamber Of Commerce website)

When commercial traders enter into a contract for the purchase and sale of goods they are free to negotiate specific terms of their contract. These terms include the price, quantity, and characteristics of the goods. Every international contract will also contain what is referred to as an Incoterm (international commercial term).

The Incoterm selected by the parties to the transaction will determine which party pays the cost of each segment of transport, who is responsible for loading & unloading of goods, and who bears the risk of loss at any given point during a given international shipment.

Incoterms also influence Customs valuation basis of imported merchandise. Incoterms are overseen and administered by the International Chamber of Commerce in Paris and are adhered to by the major trading nations of the world.

As of the changes to Incoterms in 2010, there are 11 Incoterms in use. All the current Incoterms are described in ascending order of seller responsibility. However, Ex-works, Free on Board, Cost Insurance Freight, and Delivery Duty Paid are the most frequently used Incoterms for Amber Road’s purposes.

Incoterms are an important facet of international trade contracts and define key responsibilities between the buyer and the seller. Incoterms® 2010 are overseen and administered by the International Chamber of Commerce (ICC) and are adhered to by the major trading nations.

There are currently 11 Incoterms in use. Contracts made after January 1, 2011 refer to the 2010 edition of Incoterms, which came into force on that date. The correct reference is to “Incoterms® 2010” (see inset image below).

tools-incoterms_2010

The current Incoterms are described below in ascending order of seller responsibility. However, Ex-works, Free on Board, Cost Insurance Freight, and Delivery Duty Paid are the most frequently used Incoterms for Amber Road’s purposes.

In practice, the parties themselves frequently add words to an Incoterm to seek further precision than the term could offer. It should be emphasized that Incoterms give no guidance whatsoever for such additions.

Group E (Departure):

EXW – Ex Works (…named place): Ex works means that the seller delivers when he places the goods at the disposal of the buyer at the seller’s premises or another named place (i.e. works, factory, warehouse, etc.) not cleared for export and not loaded on any collecting vehicle.

This term thus represents the minimum obligation for the seller, and the buyer has to bear all costs and risks involved in taking the goods from the seller’s premises. However, if the parties wish the seller to be responsible for the loading of the goods on departure and to bear the risks and all the costs of such loading, this should be made clear by adding explicit wording to this effect in the contract of sale.

Group F (Main carriage unpaid):

FCA – Free Carrier (…named place): Free Carrier means that the seller delivers the goods, cleared for export, to the carrier nominated by the buyer at the named place. It should be noted that the chosen place of delivery has an impact on the obligations of loading and unloading the goods at that place. If delivery occurs at the seller’s premises, the seller is responsible for loading. If delivery occurs at any other place, the seller is not responsible for unloading.

This term may be used for any mode of transport, including multimodal transport.

Carrier means any person who, in a contract of carriage, undertakes to perform or to procure the performance of transport by rail, road, air, sea, inland waterway or by a combination of such modes.

If the buyer nominates an entity other than a carrier to receive the goods, the seller is deemed to have fulfilled its obligation to deliver the goods when they are delivered to that entity.

 

FAS – Free Alongside Ship (…named port of shipment): Free Alongside Ship means that the seller delivers when the goods are placed alongside the vessel at the named port of shipment. This means that the seller has to bear all costs and risks of loss of or damage to the goods until that moment.

The FAS term requires the seller to clear the goods for export. However, if the parties wish the buyer to clear the goods for export, this should be made clear by adding explicit wording to this effect in the contract of sale.

This term can be used only for sea or inland waterway transport.

 

FOB – Free On Board (…named port of shipment): Free on Board means that the seller delivers when the goods are placed on board the vessel at the named port of shipment. This means that the buyer has to bear all costs and risks of loss of or damage to the goods from that point.

The FOB term requires the seller to clear the goods for export. If the parties do not intend to deliver the goods on board the vessel, the FCA or FAS term should be used.

This term can be used only for sea or inland waterway transport.

 

Group C (Main carriage paid)

CFR – Cost & Freight (…named port of destination): Cost and Freight means that the seller delivers when the goods are placed on board the vessel at the named port of shipment. The seller must pay the costs and freight necessary to bring the goods to the named port of destination but the risk of loss of or damage to the goods, as well as any additional costs due to events occurring after the time of delivery, are transferred from the seller to the buyer once the goods are on board the vessel.

The CFR term requires the seller to clear the goods for export.

This term can be used only for sea and inland waterway transport.

 

CIF – Cost, Insurance & Freight (…named port of destination): Cost, Insurance and Freight means that the seller delivers when the goods are placed on board the vessel at the named port of shipment. The seller must pay the costs and freight necessary to bring the goods to the named port of destination but the risk of loss of or damage to the goods, as well as any additional costs due to events occurring after the time of delivery, are transferred from the seller to the buyer once the goods are placed on board.

Under CIF the seller also has to procure marine insurance against the buyer’s risk of loss of or damage to the goods during the carriage. The buyer should note that under the CIF term the seller is required to obtain insurance only on minimum coverage. Should the buyer wish to have the protection of greater coverage, it would either need to agree as much expressly with the seller or to make its own extra insurance arrangements.

The CIF term requires the seller to clear the goods for export. If the parties do not intend to deliver the goods on board the vessel, the CIP term should be used.

This term can be used only for sea and inland waterway transport.

 

CPT – Carriage Paid To (…named place of destination): “Carriage paid to…” means that the seller delivers the goods to the carrier nominated by him but the seller must in addition pay the cost of carriage necessary to bring the goods to the named destination. This means that the buyer bears all risks and any other costs occurring after the goods have been so delivered.

Carrier means any person who, in a contract of carriage, undertakes to perform or to procure the performance of transport, by rail, road, air, sea, inland waterway or by a combination of such modes. If subsequent carriers are used for the carriage to the agreed destination, the risk passes when the goods have been delivered to the first carrier. The CPT term requires the seller to clear the goods for export.

This term may be used for all modes of transport including multimodal transport.

 

CIP – Carriage and Insurance Paid To (…named place of destination): “Carriage and Insurance paid to…” means that the seller delivers the goods to the carrier nominated by him but the seller must in addition pay the cost of carriage necessary to bring the goods to the named destination. This means that the buyer bears all risks and any additional costs occurring after the goods have been so delivered.

Under CIP the seller has to procure insurance against the buyer’s risk of loss of or damage to the goods during the carriage. Consequently, the seller contracts for insurance and pays the insurance premium. The buyer should note that under the CIP term the seller is required to obtain insurance only on minimum coverage.

Should the buyer wish to have the protection of greater coverage, he would either need to agree as much expressly with the seller or to make his own extra insurance arrangements.

Carrier means any person who, in a contract of carriage, undertakes to perform or to procure the performance of transport, by rail, road, air, sea, inland waterway or by a combination of such modes. If subsequent carriers are used for the carriage to the agreed destination, the risk passes when the goods have been delivered to the first carrier. The CIP term requires the seller to clear the goods for export.

This term may be used for all modes of transport including multimodal transport.

 

Group D (Arrival):

DAT – Delivered at Terminal (…named terminal at port of destination): Delivered at Terminal means that the seller delivers when the goods, once unloaded from the arriving means of transport, are placed at the disposal of the buyer at a named terminal at the named port or place of destination. Terminal includes any place such as a quay, warehouse, container yard or road, rail, or cargo terminal. The seller has to bear all the costs and risks involved in bringing the goods to and unloading them at the terminal at the named port or destination. If the parties intend for the seller to bear the risks and costs involved in transporting the goods from the terminal to another place, DAP or DDP Incoterm should be used.

DAT requires the seller to clear the goods for export.

This term can be used for all modes of transport including multimodal transport.

 

DAP – Delivered at Place (…named place of destination): Delivered at Place means that the seller delivers when the goods are placed at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination. The seller bears all risks and costs involved in bringing the goods to the named place.

If the seller incurs costs under its contract of carriage related to unloading at the place of destination the seller is not entitled to recover such costs from the buyer unless mutually agreed upon by both parties.

DAP requires the seller to clear goods for export.

This term can be used for all modes of transport including multimodal transport.

 

DDP – Delivered Duty Paid (…named port of destination): Delivered duty paid means that the seller delivers the goods to the buyer, cleared for import, and not unloaded from any arriving means of transport at the named place of destination. The seller has to bear all the costs and risks involved in bringing the goods thereto including, where applicable , any “duty” (which term includes the responsibility for and the risk of the carrying out of Customs formalities and the payment of formalities, Customs duties, taxes and other charges) for import in the country of destination.

DDP also requires the seller to clear goods for export.

Whilst the EXW term represents the minimum obligation for the seller, DDP represents the maximum obligation. This term should not be used if the seller is unable directly or indirectly to obtain the import license or act as importer of record in the destination country.

This term can be used for all modes of transport including multimodal transport.

—End—


Reference –  http://www.amberroad.com/content/incoterms-0#eng

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About Ramon H. Enriquez MIE&M, RME

Ramon H. Enriquez is a retired business executive who now spends his available time sharing his more than 35 years of industry experiences in the Philippines and abroad (Indonesia, Japan, Malaysia, Thailand, Vietnam, Brazil, and Switzerland) as an Independent Management Consultant and as a Professional Lecturer of leading Metro-Manila universities, on the various value-creation and strategy-execution topics that he now specializes: Supply-Chains, Operations, Quality, Enterprise-Projects, and Decision-support---their systems design and management, in particular. His affiliations with relevant leading global industry associations (APICS, CSCMP, PMI, INFORMS, ASQ, ISM among others) keeps him informed and updated on the current and future developments in the above-mentioned fields. He is a lifelong Systems Thinker/ Modeler, and an avid Micro-blogger. His hobby includes Digital-photography/ -graphics, Singing, Acoustic guitar playing, Songwriting, and Audio-recording/ -mixing. When not traveling, he normally spends his time at his Quezon City home-office with his wife, Gay; son, Dax; and dog, Brutus.
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