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INCOTERMS

INCOTERMS

Incoterms most commonly used trade terms in foreign


trade.

Uncertainties of different interpretations of such terms in


different countries can be avoided or at least reduced.

Unawareness of the different trading practices in respective


countries can give rise to misunderstandings, disputes and
litigation leading to waste of time and money.

As a remedy , International Chamber of Commerce (ICC)


first published in 1936 a set of international rules for the
interpretation of trade terms, called Incoterms 1936.

Amendments were passed subsequently in 1953, 1967,


1976, 1980, 1990 and 2000 with an objective to overcome
the problems of conflicting national laws and
interpretations by establishing a standard set of trade
terms and definition that offers neutral rules and practices.

Incoterms - contd

The latest version contains a set of 11 terms has come


intoeffect from January 01, 2011.

Incoterms help determine the following between the buyers


and the sellers:-

Price of the goods (i.e.) what is included in the price.


Inspection of the goods: obligation and limitations of various
parties to the contract.
Delivery period conditions (i.e.) contract of carriage.
Where exactly the goods to be delivered to the buyer.
Transfer of risk (i.e.) insurance conditions.
Who will be responsible for export clearance, import clearance
and the associated costs (duty, VAT)
Who will pay what in relation to the delivery of goods.
What documents must be provided by the seller/buyer.

INCOTERMS CONTD..

Trade terms deal with division of costs and also of risk between
the parties but they do not deal with the transfer of property
rights in the good.

Such matters are decided by the way in which the contract of


sale has been established, subject to applicable law and
customs of trade.

The value of uniform rules has to be understood and


recognized by buyers and sellers to know their right and
obligations in the international transactions.

The 11 terms are explained below:

11 Incoterms 2010

General Transport

EXW Ex Works (named place of delivery)


FCA - Free Carrier (named place of delivery)
CPT Carriage Paid To (named place of destination)
CIP Carriage and Insurance Paid to (named place of destination)
DAT
Delivered at Terminal (named terminal at port or place of destin
ation)
DAP Delivered at Place (named place of destination)
DDP Delivered Duty Paid (named place of destination)

Sea and Inland Waterway Transport

FAS Free Alongside Ship (named port of shipment)


FOB Free on Board (named port of shipment)
CFR Cost and Freight (named port of destination)
CIF Cost, Insurance and Freight (named port of destination)

INCOTERMS CONTD..
EXW Ex Works . Named place

Seller delivers the goods at his own place (factory,


warehouse, any other named place).

Seller is not responsible for loading of the goods on the


vehicle or for clearing the goods for export.

Buyer makes all arrangement at his own cost and risk to bring
the goods to the destination.

Generally not quoted except in case of heavy machinery or


Government contracts.

The term provides two options: ex-works cleared for export


and ex-works uncleared for export,.

INCOTERMS CONTD..
FCA Free Carrier . Named place

The term has been designed to meet the requirements of


modern transport like multimodal.

Seller delivers the goods cleared for export at the named place
to the custody of the carrier named by the buyer.

The risk of loss or damage to the goods is transferred from the


seller to the buyer when the carrier accepts the goods at the
prescribed place.

If delivery occurs at the sellers place, then the seller is


responsible for loading . If in any other place, seller is not
responsible for loading.

Buyer has to nominate the carrier, contract for the carriage


and pay the insurance, transportation and freight.

INCOTERMS CONTD..
FAS Free Alongside Ship.named port of shipment

Seller delivers the goods alongside vessel at the named port of


shipment. At this stage, the buyer has to bear all the costs and
risk of loss or damage to the goods.

Seller to clear the goods for export and bear all the export
duties, taxes and other charges.

Buyer has to nominate the carrier, contract for the carriage and
pay the freight.

It can be used for sea or inland waterway transport.

May be suitable for quoting products like locomotives, etc.

INCOTERMS CONTD..

FOB Free on Board. Named port of shipment

It comprises all charges incidental to actual shipment of goods


except ocean freight and marine insurance charges.
Seller delivers the goods onboard and provides clean onboard
receipt. The risk of loss or damage to the goods are transferred
from the seller to the buyer when the goods pass over the
ships rail.
Seller to clear the goods for export and bear all the export
duties, taxes and other charges if any.
Seller pays loading charges according to the customs of port to
the extent that they are not included in the freight.
Buyer can nominate a carrier and even make a contract of
carriage.
Buyer pays residue of transit costs if any including sea freight
and insurance.
Used only for sea or waterway transport.

INCOTERMS CONTD..
CFR- Cost and Freight named port of destination

Seller contracts for the carriage and pays for the main freight to
the named port of destination.
Seller delivers the goods onboard.
Seller obtains the export license and pay export taxes and
duties.
Risk of loss or dame of goods, as well as any additional costs
due to events after the time the goods delivered onboard the
vessel, are transferred from seller to buyer when the goods pass
the ships rail in the port of shipment.
Buyer accepts the delivery of the goods upon the shipment.
The term is used for only for sea and inland waterway transport
not for multimodal transport.

INCOTERMS CONTD..
CIF, Cost, Insurance and Freight.named port of
destination

This term is identical to the CFR except the seller is responsible


for funding and arranging the insurance.

Both terms are long established and ideal for sea transport in
port-port operations.

Seller delivers the goods on board. The risk of loss or damage to


the goods is transferred from the seller to buyer when the goods
pass over the ships rail.

INCOTERMS CONTD..
CPT- Carriage Paid to named place of destination

Seller delivers the goods into the custody of first carrier and
pays the freight to the named destination. CPT is ideal for the
multi-modal transport operation which includes container
movements and ro-ro.

Seller obtains the export license and pays export taxes and
duties. The seller is responsible for export clearance and
associated costs.

Buyer must pay all costs relating to the goods from the time they
have been delivered, all costs and charges while in transit,
unloading costs, any additional costs.

Risk of loss or damage of goods, as well as any additional costs


due to events after the time the goods delivered to the first
carrier, is transferred from seller to buyer.

INCOTERMS CONTD..
CIP Carriage, Insurance Paid To. Named place of
destination

Seller has the same obligations as under CPT but with the
addition that he has to procure cargo insurance on minimum
cover against buyers risk or loss or damage to the goods
during the carriage.

Seller delivers the goods in to the custody of first carrier and


pays the freight and cargo insurance to the named
destination.

Seller obtains the export license and arrange export clearance,


export taxes and duties, if any.

Risk of loss or damage of goods, as well as any additional


costs due to events after the time the goods delivered to the
carrier, is transferred from seller to buyer. CIP is ideal for

INCOTERMS CONTD..
DAT Delivered at Terminal

Delivered at Terminal means that the seller arranges the goods


unloaded from the arriving means of transport and placed at the
disposal of buyer at the named terminal at the named port or place of
destination. Terminal includes any place whether covered or not such
a quay, warehouse, container yard, or road, rail or air cargo terminal.

Seller bears all the risks involved in bringing the goods to and
unloading them at the terminal at the named port or place of
destination.

DAP Delivered at Place


Delivered at place means seller delivers when the goods are placed at
the disposal of buyer on the arriving means of transport ready for
unloading at the named place of destination. Seller bears all risks
involved in bringing the goods to the named place. Goods are cleared
for export.

INCOTERMS CONTD..
DDP Delivered Duty Paid . At the named place of
destination

Delivered Duty Paid means seller delivers the goods when the
goods are placed at the disposal of buyer, cleared for imports
on the arriving means of transport ready at the named place of
destination.

Seller bears all the costs and risks involved in bringing goods
to the place of destination and has an obligation to clear the
goods not only for export but also imports, to pay any duty for
both export and import and to carry out all customs formalities.

DDP represents the maximum obligation for seller.

Thank you!

All the Best!!

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