INCOTERMS - Responsibilities of Seller/Buyer explained.
   
 

Incoterms 2000 are a set of internationally recognized trading terms, defined by the International Chamber of Commerce (ICC), which are used for the purchase and shipping of goods in the international market place.

Each INCOTERM refers to a type of agreement for the purchase and shipping of goods internationally. There are 13 different terms, each of which helps users deal with different situations involving the movement of goods. For example, the term FCA is often used with shipments involving Ro/Ro or container transport; DDU assists with situations found in intermodal or courier service-based shipments.

INCOTERMS also deal with documentation required for global trade, specifying which parties are responsible for which documents. Determining the paperwork required to move a shipment is an important job, since requirements vary so much between countries. Two items, however, are standard: commercial invoice and the packaging list.

INCOTERMS were created primarily for people inside the world of global trade. Outsiders frequently find them difficult to understand. Seemingly common words such as "responsibility" and "delivery" have different meanings in global trade than they do in other situations. In global trade, "delivery" refers to seller fulfilling the obligation of the terms of sale or to completing a contractual obligation. "Delivery" can occur while the merchandise is on a vessel on the high seas and the parties involved are thousands of miles from the goods. In the end, the terms wind up boiling down to a few basic specifics; COST: who is responsible for the expenses involved  in a shipment at a given point in the shipment's journey, CONTROL: who owns the goods at a given point in the journey and LIABILITY: who is responsible for paying damage to goods at a given point in a shipment's transit. It is essential for shippers to know the exact status of their shipments in terms of ownership and responsibility. It is also vital for sellers & buyers to arrange insurance on their goods while the goods are in their "legal" possession. Lack of insurance can result in wasted time, lawsuits, and broken business relationships.

INCOTERMS are most frequently listed by category. Terms beginning with F refer to shipments where the seller does not pay for the primary cost of shipping. E-terms occur when a seller's responsibilities are fulfilled when the goods are ready to depart from their facilities. D terms cover shipments where the shipper/seller's responsibility ends when the goods arrive at some specific point. Because shipments are moving in a country, D terms usually involve the services of a customs broker and a freight forwarder. In addition, D terms also deal with the pier or docking charges found at virtually all ports and determining who is responsible for each charge.

Recently the International Chamber of Commerce changed basic aspects of the definitions of a number of incoterms, buyer and sellers should be aware of these changes. Terms that have changed have and asterisks (*) alongside them.

 

 

S=Seller, B= Buyer

  EXW FCA FAS FOB CFR CIF CPT CIP DAF DES DEQ DDU DDP
                           
Packing S S S S S S S S S S S S S
                           
Loading B S S S S S S S S S S S S
                           
Inland Freight B S S S S S S S S S S S S
                           
Terminal Charges B B S S S S S S S S S S S
                           
Insurance B B B B B S B S S S S S S
                           
Loading On Vessel B B B S S S S S S S S S S
                           
Freight B B B B S S S S S S S S S
                           
Arrival Charges B B B B B B S S S S S S S
                           
Duty & Taxes B B B B B B B B B B S B S
                           
Delivery To Destination B B B B B B B B B B B S S
 
   
INCOTERMS - Definitions
   
 
EXW - Ex-Works

One of the simplest and most basic shipment arrangements places the minimum responsibility on the seller with greater responsibility on the buyer. In an EX-Works transaction, goods are basically made available for pickup at the shipper/seller's factory or warehouse and "delivery" is accomplished when the merchandise is released to the consignee's freight forwarder. The buyer is responsible for making arrangements with their forwarder for insurance, exports clearance and handling all other paperwork.
  FCA - Free Carrier

In this type of transaction, the seller is responsible for arranging transportation, but he is acting at the risk and the expense of the buyer. Where in FOB the freight forwarder or carrier is the choice of the buyer, in FCA the seller chooses and works with the freight forwarder or the carrier. "Delivery" is accomplished at the predetermined port or destination point and the buyer is responsible for insurance.
     
FAS - Free Alongside Ship *

In these transactions, the buyer bears all the transportation costs and the risk of loss of goods. FAS requires the shipper/seller to clear goods for export, which is a reversal from past practices. Companies selling on these terms will ordinarily use their freight forwarder to clear the goods for export. "Delivery" is accomplished when the goods are turned over to the Buyers Forwarder for insurance and transportation.
  FOB - Free On Board

One of the most commonly used and misused terms, FOB means that the shipper/seller uses his freight forwarder to move the merchandise to the port or designated point of origin. Though frequently used to describe inland movement of cargo, FOB specifically refers to ocean or inland waterway transportation of goods. "Delivery" is accomplished  when the shipper/seller releases the goods to the buyer's forwarder. The buyer's responsibility for insurance and transportation begins at the same moment.
     
CFR - Cost and Freight

This term formerly known as CNF (C&F) defines two distinct and separate responsibilities. One is dealing with the actual cost of merchandise (C) and the other (F) refers to the freight charges to a predetermined destination point. It is the shipper/seller's responsibility to get goods from their door to the port of destination. "Delivery" is accomplished at this time. It is the buyer's responsibility to cover insurance from the port of origin or port of shipment to buyer's door. Given that the shipper is responsible for transportation, the shipper also chooses the forwarder.
  CIF - Cost, Insurance, Freight

This arrangement is similar to CFR, but instead of buyer insuring the goods for the maritime phase of the voyage, the shipper/seller will insure the merchandise. In this arrangement, the seller usually chooses the forwarder. "Delivery" is above, is accomplished at the port of destination.
     
CPT - Carriage Paid To

In CPT transactions the shipper/seller has the same obligations found with CIF, with the addition that the seller has to buy cargo insurance, naming the buyer as the insured while the goods are in transit.
  CIP - Carriage and Insurance Paid To

This term is primarily used for multimodal transport. Because it relies on the carrier's insurance, the shipper/seller is only required to purchase minimum coverage. When this particular agreement is in force, freight forwarders often act in effect, as carriers. The buyer's insurance is effective when the goods are turned over to the forwarder.
     
DAF - Delivered At Frontier

Here the seller's responsibility is to hire a forwarder to take goods to a named frontier, which is usually a border crossing point, and clear them for export. "Delivery occurs at this time. They buyer's responsibility is to arrange with their forwarder for the pick up of the goods after they are cleared for export, carry them across the border, clear them for importation and effect delivery. In most cases the buyer's forwarder handles the task of accepting the goods at the border across the foreign soil.
  DES - Delivered Ex Ship

In this type of transaction, it is the seller's responsibility to get the goods to the port of destination or to engage the forwarder to move the cargo to the port of destination unclear. "Delivery" occurs at this time. Any destination charges that occur  after the ship is docked are the buyer's responsibility.
     
DEQ - Delivered Ex Quay *

In this arrangement, the buyer/consignee is responsible for duties and charges and the seller is responsible for delivery the goods to the quay, wharf of port of destination. In a reversal of previous practice, the buyer must also arrange for customs clearance.
  DDU - Delivered Duty Unpaid

This arrangement is basically the same as with DDP, except for the fact that the buyer is responsible for the duty, fees and taxes.
     
     
DDP - Delivered Duty Paid

DDP terms tend to be used in intermodal or courier-type shipments. Whereby the shipper/seller is responsible for dealing with all the tasks involved in moving goods from the manufacturing plant to the buyer/consignee's door. It is the shipper/seller's responsibility to insure the goods and absorb all costs and risks including the payment of the duty and fees.
   

 

 

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