INCOTERM OF TRADE
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MONEY AND BANKING Page 2 INCOTERM OF TRADE A set of international rules for the interpretation of the most commonly used trade terms. Applying Incoterms to sale and purchase contracts makes global trade easier and helps partners in different countries understand one another. Incoterms are recognized globally by courts and other authorities. Frequently, parties to a contract are unaware of the different trading practices in their respective countries. This lack of knowledge can lead to misunderstandings and disputes between customer and supplier. The incorporation of Incoterms in international sales contracts reduces this risk. 1. FOB (Free On Board) named port of shipment: The Seller delivers the goods on board the ship and clears the goods for export. From that point, the Buyer bears all costs and risks of loss or damage. 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 2. CFR (Cost and Freight) named port of destination: The Seller clears the goods for export and pays the costs of moving the goods to destination. The Buyer bears all risks of loss or damage. 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/exporter/seller's responsibility to get goods from their door to the port of destination. The seller, or exporter, is responsible for clearing the goods for export, delivering the goods past the ships rail at the port of shipment, and paying international freight charges. The buyer assumes risk of loss once the goods cross the ship's rail, and must purchase insurance the port of origin or port of shipment
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Transcript of INCOTERM OF TRADE
INCOTERM OF TRADE
A set of international rules for the interpretation of the most commonly used trade terms. Applying Incoterms to sale and purchase contracts makes global trade easier and helps partners in different countries understand one another. Incoterms are recognized globally by courts and other authorities. Frequently, parties to a contract are unaware of the different trading practices in their respective countries. This lack of knowledge can lead to misunderstandings and disputes between customer and supplier. The incorporation of Incoterms in international sales contracts reduces this risk.
1. FOB (Free On Board) named port of shipment:
The Seller delivers the goods on board the ship and clears the goods for export. From that point, the Buyer bears all costs and risks of loss or damage. 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
2. CFR (Cost and Freight) named port of destination:
The Seller clears the goods for export and pays the costs of moving the goods to destination. The Buyer bears all risks of loss or damage. 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/exporter/seller's responsibility to get goods from their door to the port of destination. The seller, or exporter, is responsible for clearing the goods for export, delivering the goods past the ships rail at the port of shipment, and paying international freight charges. The buyer assumes risk of loss once the goods cross the ship's rail, and must purchase insurance the port of origin or port of shipment to buyer's door, unload the goods, clear customs, and pay for transport to deliver the goods to their final destination.
3. CIF (Cost, Insurance and Freight) named port of destination:
The seller, or exporter, is responsible for delivering the goods onto the vessel of transport and clearing customs in the country of export. The exporter also is responsible for purchasing insurance, with the buyer (importer) named as the beneficiary. Risk of loss transfers to buyer as the goods cross the ship's rail. If these goods are damaged or stolen during international transport, the buyer owns the goods and must file a claim based on insurance procured by the seller. The buyer must clear customs in the country of import and pay for all other transport and insurance in the country of import. CIF can be used as an Incoterm only when the international transport of goods is at least partially by water. If FOB is the customs valuation basis, the international insurance and freight costs must be deducted from the CIF price. A CIF transaction will read CIF, port of destination.
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4. C&F (COST AND FREIGHT):
Term of sale signifying that the price invoiced or quoted by a seller for a shipment does not include insurance charges, but includes all expenses up to a named port of destination. In comparison, carriage paid to (CPT) terms include all transport charges (but not insurance) up to a named place (usually the buyer's warehouse) of destination. "Cost and Freight" means that the stated value of a shipment of goods includes all costs and freight involved in shipping the goods to their destination. C & F Price Includes the Vehicle Price + Shipping freight to the port of your country.
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