Incoterms - International Commercial Terms ICC 2000By Linda Holtes

Why IncotermsIncoterms define risk, cost and

responsibility for both the seller and the buyer during the transportation of the cargo from the exporter to the importerIncoterms are universaland can be recognised and understoodinternationally.

•The International Commercial Terms were drawn up by the ICC in 1936•These rules for international trade are used internationally to settle trade disputes between sellers and buyers

Incoterms are Legally binding

Incoterms are legally binding and the following must be given consideration:

•Which party will pay the costs to move the goods from the seller to the buyer?

•Which documents will be required and at whose expense?

•At what point will the risk, to which the goods may be subjected to, transfer from the seller to the buyer?

•Which party, the exporter or importer, will be responsible for the creation of the contract of carriage?

Named port or place• There are 13 Incoterms and they range from

the least amount of risk, cost and responsibility for the seller, to the most.

• In keeping with this an Incoterm must always be followed by a named port or place.– This must be quoted on the quotation,

defining the port or place of receipt and or final destination.

Example: FCA OR TAMBO SOUTH AFRICA USD 150 000.

13 IncotermsE TermEXW -EX WORKS

F Terms

FAS - FREE ALONGSIDE SHIPFOB - FREE ON BOARDFCA - FREE CARRIER AT..

C TermsCFR - COST AND FREIGHTCPT - CARRIAGE PAID TOCIF - COST, INSURANCE & FREIGHTCIP - COST, INSURANCE PAID TO

D TermsDAF - DELIVERED AT FRONTIERDES - DELIVERED EX SHIPDEQ - DELIVERED EX QUAYDDU - DELIVERED DUTY UNPAIDDDP - DELIVERED DUTY PAID

In relation to transportation– Only certain Incoterms should be

used when dispatching goods:

– By sea:– FOB, FAS, CFR, CIF, DES, DEQ– Multimodal transport:– EXW, FCA, CPT, CIP, DES, DEQ,

DDU & DDP– Overland: – DAF

Fundamental obligations for both the seller and the buyer:

– The seller must:

• Supply the correct quantity, quality and value of goods in accordance to the buyer’s order.

• Deliver the goods on or before the dispatch date or within an agreed time period.

• Pack and label the goods to ensure their safe delivery.

• Provide the buyer with the necessary documentation such as a commercial invoice, packing list, transport document, certificate of origin etc...

The buyer’s obligations– Accept all the risk, when this risk is passed

onto the importer.– Pay all additional costs, which may arise

from his/her failure to accept delivery of the goods at the place or port of receipt.

– Provide the seller with appropriate proof that he/she has taken receipt of the goods.

– Both the buyer and the seller must recognise the importance of communication.

– The seller must always keep the importer informed of the movement of the goods, when the responsibility for accepting the costs and risks will pass on to importer.

Incoterms and Price

• Price is one of the key variables in international trade

• An offer consists of a proposal to supply products or services:– In the RIGHT QUANTITY– At the right level of QUALITY– At the right TIME– And at the right PRICE or COST

• Incoterms are a central factor in the costing process and that is why they must be understood and clearly indicated on any quotation.

Price

• EX WORKS US$10 000• IN LAND FREIGHT 800• CUSTOMS 150• DOCUMENTATION 100• FCA PORT OR PLACE OF LOADING

US$11 050• MAIN CARRIAGE OF FREIGHT 1 500• CPT PLACE/PORT OFRECEIPT

US$12 550• INSURANCE 100• CIP PLACE/PORT OF

RECEIPT US$12 650

EXW - Ex WorksIN C O T E R M S 2 0 0 0

E x W o rk s (E X W )N am ed p laceM u ltim od a l In co term

S e lle r B u y e r

C o sts

R isk s R isk s

C o sts

The seller makes the goods available, packed and ready for collection at the place of receipt (factory). The buyer must bear all the risks and charges in taking the goods to the required destination. This term carries the minimum obligation for the seller.

FCA - Free Carrier at

C h arg e o f C a rrie r

IN C O T E R M S 20 0 0F ree carr ier (F C A )

N am ed p laceM u ltim od a l in co term

S e lle r B u y e r

C o sts

R isk s R isk s

C o sts

The seller is responsible for delivering the goods into the custody of the transport carrier at the named point, having cleared the goods through Customs in the country of export. The responsibility for, and the risks of damage to or loss to the goods is transferred from the seller to the buyer at this point. It is based on the same principle as FOB except that the seller fulfils his obligations when s/he delivers the goods into the custody of the carrier at the named point.

FAS - Free Alongside Ship

Under this term, it is the seller’s responsibility to deliver the goods alongside the ship on the quay in the port of loading, having cleared the goods through Customs in the country of export. The buyer must bear all the costs and risks from that point onwards

FOB - Free on BoardIN C O T E R M S 20 00

F ree on b oard (F O B )N am ed p ort o f sh ip m en tS ea F re igh t in co term

S e lle r B u y e r

C o sts

R isk s R isk s

C o sts

Under this term, the seller is responsible for delivering the goods on board the ship at the named port of loading. The responsibility for, and risk of damage to or loss of, the goods pass from the seller to the buyer when the goods pass a ship’s rail.

CFR - Cost and Freight

The seller is responsible for paying the costs and freight to bring the goods to the named port of destination. The risk of loss or damage to the goods is transferred from the seller to the buyer when the goods pass the ship’s rail at the port of loading.

IN C O T E R M S 20 00C o st a n d F re ig h t (C F R )

N am ed p ort o f d estin a tionS ea F re igh t in co term

S e lle r B u y e r

C o sts

R isk s R isk s

C o sts

CPT - Carriage Paid to..IN C O T E R M S 20 00

C h arg e o f C a rrie r

C a rria g e P a id To (C P T )N am ed p lace o f d estin a tionM u ltim od a l in co term

S e lle r B u y e r

C o sts

R isk s R isk s

C o sts

The seller is responsible for arranging the carriage and paying the freight to the named destination, but the risk of loss of, and damage to, the goods, passes from the seller to the buyer when the goods have been delivered into the charge of the carrier in the country of export

CIF - Cost, Insurance & FreightIN C O T E R M S 20 0 0

C o st, In su ra n ce a n d F re ig h t (C IF )N am ed p ort o f d estin a tionS ea fre igh t in co termE xp orter p rocu res m arin e in su ran ce

S e lle r B u y e r

C o sts

R isk s R isk s

C o sts

This term is the same as CFR, except the seller has to procure, and pay for, marine insurance for the goods during their carriage.

CIP - Carriage & Insurance Paid

C h arg e o f C a rrie r

IN C O T E R M S 20 0 0C a rria g e an d in su ra n ce p a id to (C IP )

N am ed p lace o f d estin a tio nM u ltim od a l in co term

S e lle r B u y e r

C o sts

R isk s R isk s

C o sts

This term is the same as CPT but the seller also has to procure, and pay for, marine insurance for the goods. Similar to CIF, CIP is suitable for multimodal transportation.

DES - Delivered Ex ShipIN C O T E R M S 20 00

D eliv ered ex S h ip (D E S )N am ed p ort o f d estin a tionS ea fre igh t in co term

S e lle r B u y e r

C o sts

R isk s R isk s

C o sts

G o od s u n c lea red fo r Im p o rt

The seller is responsible for making the goods available to the buyer on board the ship not customs cleared at the port of destination, as well as bearing the costs and risk in brining the goods there. This is both a multimodal and seafreight Incoterm, the last leg of the journey must be a sea leg.

DEQ- Delivered Ex-shipIN C O T E R M S 20 0 0

D elivered ex q u ay (D E Q )N a m ed p o rt o f d estin a tio nS ea fre ig h t in co term

S e lle r B u y e r

C o sts

R isk s R isk s

C o sts

G o od s u n c lea red fo r Im p o rt

The seller is responsible for making the goods available to the buyer on the quay at the port of destination not cleared through customs, bearing all costs and risks in bringing goods there. This is both a multimodal and seafreight Incoterm, the last leg of the journey must be a sea leg.

DDU - Delivered Duty UnpaidIN C O T E R M S 20 0 0

D eliv ered D u ty U n p a id (D D U )N am ed p lace o f d estin a tionM u ltim od a l in co term

S e lle r B u y e r

N am ed P lace o f d e s tin a tio n

N am ed P lace o f d e s tin a tio n

C o sts

R isk s R isk s

C o sts

G o o d s u n c lea red fo r Im p o rt

The seller is responsible for delivering the goods to the named place of receipt. However, the seller is not required to pay duties, taxes or any other official charges payable upon importation, those costs are for the buyer

DDP- Delivered Duty Paid

N am ed P lace o f d e s tin a tio n

IN C O T E R M S 20 00D elivered D u ty P a id (D D P )

N am ed p lace o f d estin a tionM u ltim od a l in co term

S e lle r B u y e r

C o sts

R isk s R isk s

C o sts

G o od s c lea red fo r Im p o rt

The seller is responsible for delivering the goods to the named place of destination having cleared them for import into the country of destination. This term represents the maximum obligation for the seller.

DAF - Delivered at Frontier

D eliv e red a t F ro n tie r

IN C O T E R M S 20 0 0D eliv ered a t fron tier (D A F )

N am ed p laceO verlan d in co term

S e lle r B u y e r

C o sts

R isk s R isk s

C o sts

The seller is responsible for delivering the goods, cleared for export, to the buyer at the named place of delivery at the frontier. However, he is not responsible for clearing the goods through customs for import into country of destination