| What are
Incoterms? Incoterms
are a set of international rules for the interpretation of the most commonly used trade
terms. There are 13 main terms and several secondary terms. These denote the points at
which shipper, carrier and consigneee risk and responsibility start and end.
This set of international rules was first
published in 1936 known as "INCOTERMS 1936" by the International Chamber of
Commerce. Incoterms are amended every 10 years.
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.
Incoterms 2000 - How Will This Effect
You
As of January 1st 2000 a new set of
Incoterms will apply. Included in these are six minor differences which could prove costly
if ignored.
| DDP |
Delivered Duty Paid - Delivery takes place on
the premises of the buyer where the arriving vehicle cargos are discharged from the
vehicle.
If delivery takes place elsewhere, delivery is
completed by loading the cargo onto the vehicle sent by the buyer to collect the goods. |
| DDU |
Delivered Duty Unpaid - Delivery takes place
on the premises of the buyer, still loaded on the arriving vehicle.
If delivery takes place elsewhere, delivery is
completed by loading the cargo onto the vehicle sent by the buyer to collect the goods. |
| DEQ |
Delivered Ex Quay - The obligation for customs
clearance and payment of of import duties will change from the seller/exporter to the
buyer/importer at the named port of destination. |
| EXW |
Ex Works - The responsibility for loading
cargo onto a collecting vehicle at the sellers/exporters premises is no longer the
obligation of the seller/exporter. The buyer is now responsible.
If there is more than one loading area at the sellers
premises the seller has the option to designate any one of them for loading. |
| FAS |
Free Alongside Ship - The obligation of
customs entry and obtaining an export license will change from the buyer/importer to the
seller/exporter at the named port of sailing. |
| FCA |
Free Carrier - This defines two possibilities.
1. Delivery to the carrier at the premises of the
seller, when the latter is under the obligation to load the cargo onto the vehicle of the
carrier.
2. Delivery to the carrier at any other point such as a
terminal, quay...etc, where the carrier on behalf of the buyer is responsible for
discharging the shipment from the vehicle sent by the seller. |
The Thirteen Incoterms: 1990
| CFR |
Cost and Freight* |
As for CIF except that the cost of insurance
is covered by the buyer. |
| CIF |
Cost, Insurance and Freight* |
Cost of goods plus insurance and freight, duty
unpaid, to a named port of destination. Sea or inland waterway transport only. |
| CIP |
Carriage and Insurance Paid To |
Costs of carriage and insurance of the goods,
duty unpaid to the named destination. Applies to all modes of transport. |
| CPT |
Carriage Paid To |
As for CIP, except the cost of insurance is
carried by the buyer. |
| DAF |
Delivered At Frontier |
Costs of delivery, duty unpaid at the named
point and place at the frontier. Applies to all modes of transport. |
| DDP |
Delivered Duty Paid |
Costs of delivery, including duty, paid up to
a named place in the country of importation. Applies to all modes of transport. |
| DDU |
Delivered Duty Unpaid |
As for DDP, except that the buyer pays the
import duty. |
| DEQ |
Delivered Ex Quay* |
Costs of delivery, duty paid, to the named
port of destination. Sea or inland waterway transport only. |
| DES |
Delivered Ex Ship* |
Costs of delivery on board the vessel, duty
unpaid, at the named port of destination. Sea or inland waterway transport only. |
| EXW |
Ex Works |
The goods are made available to the buyer at
the exporter's premises, suitably packed unless otherwise arranged for a known means of
transport. |
| FCA |
Free Carrier |
Cost of delivery, cleared for export, into the
charge of the carrier named by the buyer at the named place or point. Allied mostly to air
and rail transport but could be used for all modes. |
| FAS |
Free Alongside Ship* |
All cost up to delivery on quay or in lighters
(barges) at the named port of shipment. Sea or inland waterway transport only. |
| FOB |
Free On Board* |
All costs up to delivery over the ships rail
at the named port of shipment. Sea or inland waterway transport only. |
* These terms are for maritime transport
only. The other terms apply to all transport modes.
Guidelines to Using Incoterms
 Always specify which terms
are applicable ie FAS in Incoterms 2000 as opposed to Incoterms 1990.
When completing documents
ensure that you are using the correct format of a term. The term CFR is persistently
misused/replaced with C&F or C+F.
C+F has never exsisted.
C&F did exsist but was replaced with
CFR in 1980. If C&F is used by mistake a court of law will use the pre 1980 meaning of
the term which is very different from the current meaning of CFR as in Incoterms 1990 and
Incoterms 2000.
Urge your trading partners to
confirm their acceptance of the specified term in writing
Draw up a check list of your
duties and rights under the selected term and check that every intended or completed
transaction conforms to this list, and that nothing is omitted
Request your trading partner to
do the same, and exchange this information with them
Change or add nothing, but in
any event as little as possible to the selected term
In case of any inevitable change
or addition, inform your trading partner and request them to accept it in writing. Such an
addition could be 'stowed and trimmed' to FOB
Compare your duties and rights
under the selected Incoterm(s) with your company's standard terms of sales (or purchase),
to make sure that there are no conflicts. If your business is run under standard
conditions established by a trade body or similar association, request that this
association amend its terms on behalf of all the membership.
In the event of such
conflict(s), amend your standard conditions, rather than the Incoterm(s), in order to
remedy the problem. If the standard conditions are those of an association, act similarly
through this association.
Never instruct the carriers or
any third party to do or omit anything on the basis of the Incoterms which do not apply to
them at all.
Inform your bank and insurance
company which Incoterm(s) have been selected for your business, so that they can determine
exactly what your duties and rights are with regard to a transaction in which they may
have a role to play. |