“INCOTERMS are a set of rules which define the responsibilities of sellers and buyers for the delivery of goods under sales contracts. They are published by the International Chamber of Commerce (ICC) and are widely used in commercial transactions.”
The INCOTERMS rules are accepted by governments, legal authorities, and practitioners worldwide for the interpretation of most commonly used terms in international trade. They are intended to reduce or remove altogether uncertainties arising from different interpretation of the rules in different countries. As such they are regularly incorporated into sales contracts worldwide.
Below are the different INCOTERMS in use:
1. EXW – Ex works means that the seller has to deliver the cargo at his/her factory premises /works/warehouse only. Seller is not responsible to load the cargo on any collecting vehicle nor liable to do custom clearance of the cargo. All the cost of picking up the cargo from seller premises up to the final destination will be at importer’s account.
2. FCA – Free Carrier means the seller has to deliver the cargo to the carrier or to the authorized party appointed by the buyer either at the factory premises only or at any named place. Both parties are advised to clear as much as possible the named place as the risk will be passed on to the buyer at that point.
3. FAS – Free alongside Ship means the seller has to deliver the goods by placing it alongside the ship at any seaport. Once the goods are alongside the ship, the risk of loss or damage to the goods will be passed to the buyer.
4. FOB – Free On-Board vessel means the seller has to deliver the goods on board the vessel at named sea port. Once the goods are on board the vessel, the risk of loss or damage to the goods will be passed on the buyer.
5. CFR – Cost & Freight means the seller has to deliver the goods on board the vessel and also has to pay the ocean freight along with the cost of loading port to carry the cargo at any named destination port. The risk of loss or damage will be passed to the buyer once the goods are on board the vessel.
6. CPT – Carriage Paid to means seller has to pay for the carriage of the goods to the named place nominated by the buyer. In this term, seller is not responsible for the insurance of the goods. The risk of loss or damage will be passed to the buyer once the goods will be handed over to the carrier at the named place.
7. CIP – Carriage Insurance Paid to means the seller has to pay for the carriage and insurance of the goods and has to deliver the goods at any named place to the carrier. Please note that in this term, seller is only liable to insure the goods at the minimum risk cover. If the buyer requires more risk cover then has to arrange for the extra insurance or buyer has to do contract with the seller to pay extra on his behalf.
8. CIF – Cost, Insurance & Freight means the seller has to pay for the Cost, Insurance and Ocean freight of the goods and it will be termed as delivered when the goods are on board the vessel. The risk of loss or damage will be passed to the buyer once the goods are on board the vessel.
9. DES – Delivered Ex Ship means the seller has to deliver the goods on board the vessel and also has to pay for all the costs and risk involved in bringing the goods at the named port of destination.
10. DEQ – Delivered Ex Quay (Duty Paid) means the seller has to deliver the goods at the quay (Wharf) of the destination port. Seller has also to arrange for the custom clearance of the goods of import at the destination. Seller is responsible for all the risk and costs including duties, taxes and other charges for delivering the goods to the buyer.
11. DDU – Delivery Duty Unpaid means that the seller fulfils his obligation to deliver when the goods have been made available at the named place in the country of importation. The seller has to bear the costs and risks involved in bringing the goods thereto (excluding duties, taxes and other official charges payable upon importation) as well as the costs and risks of carrying out customs formalities. The buyer has to pay any additional costs and to bear any risks caused by his failure to clear the goods for import in time.
12. DDP – Delivery Duty Paid means that the seller fulfils his obligation to deliver when the goods have been made available at the named place in the country of importation. The seller has to bear the risks and costs, including duties, taxes and other charges of delivering the goods thereto, cleared for importation. Whilst the EXW term represents the minimum obligation for the seller, DDP represents the maximum obligation.
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