INCOTERMS : INternational COmmercial TERMS

INCOTERMS define the mutual obligations of seller and buyer arising from the movement of goods under an international contract from the standpoint of risks, costs and documents
UNCTAD, 1990

What are they?

Set of international rules for the interpretation of the most commonly used foreign trade terms

Why are they Important?

Reduce the uncertainty caused by trade practices in different countries. Simplify the negotiations involved in international commerce. Ensure common understanding of obligations

The Categories
Incoterms
Ex works Free carrier Free alongside ship Free on board Cost & freight Cost, insurance & freight Carriage paid to Carriage and insurance paid to Delivered at frontier Delivered ex ship Delivered ex quay Delivered duty unpaid Delivered duty paid

Code
EXW FCA FAS FOB CFR CIF CPT CIP DAF DES DEQ DDU DDP

E Terms F Terms

C Terms

D Terms

The Steps of Global Logistics

Customs Clearance for Export

2 1
Packing Loading

3
Preliminary Transportation

Handling Outbound

5 6
Insurance

Customs Clearance Duties

Main International Transportation

11
Unloading

10
Final Transportation

8
Handling Inbound

Acronym (named location)

Acronym dictates mode and where the lines are drawn SELLER
Goods
PRE -CARRIAGE Sellers Risk Sellers Cost MAIN CARRIAGE ON-CARRIAGE
Export Clearance Import Clearance

BUYER

E Terms: Departure
EXW (named place)
Under E-terms, the seller minimizes his risk by only making the goods available at his own premises.
SELLER
Goods
Export Clearance Import Clearance

BUYER

PRE -CARRIAGE Sellers Risk

Sellers Cost

MAIN CARRIAGE

ON-CARRIAGE

EXW = Ex Works
The seller fulfills his obligation to deliver when he has made the goods available at his premises to the buyer. The seller is not responsible for loading the goods on the vehicle provided by the buyer The seller is not responsible for clearing the goods for export, unless agreed. The buyer bears all costs and risks involved in taking the goods from the sellers premises to the desired destination.

Group F: Main Carriage Not Paid by Seller

FAS - Free Alongside Ship FCA - Free CArrier FOB - Free On Board

Under F-terms, the seller arranges and pays for pre-carriage in the country of export. Including export clearance under FCA and FOB

FAS (named port of shipment)

Seller delivers goods alongside ship evidence of delivery SELLER
Export Clearance Import Clearance

BUYER

Goods
PRE-CARRIAGE
MAIN CARRIAGE ON-CARRIAGE

Sellers Risk
Sellers Cost

Buyer export documents nominates carrier, contracts carriage pays freight

Seller clears export customs, delivers goods to carrier evidence of delivery SELLER

FCA (named place)

Export Clearance Import Clearance

BUYER

Goods
PRE-CARRIAGE
MAIN CARRIAGE ON-CARRIAGE

Sellers Risk
Sellers Cost Buyer nominates carrier, contracts carriage pays freight

Seller clears export customs, delivers and loads goods on ship evidence of delivery SELLER

FOB (named port of shipment)

Export Clearance Import Clearance

BUYER

Goods
PRE-CARRIAGE MAIN CARRIAGE ON-CARRIAGE

Sellers Risk Sellers Cost

Buyer nominates carrier, contracts carriage pays freight

Group C: Main Carriage Paid by Seller

to CFR - Cost & FReight CIF - Cost, Insurance & Freight CPT - Carriage Paid To CIP - Carriage & Insurance Paid
Under C-terms, the seller arranges and pays for the main carriage but without assuming the risk of the main carriage.

CFR (named port of destination)

Export Clearance Import Clearance

SELLER Goods
PRE-CARRIAGE

BUYER

MAIN CARRIAGE

ON-CARRIAGE

Sellers Risk Sellers Cost

CIF (named port of destination)

Export Clearance Import Clearance

SELLER Goods
PRE-CARRIAGE

BUYER

MAIN CARRIAGE

ON-CARRIAGE

Sellers Risk Sellers Cost + Insurance

Ocean vs Other
Ocean Terms
CFR CIF

Other Terms
CPT CIP

Group D: Arrival
DAF - Delivered At Frontier DES - Delivered Ex Ship DEQ - Delivered Ex Quay DDU - Delivered Duty Unpaid DDP - Delivered Duty Paid

Under D-terms, the sellers cost/risk is maximized because he must make the goods available at the agreed destination. Including import clearance under DEQ and DDP

DAF (named place)

SELLER
Export Clearance Import Clearance

BUYER

Goods
PRE-CARRIAGE
MAIN CARRIAGE ON-CARRIAGE

Sellers Risk
Sellers Cost

DES (named port of destination)

SELLER
Export Clearance Import Clearance

BUYER

Goods
PRE-CARRIAGE
MAIN CARRIAGE ON-CARRIAGE

Sellers Risk
Sellers Cost

DEQ (named port of destination)

SELLER
Export Clearance Import Clearance

BUYER

Goods
PRE-CARRIAGE
MAIN CARRIAGE ON-CARRIAGE

Sellers Risk
Sellers Cost

Ocean vs Other
Ocean Terms
DES DEQ

Other Terms
DDU DDP

Quick Quiz

IncoTerms & Price

Sources
www.wto.org www.icc.org UNCTAD at United Nations Local Chambers of Commerce International Chamber of Commerce New York City Office