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INCOTERMS-2010

Language is one of the most complex and important tools of International Trade. As in any complex and sophisticated business, small changes in wording can have a major impact on all aspects of a business agreement. Word definitions often differ from industry to industry. This is especially true of global trade. Where such fundamental phrases as “delivery” can have a far different meaning in the business than in the rest of the world. For business terminology to be effective, phrases must mean the same thing throughout the industry. That is why the International Chamber of Commerce created “INCOTERMS” in 1936. INCOTERMS are designed to create a bridge between different members of the industry by acting as a uniform language they can use. Each INCOTERM refers to a type of agreement for the purchase and shipping of goods internationally. There are 11 different terms, each of which helps users deal with different situations involving the movement of goods. For example, the term FCA is often used with shipments involving Ro/Ro or container transport. INCOTERMS also deal with the documentation required for global trade, specifying which parties are responsible for which documents. Determining the paperwork required to move a shipment is an important job, since requirements vary so much between countries. Two items, however, are standard: the commercial invoice and the packing list. INCOTERMS were created primarily for people inside the world of global trade. Outsiders frequently find them difficult to understand. Seemingly common words such as “responsibility” and “delivery” have different meanings in global trade than they do in other situations.

Regulated delivery options are:

  • EXW / EX Works
  • FCA / Free Carrier
  • FAS / Free Alongside Ship (named port of shipment)
  • FOB / Free On Board (named port of shipment)
  • CFR / Cost and Freight (named port of destination)
  • CIF / Cost, Insurance and Freight (named port of destination)
  • CPT / Carriage Paid To (named place of destination)
  • CIP / Carriage and Insurance Paid То (named place of destination)
  • DAT / Delivered at Terminal (named terminal at port or place of destination)
  • DAP / Delivered at Place (named place of destination)
  • DDP / Delivered Duty Paid (named place of destination)
Types conditions for payment 2010 Exports – Customs declaration Transport to port exports Unloading Truck in port exports Costs Loading in port exports Transport (sea / air load) to port imports Fees discharge in port imports Loading in truck port imports Transport to location stated from buyer Insurance Import – Customs treatment Taxi on imports

EXW

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FCA

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FAS

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FOB

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CFR

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CIF

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CPT

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CIP

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DAT

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DAP

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DDP

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Seven rules for any mode of transport determined by the Incoterms 2010 are:

EXW / Ex Works

One of the simplest and most basic shipment arrangements places the minimum responsibility on the seller with greater responsibility on the buyer. In an EX-Works transaction, goods are basically made available for pickup at the shipper/seller’s factory or warehouse and “delivery” is accomplished when the merchandise is released to the consignee’s freight forwarder. The buyer is responsible for making arrangements with their forwarder for insurance, export clearance and handling all other paperwork.

FCA / Free Carrier
In this type of transaction, the seller is responsible for arranging transportation, but he is acting at the risk and the expense of the buyer. Where in FOB the freight forwarder or carrier is the choice of the buyer, in FCA the seller chooses and works with the freight forwarder or the carrier. “Delivery” is accomplished at a predetermined port or destination point and the buyer is responsible for Insurance.

CPT / Carriage Paid To
In CPT transactions the shipper/seller has the same obligations found with CIF, with the addition that the seller has to buy cargo insurance, naming the buyer as the insured while the goods are in transit.

CIP / Carriage and Insurance Paid То
This arrangement similar to CFR, but instead of the buyer insuring the goods for the maritime phase of the voyage, the shipper/seller will insure the merchandise. In this arrangement, the seller usually chooses the forwarder. “Delivery” as above, is accomplished at the port of destination.

DAT / Delivered at Terminal – This term is used for any type of shipments. The shipper/seller pays for carriage to the terminal, except for costs related to import clearance, and assumes all risks up to the point that the goods are unloaded at the terminal.

DAP / Delivered at Place
DAP term is used for any type of shipments. The shipper/seller pays for carriage to the named place, except for costs related to import clearance, and assumes all risks prior to the point that the goods are ready for unloading by the buyer.

DDP / Delivered Duty Paid
DDP term tend to be used in intermodal or courier-type shipments. Whereby, the shipper/seller is responsible for dealing with all the tasks involved in moving goods from the manufacturing plant to the buyer/consignee’s door. It is the shipper/seller’s responsibility to insure the goods and absorb all costs and risks including the payment of duty and fees.

The four rules defined by Incoterms 2010 for international trade in transport entirely on water are:

FAS / Free Alongside Ship (named port of shipment)
In these transactions, the buyer bears all the transportation costs and the risk of loss of goods. FAS requires the shipper/seller to clear goods for export, which is a reversal from past practices. Companies selling on these terms will ordinarily use their freight forwarder to clear the goods for export. “Delivery” is accomplished when the goods are turned over to the Buyers Forwarder for insurance and transportation.

FOB / Free On Board (named port of shipment)
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.

CFR / Cost and Freight
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/seller’s responsibility to get goods from their door to the port of destination. “Delivery” is accomplished at this time. It is the buyer’s responsibility to cover insurance from the port of origin or port of shipment to buyer’s door. Given that the shipper is responsible for transportation, the shipper also chooses the forwarder.

CIF / Cost, Insurance and Freight – This arrangement similar to CFR, but instead of the buyer insuring the goods for the maritime phase of the voyage, the shipper/seller will insure the merchandise. In this arrangement, the seller usually chooses the forwarder. “Delivery” as above, is accomplished at the port of destination.

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