Incoterms - International
Commercial Terms
ICC 2000
By Linda Holtes
Why Incoterms
Incoterms define risk,
cost and
responsibility
for both the seller and
the buyer during the
transportation of the
cargo from the exporter
to the importer
Incoterms are
universal
and can be recognised
and understood
internationally.
•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 Incoterms
E Term
EXW -EX WORKS
C Terms
CFR - COST AND FREIGHT
CPT - CARRIAGE PAID TO
CIF - COST, INSURANCE &
FREIGHT
CIP - COST, INSURANCE
PAID TO
F Terms
FAS - FREE ALONGSIDE SHIP
FOB - FREE ON BOARD
FCA - FREE CARRIER AT..
D Terms
DAF - DELIVERED AT
FRONTIER
DES - DELIVERED EX SHIP
DEQ - DELIVERED EX QUAY
DDU - DELIVERED DUTY
UNPAID
DDP - 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 Works
INCOTERMS 2000
Ex Works (EXW)
Named place
Multimodal Incoterm
Costs
Costs
Risks
Seller
Risks
Buyer
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
INCOTERMS 2000
Free carrier (FCA)
Named place
Multimodal incoterm
Costs
Risks
Seller
Charge of
Carrier
Costs
Risks
Buyer
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 Board
INCOTERMS 2000
Free on board (FOB)
Named port of shipment
Sea Freight incoterm
Costs
Costs
Risks
Seller
Risks
Buyer
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
INCOTERMS 2000
Cost and Freight (CFR)
Named port of destination
Sea Freight incoterm
Costs
Costs
Risks
Seller
Risks
Buyer
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.
CPT - Carriage Paid to..
INCOTERMS 2000
Carriage Paid To (CPT)
Named place of destination
Multimodal incoterm
Costs
Risks
Seller
Costs
Charge of
Carrier
Risks
Buyer
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 & Freight
INCOTERMS 2000
Cost, Insurance and Freight (CIF)
Named port of destination
Sea freight incoterm
Exporter procures marine insurance
Costs
Costs
Risks
Seller
Risks
Buyer
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
INCOTERMS 2000
Carriage and insurance paid to (CIP)
Named place of destination
Multimodal incoterm
Costs
Risks
Seller
Costs
Charge of
Carrier
Risks
Buyer
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 Ship
INCOTERMS 2000
Delivered ex Ship (DES)
Named port of destination
Sea freight incoterm
Goods uncleared
for Import
Costs
Costs
Risks
Seller
Risks
Buyer
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-ship
INCOTERMS 2000
Delivered ex quay (DEQ)
Named port of destination
Sea freight incoterm
Goods uncleared
for Import
Costs
Costs
Risks
Seller
Risks
Buyer
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 Unpaid
INCOTERMS 2000
Delivered Duty Unpaid (DDU)
Named place of destination
Multimodal incoterm
Costs
Risks
Seller
Goods uncleared
for Import
Named
Place of
destination
Costs
Risks
Buyer
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
INCOTERMS 2000
Delivered Duty Paid (DDP)
Named place of destination
Multimodal incoterm
Goods cleared
for Import
Costs
Risks
Seller
Named
Costs
Place of
destination
Risks
Buyer
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
INCOTERMS 2000
Delivered at frontier (DAF)
Named place
Overland incoterm
Delivered
at Frontier
Costs
Costs
Risks
Seller
Risks
Buyer
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