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International Commercial Contracts Terminology

By Mike Richards Updated: 07/31/2017 Posted: 10/27/2015

Incoterms

Trade terms published by the International Chamber of Commerce (ICC) are commonly used in both international and domestic trade contracts. Incoterms, short for “International Commercial Terms,” are used to make international trade easier by helping traders in different countries understand one another.

These three-letter trade terms, each covering a common contractual sales practice, are primarily intended to communicate clearly and consistently the tasks, costs and risks associated with the delivery and transport of goods.

The ICC published its eighth and most recent version of the rules–Incoterms® 2010–on January 1, 2011.
Ex Works (EXW): This rule places minimum responsibility on the seller, who merely has to make the goods available, suitably packaged, at the specified place, usually the seller’s factory or depot. The buyer is responsible for loading the goods onto a vehicle (even though the seller may be better placed to do this), for all export procedures, for onward transport and for all costs arising after collection of the goods.

Free Carrier (FCA): The seller is responsible for export clearance; the buyer assumes all risks and costs after the goods have been delivered at the named place. FCA is the rule of choice for containerized goods where the buyer arranges for the main carriage.

Carriage Paid To (CPT): The seller is responsible for arranging carriage to the named place, but not for insuring the goods to the named place.  However, delivery of the goods takes place, and risk transfers from seller to buyer, at the point where the goods are taken in charge by a carrier

Carriage and Insurance Paid To (CIP): As with CPT, delivery of the goods takes place, and risk transfers from seller to buyer, at the point where the goods are taken in charge by a carrier.

Delivered at Terminal (DAT): The seller is responsible for arranging carriage and for delivering the goods, unloaded from the arriving conveyance, at the named place.

Delivered At Place (DAP): The seller is responsible for arranging carriage and for delivering the goods, ready for unloading from the arriving conveyance, at the named place.

Delivered Duty Paid (DDP): The seller is responsible for arranging carriage and delivering the goods at the named place, cleared for import and all applicable taxes and duties paid (e.g. VAT, GST)

Free Alongside Ship (FAS): The seller delivers goods, cleared for export, alongside the vessel at a named port, at which point the risk transfers to the buyer. The buyer is responsible for loading the goods and all costs thereafter.

Free On Board (FOB): the seller delivers the goods, cleared for export, loaded on board the vessel at the named port. Once the goods have been loaded on board, the risk transfers to the buyer, who bears all costs thereafter.

Cost & Freight (CFR): The seller arranges and pays for transport to named port. The seller delivers goods, cleared for export, loaded on board the vessel. However, the risk transfers from seller to buyer once the goods have been loaded on board, i.e. before the main carriage takes place. NB: the seller is not responsible for insuring the goods for the main carriage.

Cost Insurance & Freight (CIF): The seller arranges and pays for transport to the named port. The seller delivers goods, cleared for export, loaded on board the vessel. However, the risk transfers from seller to buyer once the goods have been loaded on board, i.e. before the main carriage takes place. The seller also arranges and pays for insurance for the goods for carriage to the named port. (1)

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References:

(1) http://www.incotermsexplained.com/the-incoterms-rules/the-eleven-rules-in-brief/cost-freight/

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