INCO Terms 2010AMIT INDOREY

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INCO terms

Abbreviation for International Commercial Terms

They are a set of rules which define the responsibilities of sellers and buyers

for the delivery of goods under sales contracts for domestic and

international trade.

They are published by the International Chamber of Commerce (ICC) and

are widely used in international commercial transactions.

The first Incoterms were issued in 1936. The most recent version (8th Version)

of Incoterms, Incoterms 2010, were launched in September 2010 and

became effective January 1, 2011.

Incoterms provide a common set of rules to clarify responsibilities of sellers

and buyers for the delivery of goods under sales contracts.

They apportion transportation costs and responsibilities associated with the

delivery of goods between buyers (importers) and sellers (exporters) and

reflect modern-day transportation practices.

Incoterms significantly reduce misunderstandings among traders and

thereby minimize trade disputes and litigation.

"INCOTERMS®" is a registered trademark of the ICC.

Benefit of Incoterms

The main benefit of Incoterms is to reduce risk

Due to the fact that countries have different business cultures and

languages, it’s wise to have a clearly-written contract to reduce any

misunderstandings. Thus, the main benefit of Incoterms is reduced risk in a

transaction.

By specifying the exporting seller’s and importing buyer’s obligations, there

is no confusion with regards to rules of transportation from point A to point

B.

Incoterms do not cover, however, ownership or title transfer of the goods.

These terms are agreed upon separately between the two transacting

parties.

INCO terms 2010

The two main categories of Incoterms® 2010 are now organized by modes

of transport.

Group 1. Incoterms that apply to any mode of transport

Group 2. Incoterms that apply to sea and inland waterway transport only

(uncontainerized or bulk cargo only)

Group 1 INCO

EXW Ex Works

FCA Free Carrier

CPT Carriage Paid To

CIP Carriage and Insurance Paid To

DAT Delivered at Terminal

DAP Delivered at Place

DDP Delivered Duty Paid

Group 2 INCO

FAS Free Alongside Ship

FOB Free on Board

CFR Cost and Freight

CIF Cost, Insurance, and Freight

EXW (Ex Works)

EXW (Ex Works)

This term places the maximum obligation on the buyer and minimum

obligations on the seller.

EXW means that a buyer incurs the risks for bringing the goods to their final

destination

Seller, only has to make the goods available, suitably packaged, at the

specified place, usually at the seller’s factory or depot or another named

place (factory , warehouse etc.).

Seller has no obligation to load the goods or clear them for export.

EXW (Ex Works)

Buyer bears all risk and costs starting when he picks up the products at the

seller’s location until the products are delivered to his location.

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.

If the seller does load the goods, he does so at buyer's risk and cost.

If the parties agree that the seller should be responsible for the loading of

the goods on departure and to bear the risk and all costs of such loading,

this must be made clear by adding explicit wording to this effect in the

contract of sale.

EXW (Ex Works)

In many cross-border transactions, this rule can present practical

difficulties.

Specifically, the exporter may still need to be involved in export reporting

and clearance processes, and cannot realistically leave these to the

buyer.

The buyer is also responsible for completing all the export documentation,

although the seller does have an obligation to obtain information and

documents at the buyer's request and cost.

FCA(Free Carrier)

FCA(Free Carrier)

The seller is responsible for delivery of the goods, cleared for export, at a

named place (possibly including the seller's own premises). The goods can

be delivered to a carrier nominated by the buyer, or to another party

nominated by the buyer. Carrier/buyer is responsible for unloading after

delivery and loading into own carrier.

Buyer assumes all risks and costs associated with delivery of goods to final

destination including transportation after delivery to carrier and any

customs fees to import the product into a foreign country.

FCA(Free Carrier)

In all cases, 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 containerised goods where the buyer

arranges for the main carriage.

If delivery occurs at the seller's premises, or at any other location that is

under the seller's control, the seller is responsible for loading the goods on

to the buyer's carrier. this is an important difference from Ex Works EXW.

CPT (Carriage Paid To)

CPT (Carriage Paid To)

Can be used for any transport mode, or where there is more than one

transport mode.

The seller is responsible for origin costs including export clearance and

freight costs for carriage up to the named place of destination (either the

final destination such as the buyer's facilities or a port of destination. This

has to be agreed by seller and buyer, however).

However, the goods are considered to be delivered when the goods have

been handed over to the first or main carrier, so that the risk transfers to

buyer upon handing goods over to that carrier at the place of shipment in

the country of Export.

CPT (Carriage Paid To)

Terminal Handling Charges (THC) are charges made by the terminal operator. These charges may or may not be included by the carrier in their freight rates – the buyer should enquire whether the CPT price includes THC, so as to avoid surprises.

By default , seller is not responsible for procuring insurance.

The buyer may wish to arrange insurance cover for the main carriage, starting from the point where the goods are taken in charge by the carrier – NB this will not be the place referred to in the Incoterms rule, but will be specified elsewhere within the commercial agreement

If the buyer requires the seller to obtain insurance, the Incoterm CIP should be considered instead.

CIP – Carriage and Insurance Paid to

(named place of destination)

CIP – Carriage and Insurance Paid to

(named place of destination)

Can be used for any transport mode, or where there is more than one

transport mode. The seller is responsible for arranging carriage to the

named place, and also for insuring the goods.

Seller clears the goods for export and delivers them to the carrier or

another person stipulated by the seller at a named place of shipment.

Seller is responsible for the transportation costs associated with delivering

goods and procuring minimum insurance coverage to the named place

of destination.

DAT – Delivered At Terminal (named

terminal at port or place of

destination)

DAT – Delivered At Terminal (named

terminal at port or place of

destination)

‘Terminal’ (named place)can be any place – a quay, container yard,

warehouse or transport hub.

The seller covers all the costs of transport (export fees, carriage, unloading

from main carrier at destination port and destination port charges) and

assumes all risk until arrival at the destination port or terminal.

The place for delivery should be specified as precisely as possible, as many

ports and transport hubs are very large.

A useful rule, well suited to container operations where the seller bears

responsibility for the main carriage.

DAT – Delivered At Terminal (named

terminal at port or place of

destination)

Risk transfers from seller to buyer when the goods have been unloaded.

The buyer is responsible for import clearance and any applicable local

taxes or import duties and all charges after unloading (for example, Import

duty, taxes, customs and on-carriage)

However, it is important to note that any delay or demurrage charges at

the terminal will generally be for the seller's account.

DAP – Delivered At Place (named

place of destination)

DAP – Delivered At Place (named

place of destination)

Once goods are ready for shipment, the necessary packing is carried out

by the seller at his own cost, so that the goods reach their final destination

safely. All necessary legal formalities in the exporting country are

completed by the seller at his own cost and risk to clear the goods for

export.

The seller delivers when the goods are placed at the disposal of the buyer

on the arriving means of transport ready for unloading at the named

place of destination. Under DAP terms, the risk passes from seller to buyer

from the point of destination mentioned in the contract of delivery.

DAP – Delivered At Place (named

place of destination)

The seller is responsible for arranging carriage and for delivering the goods,

ready for unloading from the arriving conveyance, at the named

place. (An important difference from Delivered At Terminal DAT, where

the seller is responsible for unloading.)

After arrival of the goods in the country of destination, the customs

clearance in the importing country needs to be completed by the buyer

at his own cost and risk, including all customs duties , taxes and unloading.

However, as with DAT terms any delay or demurrage charges are to be

borne by the seller.

DDP – Delivered Duty Paid (named

place of destination)

DDP – Delivered Duty Paid (named

place of destination)

This term means that the seller assumes all the risks and costs of transport (export fees, carriage, insurance, and destination port charges, delivery to the final destination) and pays all applicable taxes and import customs/duty

The buyer has only to unload the goods at the final destination

This rule places the maximum obligation on the seller, and is the only rule that requires the seller to take responsibility for import clearance and payment of taxes and/or import duty.

These last requirements can be highly problematical for the seller. In some countries, import clearance procedures are complex and bureaucratic, and so best left to the buyer who has local knowledge.

Group 2 Incoterms

The four rules defined by Incoterms 2010 for international trade where transportation is entirely conducted by water are as per the below.

It is important to note that these terms are generally not suitable for shipments in shipping containers; the point at which risk and responsibility for the goods passes is when the goods are loaded on board the ship, and if the goods are sealed into a shipping container it is impossible to verify the condition of the goods at this point.

Use of this rule is restricted to goods transported by sea or inland waterway.

In practice it should be used for situations where the seller has direct access to the vessel for loading, e.g. bulk cargos or non-containerised goods.

FAS – Free Alongside Ship (named port

of shipment)

FAS – Free Alongside Ship (named port

of shipment)

The seller delivers when the goods (cleared for export)are placed alongside the vessel (e.g., on a quay or a barge) nominated by the buyer at the named port of shipment. Buyer assumes all risks/costs for goods from this point forward.

The buyer is responsible for loading the goods and all costs thereafter.

This means that the buyer has to bear all costs and risks of loss of or damage to

the goods from that moment.

This term should be used only for non-containerised sea freight and inland waterway transport.

Packaging: Seller’s responsibility and cost

Export Clearance & Security: Seller’s responsibility and cost

FOB – Free on Board (named port of

shipment)

FOB – Free on Board (named port of

shipment)

Seller delivers goods, cleared for export, loaded on board the vessel at the named port.

Once the goods have been loaded on board, risk transfers to the buyer, who bears all costs thereafter.

Under FOB terms the seller bears all costs and risks up to the point the goods are loaded on board the vessel. The seller must also arrange for export clearance. The buyer pays cost of marine freight transportation, bill of lading fees, insurance, unloading and transportation cost from the arrival port to destination.

FOB should only be used for non-containerised sea freight and inland waterway transport. However, FOB is still used for all modes of transport despite the contractual risks that this can introduce.

CFR – Cost and Freight (named port of

destination)

CFR – Cost and Freight (named port of

destination)

Seller arranges and pays for transport to named port. Seller delivers goods, cleared for export, loaded on board the vessel.

However risk transfers from seller to buyer once the goods have been loaded on board, i.e. before the main carriage takes place.

Seller is not responsible for insuring the goods for the main carriage.

The seller pays for the carriage of the goods up to the named port of destination.

If the buyer does require the seller to obtain insurance, the Incoterm CIF should be considered. CFR should only be used for non-containerized sea freight and inland waterway transport; for all other modes of transport it should be replaced with CPT.

CIF – Cost, Insurance & Freight

(named port of destination)

CIF – Cost, Insurance & Freight

(named port of destination)

seller clears the goods for export and delivers them when they are on-

board the vessel at the port of shipment.

Seller bears the cost of freight and insurance to the named port of

destination.

Seller’s insurance requirement is only for minimum cover. Buyer is

responsible for all costs associated with unloading the goods at the

named port of destination and clearing goods for import. Risk passes from

seller to buyer once the goods are on-board the vessel at the port of

shipment.

CIF – Cost, Insurance & Freight

(named port of destination)

The insurance policy should be in the same currency as the contract.

However risk transfers from seller to buyer once the goods have been

loaded on board, i.e. before the main carriage takes place.

However as with “Carriage and Insurance Paid To”, the rule only require a

minimum level of cover, which may be commercially unrealistic (110%).

Therefore the level of cover may need to be addressed elsewhere in the

commercial agreement.

CIF – Cost, Insurance & Freight

(named port of destination)

In particular, CIF is the most common because there will be a stronger

grasp on shipments. In this scenario, the seller takes responsibility for all

costs until the cargo is loaded at the origin port, but the cost passes to the

buyer at the specified discharge port.