What are Incoterms? Incoterms are International Commercial Terms, essentially a global set of universal trade terms developed to establish a happy medium between exporter and importer alike.
Where did they come from? Incoterms were developed by the International Chamber of Commerce (ICC) in Paris, France. They were first published in 1936 and the current set were published in 2000.
Why do we need them? Without Incoterms buyer and seller would would be at constant negotiation, international trade would simply not be as efficient. A generic standard set of rules are invaluable and can be thought of as a cost-saving measure. Once a trade term is agreed upon, the parties can continue without having to worry whom is responsible for freight, insurance or other related cost in the future.
How many of these things are there?? There are 13 Incoterms, yes it sounds daunting at first but if we break them down into categories it will improve your understanding. A simple breakdown and explanation of each term......
Departure Terms (here's the goods sort it out yourself!)
EXW – Ex Works The buyer takes control of the goods at the Suppliers Factory door, all the supplier has to do is make the shipment available at there set location. Any charge thereon falls completely on the buyer
Main carriage unpaid terms (hand balled to your carrier!)
FCA – Free Carrier Basically the seller will clear the shipment for export and drop it in the hands of the buyers selected carrier at there chosen location. This term can be used for all modes of transport.
FAS – Free Alongside Ship Similar to FCA, but maritime specific. The seller will clear shipment for export, and physically leave it at the chosen port, without incurring any Port service charge.
FOB – Free On Board Similar to FAS, although the seller will organize to load the shipment on board the buyer's designated ship. Port charge fees are divided between each party.
Main Carriage Paid (drop kicked to your door!)
CFR – Cost and Freight Seller will pay for carriage and all costs involved to the buyer's destination port. Insurance is buyers responsibility once goods have been loaded aboard vessel.
CIF – Cost, Insurance and Freight As above, however the seller must cover insurance cost to the destination port.
CPT – Carriage Paid To CFR, except Insurance risk commences for buyer as soon as the truck (or first carrier) delivering goods to the port is loaded.
CIP – Carriage and Insurance Paid The container freight/multimodal equivalent of CPT.
Arrival terms (confused yet!)
DAF – Delivered At Frontier is designed for Road and Rail freight. The buyer will organize customs clerance and transport to the frontier; country borderline / chosen destination. Insurance changes hands at the frontier.
DES – Delivered Ex Ship (named port) similiar to CIF/CIP the seller will cover insurance to the destination port. This term is generally used for bulk carriage e.g. minerals or agriculture, as the seller is required to make the product available onboard the vessel itself.
DEQ – Delivered Ex Quay (named port) Equivalent of DES, except insurance covers goods untill they are unloaded at destination port.
DDU – Delivered Duty Unpaid (named destination place) The buyer chooses a destination, from this point onwards the buyer is responsible for any loading charges, or insurance cover. Everything prior is the seller's responsibility. Local customs clearance entry costs or any duty tax can be negotiated in the contract.
DDP – Delivered Duty Paid (named destination place) Essentially the opposite of Ex Works, the seller will pay for all transport charges, insurance, customs clearance and duty. From origin to the buyers warehouse.
