INCOTERMS 2000
Chart of Responsibility
When negotiating an international sales contract, both parties need to pay as much attention to the terms of sale as to the sales price. To make it as clear as possible, an international set of trade terms (INCOTERMS) has been adopted by most countries that defines exactly the responsibilities and risks of both the buyer and seller including while the merchandise is in transit.
The following chart summarizes the responsibilities of both the buyer and seller for each of the current 13 INCOTERMS. In addition, a definition for each term is included at the bottom of the page. See Table 1
Origin Terms
EXW - Ex-Works, named place where shipment is available to the buyer, not loaded. The seller will not contract for any transportation.
International Carriage NOT Paid by Seller
FCA - Free Carrier, unloaded at the seller's dock OR a named place where shipment is available to the international carrier or agent, not loaded. This term can be used for any mode of transport.
FAS - Free Alongside Ship, named ocean port of shipment. Ocean shipments that are NOT containerized.
FOB - Free On Board vessel, named ocean port of shipment. This term is used for ocean shipments only where it is important that the goods pass the ship's rail.
International Carriage Paid by the Seller
CFR - Cost and Freight, Named ocean port of destination. This term is used for ocean shipments that are not containerized.
CIF - Cost, Insurance and Freight, named ocean port of destination. This term is used for ocean shipments that are not containerized.
CPT - Carriage Paid To, named place or port of destination. This term is used for air or ocean containerized and roll-on roll-off shipments.
CIP - Carriage and Insurance Paid To, named place or port of destination.
This term is used for air or ocean containerized and roll-on roll-off shipments.
This term is used for air or ocean containerized and roll-on roll-off shipments.
Arrival At Stated Destination
DAF - Delivered At Frontier, named place of destination, by land, not unloaded. This term is used for any mode of transportation but must be delivered by land.
DES - Delivered Ex-Ship, named port of destination, not unloaded. This term is used for ocean shipments only.
DEQ - Delivered Ex-Quay, named port of destination, unloaded, not cleared. This term is used for ocean shipments only.
DDU - Delivered Duty Unpaid, named place of destination, not unloaded, not cleared. This term is used for any mode of transportation.
DDP - Delivered Duty Paid, named place of destination, not unloaded, cleared. This term is used for any mode of transportation.
"INCOTERMS 2000" is one in a series of short articles published by International Business Training, a division of InterMart, Inc. These articles are designed to help businesses and individuals succeed in the global marketplace.
The laws, regulations, procedures, requirements, methods, interpretations and other information contained in this article are subject to change and therefore the reader should not rely solely on this guide in dealing with the commercial laws of the United States
(c) 2000 International Business Institute, Inc. Used with permission by InterMart, Inc., PO Box 22267 , Eagan , MN 55122-0267
For a more complete description of each of the INCOTERMS, The IBT Guide to INCOTERMS 2000 book published by International Business Training fully and clearly defines each of the new INCOTERMS that became effective January 1, 2000, and includes a number of case studies that demonstrate the use of the different terms in real-life situations. www.i-b-t.net.
International Commercial Terms (INCOTERMS)
The INCOTERMS (International Commercial Terms) is a universally recognized set of definitions of international trade terms, such as FOB, CFR and CIF, developed by the International Chamber of Commerce (ICC) in Paris , France
The INCOTERMS was first published in 1936 INCOTERMS 1936 and it is revised periodically to keep up with changes in the international trade needs. The complete definition of each term is available from the current publication INCOTERMS 2000. The publication is available at your local Chamber of Commerce affiliated with the International Chamber of Commerce (ICC).
Many importers and exporters worldwide are accustomed to and may still use the INCOTERMS 1980, the predecessor of INCOTERMS 1990 and INCOTERMS 2000.
In practice, trade terms are written with either all upper case letters (e.g. FOB, CFR, CIF, and FAS) or all lower case letters (e.g. FOB, CFR, CIF, and FAS). They may be written with periods (e.g. FOB and CIF.).
In international trade, it would be best for exporters to refrain, wherever possible, from dealing in trade terms that would hold the seller responsible for the import customs clearance and/or payment of import customs duties and taxes and/or other costs and risks at the buyer's end, for example the trade terms Delivery Ex-Quay (DEQ) and Delivery Duty Paid (DDP). Quite often, the charges and expenses at the buyer's end may cost more to the seller than anticipated. To overcome losses, hire a reliable customs broker or freight forwarder in the importing country to handle the import routines.
Similarly, it would be best for importers not to deal in 'Ex-Works (EW)', which would hold the buyer responsible for the export customs clearance, payment of export customs charges and taxes, and other costs and risks at the seller's end.
International Commercial Terms
( INCOTERMS ) | ||
GROUP
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TERM
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Stands for
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E
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EXW
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F
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FCA
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FAS
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FOB
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C
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CFR
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CIF
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CPT
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CIP
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D
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DAF
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DES
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DEQ
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DDU
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DDP
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Ex means from. Works means factory, mill or warehouse, which is the seller's premises. EXW applies to goods available only at the seller's premises. Buyer is responsible for loading the goods on truck or container at the seller's premises, and for the subsequent costs and risks.
In practice, it is not uncommon that the seller loads the goods on truck or container at the seller's premises without charging loading fee.
In the quotation, indicate the named place (seller's premises) after the acronym EXW, for example EXW Kobe and EXW San Antonio.
The term EXW is commonly used between the manufacturer (seller) and export-trader (buyer), and the export-trader resells on other trade terms to the foreign buyers. Some manufacturers may use the term Ex Factory, which means the same as Ex Works.
Free Carrier {FCA + the named point of departure}
The delivery of goods on truck, rail car or container at the specified point (depot) of departure, which is usually the seller's premises, or a named railroad station or a named cargo terminal or into the custody of the carrier, at seller's expense. The point (depot) at origin may or may not be a customs clearance center. Buyer is responsible for the main carriage/freight, cargo insurance and other costs and risks.
In the air shipment, technically speaking, goods placed in the custody of an air carrier is considered as delivery on board the plane. In practice, many importers and exporters still use the term FOB in the air shipment.
The term FCA is also used in the RO/RO (roll on/roll off) services.
In the export quotation, indicate the point of departure (loading) after the acronym FCA, for example FCA Hong Kong and FCA Seattle.
Some manufacturers may use the former terms FOT (Free On Truck) and FOR (Free On Rail) in selling to export-traders.
Free Alongside Ship {FAS + the named port of origin}
Goods are placed in the dock shed or at the side of the ship, on the dock or lighter, within reach of its loading equipment so that they can be loaded aboard the ship, at seller's expense. Buyer is responsible for the loading fee, main carriage/freight, cargo insurance, and other costs and risks.
In the export quotation, indicate the port of origin (loading) after the acronym FAS, for example FAS New York and FAS Bremen.
The FAS term is popular in the break-bulk shipments and with the importing countries using their own vessels.
Free On Board {FOB + the named port of origin}
The delivery of goods on board the vessel at the named port of origin (loading), at seller's expense. Buyer is responsible for the main carriage/freight, cargo insurance and other costs and risks.
In the export quotation, indicate the port of origin (loading) after the acronym FOB, for example FOB Vancouver and FOB Shanghai.
Under the rules of the INCOTERMS 1990, the term FOB is used for ocean freight only. However, in practice, many importers and exporters still use the term FOB in the air freight.
In North America , the term FOB has other applications. Many buyers and sellers in Canada U.S.A.
FOB Origin means the buyer is responsible for the freight and other costs and risks. FOB Destination means the seller is responsible for the freight and other costs and risks until the goods are delivered to the buyer's premises, which may include the import customs clearance and payment of import customs duties and taxes at the buyer's country, depending on the agreement between the buyer and seller.
In international trade, avoid using the shipping terms FOB Origin and FOB Destination, which are not part of the INCOTERMS (International Commercial Terms).
Cost and Freight (CFR + the named port of destination}
The delivery of goods to the named port of destination (discharge) at the seller's expense. Buyer is responsible for the cargo insurance and other costs and risks. The term CFR was formerly written as C&F. Many importers and exporters worldwide still use the term C&F.
In the export quotation, indicate the port of destination (discharge) after the acronym CFR, for example CFR Karachi and CFR Alexandria.
Under the rules of the INCOTERMS 1990, the term Cost and Freight is used for ocean freight only. However, in practice, the term Cost and Freight (C&F) is still commonly used in the air freight.
Cost, Insurance and Freight {CIF + the named port of destination}
The cargo insurance and delivery of goods to the named port of destination (discharge) at the seller's expense. Buyer is responsible for the import customs clearance and other costs and risks.
In the export quotation, indicate the port of destination (discharge) after the acronym CIF, for example CIF Pusan and CIF Singapore.
Under the rules of the INCOTERMS 1990, the term CIF is used for ocean freight only. However, in practice, many importers and exporters still use the term CIF in the air freight.
Carriage Paid To {CPT + the named place of destination}
The delivery of goods to the named place of destination (discharge) at seller's expense. Buyer assumes the cargo insurance, import customs clearance, payment of customs duties and taxes, and other costs and risks.
In the export quotation, indicate the place of destination (discharge) after the acronym CPT, for example CPT Los Angeles and CPT Osaka.
Carriage and Insurance Paid To {CIP + the named place of destination}
The delivery of goods and the cargo insurance to the named place of destination (discharge) at seller's expense. Buyer assumes the import customs clearance, payment of customs duties and taxes, and other costs and risks.
In the export quotation, indicate the place of destination (discharge) after the acronym CIP, for example CIP Paris and CIP Athens.
Delivered At Frontier {DAF + the named point at frontier}
The delivery of goods to the specified point at the frontier at seller's expense. Buyer is responsible for the import customs clearance, payment of customs duties and taxes, and other costs and risks.
In the export quotation, indicate the point at frontier (discharge) after the acronym DAF, for example DAF Buffalo and DAF Welland.
Delivered Ex Ship {DES + the named port of destination}
The delivery of goods on board the vessel at the named port of destination (discharge), at seller's expense. Buyer assumes the unloading fee, import customs clearance, payment of customs duties and taxes, cargo insurance, and other costs and risks.
In the export quotation, indicate the port of destination (discharge) after the acronym DES, for example DES Helsinki and DES Stockholm.
Delivered Ex Quay {DEQ + the named port of destination}
The delivery of goods to the quay (the port) at destination at seller's expense. Seller is responsible for the import customs clearance and payment of customs duties and taxes at the buyer's end. Buyer assumes the cargo insurance and other costs and risks.
In the export quotation, indicate the port of destination (discharge) after the acronym DEQ, for example DEQ Libreville and DEQ Maputo.
Delivered Duty Unpaid {DDU + the named point of destination}
The delivery of goods and the cargo insurance to the final point at destination, which is often the project site or buyer's premises, at seller's expense. Buyer assumes the import customs clearance and payment of customs duties and taxes. The seller may opt not to insure the goods at his/her own risks.
In the export quotation, indicate the point of destination (discharge) after the acronym DDU, for example DDU La Paz and DDU Ndjamena.
Delivered Duty Paid {DDP + the named point of destination}
The seller is responsible for most of the expenses, which include the cargo insurance, import customs clearance, and payment of customs duties and taxes at the buyer's end, and the delivery of goods to the final point at destination, which is often the project site or buyer's premises. The seller may opt not to insure the goods at his/her own risks.
In the export quotation, indicate the point of destination (discharge) after the acronym DDP, for example DDP Dakar and DDP Bamako.
Crossing the Language Barriers in Exporting-Importing
English is the principal language of world trade. Knowledge of more than one language is helpful in exporting, but it is not a prerequisite.
In international business, knowing how to speak and write in English is a necessity. However, proficiency in English or any languages is not a guarantee of export success. Being able to speak and write in the buyer's language will be advantageous in countries where the use of the native tongue is of national pride.
Learning a language other than English in order to export is not absolutely required, as translation services are readily available in most countries. Certain countries even have foreign language escort services to accommodate the exporters' needs. The services of the foreign language escorts are to translate for and accompany the foreign buyer on dining and tour. The escort usually knows very little or nothing about the products of the exporter.
English is not the official language in many countries. Learning a language like English can be tedious. It is important to understand that an English word is not always pronounced the same way everywhere. The varied pronunciation is influenced by the native tongue and ethnic background.
There is no such thing as perfect English. It is not uncommon to hear the novice export person say "I don't quite understand what the buyer has said" (in English). Ironically, the export person is often not from the English speaking country, while the buyer is from U.S.A. United Kingdom
The export person may have spent several years mastering the so-called correct English pronunciation. A different accent puts the export person at a disadvantage. The U.S.A. Canada United Kingdom
Fluency in a language is merely a tool to facilitate communication. To fully understand what the buyer says and wants is the essence of export communication. An exporter having difficulty in conversation and comprehension seldom arouses the buyer's interest.
Sometimes it may be impolite to say 'No' directly to show disagreement in such countries as the Japan China
The exporter must verify with the buyer in case of doubt about the message received. Do not guess or assume, for example, that the word "dinero" in the message "We want to have the dinero at 6 p.m. " must be "dinner." The word "dinero" in Spanish means money.
The use of language 'mixtures' in export communication must be avoided because it may generate confusion.
Foreign Company Titles
The company title usually reflects the form of a business organization. However, in countries where English is not the official language and whose government may not strictly regulate the use of the English company title, the English title used by a company may not reflect the form of business organization it is registered.
The foreign company title does not always have an English language equivalent. It can be helpful to know the form of foreign business organization that the exporter is dealing with, especially when such issues as import decision making and importer's liability are concerned.
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