-Understanding
Incoterms and International Trade Terms and Abbreviations -
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following information is not property of LCDSearch.com, its
intended purpose is only for informational purposes concerning
International trade.
Here's
a handy guide to Incoterms, a set of international rules for
the interpretation of the most commonly used trade terms.
Applying Incoterms to sale and purchase contracts makes
global trade easier and helps partners in different
countries understand one another.
When global companies enter into contracts to buy and sell
goods they are free to negotiate specific terms. These terms
include the price, quantity, and characteristics of the
goods. Every international contract also contains what is
referred to as an Incoterm, or international commercial
term.
There are 13
main terms and several secondary terms that denote the
points at which shipper, carrier, and consignee risk and
responsibility start and end.
The parties to the transaction select the Incoterms, which
determine who pays the cost of each transportation segment,
who is responsible for loading and unloading of goods, and
who bears the risk of loss at any given point during an
international shipment. Incoterms also influence customs
valuation basis of imported merchandise.
The International Chamber of Commerce in Paris oversees and
administers Incoterms, and they are adhered to by the major
trading nations of the world. The ICC first published this
set of international rules in 1936 as "INCOTERMS
1936." Incoterms are amended every 10 years.
There are
currently 13 Incoterms in use, and they are described below.
Ex-works, Free on Board, Cost Insurance Freight, and
Delivery Duty Paid are the most frequently used Incoterms.
Incoterms are recognized globally by courts and other
authorities. Frequently, parties to a contract are unaware
of the different trading practices in their respective
countries. This lack of knowledge can lead to
misunderstandings and disputes between customer and
supplier. The incorporation of Incoterms in international
sales contracts reduces this risk.
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Hyperlinks
to International trade terms as described above.
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Group
E (Departure)
EXW:
Ex-Works
The
seller, or exporter, makes the goods available to the buyer,
or importer at the seller's premises. The buyer is
responsible for all transportation costs, duties, and
insurance, and accepts risk of loss of goods immediately
after the goods are purchased and placed outside the factory
door.
The Ex-Works
price does not include loading goods onto a truck or
vessel, and no allowance is made for clearing customs.
If FOB
is the customs valuation basis of the goods in the country
of destination, the transportation and insurance costs from
the seller's premises to the port of export must be added to
the Ex-Works price.
Under EXW, sellers minimize their risk by making the goods
available at their factory or place of business.
Group
F (Main Carriage Not Paid By Seller)
FAS:
Free Alongside Ship
Sellers transport the goods from their place of business,
clear the goods for export, and place them alongside the
vessel at the port of export, where the risk of loss shifts
to the buyer. The buyer is responsible for loading the goods
onto the vessel, unless specified otherwise, and for paying
all costs involved in shipping goods to the final
destination.
FCA:
Free Carrier
The seller, or exporter, clears the goods for export and
delivers them to the carrier and place specified by the
buyer.
If the place chosen is the seller's place of business, the
seller must load the goods onto the transport vehicle;
otherwise, the buyer is responsible for loading the goods.
The buyer assumes risk of loss from that point forward and
must pay for all costs associated with transporting the
goods to the final destination.
FOB:
Free On Board
The
seller, or exporter, is responsible for delivering the goods
from its place of business and loading them onto the vessel
at the port of export, as well as clearing customs in the
country of export.
As soon as the goods cross the "ships-rails" (the
ship's threshold) the risk of loss transfers to the buyer,
or importer. The buyer must pay for all transportation and
insurance costs from that point, and must clear customs in
the country of import.
An FOB transaction will read "FOB, port of
export." For example, assuming the port of export is
Boston, an FOB transaction would read "FOB
Boston." If CIF is the customs valuation basis,
international freight and insurance must be added to the FOB
value.
Group
C (Main Carriage Paid By Seller)
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CFR:
Cost and Freight
The
seller, or exporter, is responsible for clearing the goods
for export, delivering the goods past the ships rail at the
port of shipment, and paying international freight charges.
The buyer assumes risk of loss once the goods cross the
ship's rail, and must purchase insurance, unload the goods,
clear customs, and pay for transport to deliver the goods to
their final destination.
If FOB is the customs valuation basis, the international
freight costs must be deducted from the CFR price.
CIF:
Cost, Insurance and Freight
The seller, or exporter, is responsible for delivering the
goods onto the vessel of transport and clearing customs in
the country of export. The exporter also is responsible for
purchasing insurance, with the buyer (importer) named as the
beneficiary.
Risk of loss
transfers to buyer as the goods cross the ship's rail. If
these goods are damaged or stolen during international
transport, the buyer owns the goods and must file a claim
based on insurance procured by the seller. The buyer must
clear customs in the country of import and pay for all other
transport and insurance in the country of import.
CIF can be used as an Incoterm only when the international
transport of goods is at least partially by water. If FOB is
the customs valuation basis, the international insurance and
freight costs must be deducted from the CIF price. A CIF
transaction will read CIF, port of destination.
For example, assuming that goods are exported to the Port of
Los Angeles, a CIF transaction would read "CIF Los
Angeles."
CPT:
Carriage Paid To
The seller, or exporter, clears the goods for export,
delivers them to the carrier, and is responsible for
carriage costs to the named place of destination. Risk of
loss transfers to the buyer once the goods are transferred
to the carrier and the buyer must insure the goods from that
time on.
If FOB is the customs valuation basis, the international
freight cost must be deducted from the CPT price.
CIP:
Carriage and Insurance Paid To
The seller transports the goods to the port of export,
clears customs, and delivers them to the carrier. From that
point, risk of loss shifts to the buyer. The seller is
responsible for carriage and insurance costs to the named
place of destination. The buyer is responsible for all
costs, and bears risk of loss from that point forward.
If FOB is the customs valuation basis, international freight
and insurance costs need to be deducted from the CIP price.
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DAF:
Delivered At Frontier
The
seller, or exporter, is responsible for all costs involved
in delivering the goods to the named point and place at the
frontier (the border between the two countries). Risk of
loss transfers at the frontier. The buyer must pay the costs
and bear the risk of unloading the goods, clearing customs,
and transporting the goods to the final destination.
If FOB is the customs valuation basis, the
international insurance and freight costs must be deducted
from the DAF price.
DES:
Delivered Ex-Ship
The seller, or exporter, is responsible for all costs
involved in delivering the goods to a named port of
destination. Upon arrival, the goods are made available to
the buyer, or importer, on board the vessel. The seller is
responsible for all costs and risk of loss prior to
unloading at the port of destination.
The buyer, or importer, must have the goods unloaded, pay
duties, clear customs and provide inland transportation and
insurance to the final destination.
DEQ:
Delivered Ex-Quay
The seller, or exporter, is responsible for all costs
involved in transporting the goods to the wharf (quay) at
the port of destination. The buyer must pay duties, clear
customs, and pay the cost and bear the risk of loss from
that point forward.
If FOB is the customs valuation basis, the
international insurance and freight costs, in addition to
unloading costs, must be deducted from the DEQ price.
DDU:
Delivered Duty Unpaid
The seller, or exporter, is responsible for all costs
involved in delivering the goods to a named place of
destination where the goods are placed at the disposal of
the buyer. The buyer, or importer, assumes risk of loss at
that point and must clear customs, pay duties, and provide
inland transportation and insurance to the final
destination.
DDP:
Delivered Duty Paid
The
seller, or exporter, is responsible for all costs involved
in delivering the goods to a named place of destination and
for clearing customs in the country of import.
Under a DDP Incoterm, the seller provides literally
door-to-door delivery, including customs clearance in the
port of export and the port of destination. Thus the seller
bears the entire risk of loss until goods are delivered to
the buyer's premises.
A DDP transaction will read "DDP named place of
destination." For example, assuming goods imported
through Baltimore are delivered to Silver Spring, the
Incoterm would read "DDP, Silver Spring."
If CIF is the customs valuation basis, the costs of
unloading the vessel, clearing customs, and delivery to the
buyer's premises in the country of destination --
including inland insurance -- must be deducted to
arrive at the CIF value.
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Standard
International terms and abbreviations:
DOA:
Dead on arrival, when the product you ordered comes in not
working.
EOL:
End of life, no longer made.
Escrow:
Financial tool to assist buyers and a sellers, escrow
company (a third party, company or bank, that holds either
partial or full payment/money until all terms and conditions
of an agreement have been met by both parties. Money
is release by the escrow account to the supplier/seller only
after the products have been delivered in the condition and
timeframe set forth in the initial agreement.
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A) It is the seller's primary
duty to deliver the goods on board the vessel named
by the buyer at the named port of shipment on the
date or within the period stipulated and in
"the manner customary at the port."
The parties in these circumstances have to follow
the custom of the port regarding the actual measures
to be taken in delivering the goods onboard. Usually
the task is performed by stevedoring companies, and
the practical problem normally lies in deciding who
should bear the costs of their services.
B) A special agreement has to
be made to establish who is responsible for
"trimming" or "lashing and
securing."
C) A special agreement has to
be made to establish who actually pays import duty
and/or other import taxes.
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