Incoterms describe the most commonly used terms of trade in commercial contracts and are published by the International Chamber of Commerce (ICC). These terms standardise the terminology used in International trade and are periodically reviewed and revised where appropriate to reflect the current commercial transport practices. The latest version is 2010.
The main aim of these terms is to eliminate any doubts or misunderstanding between the buyer and the seller and they do this by:
• Defining the method of delivery of the goods adopted by the seller
• Describing exactly what charges are included in the price quoted by the seller
• Setting out the responsibilities of the parties to the contract of sale for the arrangement of insurance, shipping and packaging.
In any contract between a seller and buyer, the use of Incoterms is voluntary and may not always be used. If you are the buyer and a commitment to purchase has been made, you must inquire as to what precisely is covered in the sellers unit/contract price and be prepared to seek your own quotes for the likes of goods in transit insurance (preferably from supplier’s premises to your own or that of the designated storage facility/warehouse or even direct to your end buyer). Freight charges, duties and imposts are all additional costs if for example the overseas supplier is selling ‘ex-works’
In terms of the insurance, to de-risk the situation, think carefully about when and where in the time line/trade cycle does title in the consignment/shipment legally pass from the seller to the buyer and at that point the seller becomes the owner. It is a bit like selling and buying a house. As the buyer you insure the property when title passes to you, if you don’t imagine the risks and the consequences of failing to do so should the unforeseen happen. The same could happen to the buyer if on paper title has passed but physically the goods are still in transit. More on this later.
If the Incoterm rules are being applied to a transaction they should be incorporated into the terms of the specific contract or the sellers general terms and conditions of sale. For example a seller may quote CIF Felixstowe, which means the price they have quoted includes ‘C’ – the cost of the goods, ‘I’ Insurance of the goods – ‘F’ – the freight charges from the seller to the port of arrival. In this case it is Felixstowe. Delivery terms should always specify the destination or the place at which point the responsibility / title / liability passes from the seller to the buyer.
The acronyms or abbreviations used to describe the key incoterms are set out below. These can be modified by having additional terms added. For example using the term landed alongside CIF Felixstowe shows that the seller’s price includes the cost of unloading the goods.
DDP - Delivered Duty Paid Costs of delivery, including duty, paid up to a named place in the country of importation. Applies to all modes of transport
DAP - Delivered At Place Seller arranges carriage to name place of destination. Risks and costs transfer when goods are at named place of destination
DAT - Delivered At Terminal Seller arranges carriage to named terminal at port or destination place. Riks and costs transfer when the goods are at named terminal at port or destination
CIP - Carriage and Insurance Paid To Costs of delivery, duty unpaid at the named point and place at the frontier. Applies to all modes of transport are at named place of destination
CFR - Cost And Freight As per CIF except that the cost of insurance is not included in the sellers price and must be covered by the buyer
CPT - Carriage Paid To As per CIP except that the cost of the insurance is carried by the Buyer
CIF -Cost Insurance And Freight Cost of Goods plus insurance and freight, duty unpaid, to a named port of destination. Sea or inland waterway transport only
FOB - Free On Board Free On Board ' means the cost of goods, transport and insurance will be covered by the seller for getting the consignment to the port and over the ship's rail at the named port of shipment. At that point when it is loaded on board the ship it is the Buyer's responsibility
FAS - Free Alongside Ship 'Free Alongside Ship ' means that the seller covers all the costs up to delivery on the quay or in lighters at the named port of shipment.
FCA - Free Carrier 'Free Carrier' means that the seller delivers the goods to the carrier or another person nominated by the buyer at the seller's premises or another named place. The parties are well advised to specify as clearly as possible the point within the named place of delivery, as the risk passes to the buyer at that point.
EXW - Ex Works The goods are made available to the buyer at the exporter's/seller's premises, suitably packed unless otherwise arranged for a different means of transport
The risk ladder below gives a general overview of the Buyer and Seller risks based on the Incoterms. Use to view where your trade is in terms of risk
If you want more detailsed information concerning Incoterms 2010 click on the link below
The risk ladder above gives a general overview of the Buyer and Seller risks based on the Incoterms used.
Details coming soon
Details coming soon