Resources
INCO terms
Purpose
Are also referred to as Terms of Sale and are standardized trade definitions. Most commonly used in international contracts, thus reflected on the sales invoice. Ensure buyers and sellers understand each other's expectations and responsibilities. Were created by the ICC (International Chamber of Commerce, and are protected by ICC copyright.
Are reviewed every 10 years and regularly updated to keep pace with the ever-changing world of international trade. Latest edition is the Incoterms 2000.
Contract of Carriage
The Incoterm utilized in a transaction will dictate which party is responsible for each transportation segment and it's corresponding contract of carriage. The Incoterm that is utilized can affect the title passage in foreign trade.
As a general rule, Pre-Carriage, Main-Carriage and On-Carriage should be utilized in connection with the Incoterms.
Contract of Carriage
Pre-Carriage : the transportation segment from the seller's location to the point where the cargo would leave from the seller's side. Example, to arrange for pre-carriage, you would contract with an inland carrier to make delivery to a port or airport.
Main-Carriage : the transportation segment from the seller's side to the buyer's side. Example, to arrange for main-carriage, you would contract for ocean or air carriage.
On-Carriage : the transportation segment from the point of arrival (on the buyer's side), to the designated ultimate receiver. Example, to arrange for on-carriage, you would contract with an inland carrier to make delivery from the port/airport of arrival to the ultimate receiver.
13 Terms
EXW – Ex Works (named place)
FCA – Free Carrier (named place)
FAS – Free Alongside Ship (named place)
FOB – Free On Board (named port of shipment)
CFR – Cost and Freight (named port of destination)
CIF – Cost, Insurance and Freight (named port of destination)
CPT – Carriage Paid To (named place of destination)
CIP – Carriage and Insurance Paid To (named place of destination)
DAF – Delivered at Frontier (named place)
DES – Delivered Ex Ship (named port of destination)
DEQ – Delivered Ex Quay (named port of destination)
DDU – Delivered Duty Unpaid (named place of destination)
DDP – Delivered Duty Paid (named place of destination)
4 General Groups of Terms
“E” term: seller's obligation (& control of shipment) is at its minimum
“F” terms: require the seller to deliver the goods for carriage as instructed by the buyer
“C” terms: require the seller to contract carriage on usual terms at his own expense
“D” terms: seller's obligation & control at its maximum
FCA Free Carrier
Seller's obligation ends when they delivers the goods, cleared for export, to the carrier (any mode of transport) nominated by the buyer at the named place.
The buyer must contract at his own expense the carriage of the goods from the named place.
However, if it is requested by the buyer or if it is commercial practice and they buyer does not give instructions to the contrary in due time, the seller may contract for carriage at the buyer's risk and expense. Buyer must clear the goods for import.
FAS Free Alongside Ship
Seller's obligation and risk to deliver the goods alongside the vessel at the named port of shipment.
Seller must clear the goods for export.
Term used for sea or inland waterway transport only.
Buyer is responsible for all costs and risks to transport the goods to the destination once cargo is delivered alongside the vessel.
Buyer bears all additional costs as a result of vessel delay or refusal of goods for loading.
Buyer must clear the goods for import at final destination
FOB Free On Board
The seller's obligation is fulfilled when the buyer has been notified and the goods have passed over the ship's rail on board the vessel, at the named port. (technically, the seller would be responsible for U.S. Terminal Handling when using this term, so if the seller does not intend to deliver the goods across the ship's rail, the FCA term should be used).
The buyer is responsible for all costs and risks associated with the goods after they have passed over the ship's rail and loaded on board the ship, at the named port.
The buyer is responsible to arrange for the carriage of the goods from the named port of shipment (the main-carriage and on-carriage).
The seller is required to arrange for the export clearance of the goods.
The buyer is responsible to arrange for the import clearance of the goods.
CFR Cost and Freight
The seller's obligation is fulfilled when the goods are delivered to a carrier, pass the ship's rail, and the contract of carriage is arranged, freight prepaid, to the named port.
The buyer is responsible for all risks associated with the goods after they have passed the ship's rail to be loaded on board the vessel, as well as the costs and risks related to the goods (receipt of the goods from the carrier) in the importing country.
The seller is responsible to arrange for the pre-carriage and main-carriage of the goods. The seller is responsible for the export clearance of the goods.The buyer is responsible for the import clearance of the goods.
CIF Cost, Insurance and Freight
The seller's responsibility is fulfilled when the goods are delivered to a carrier, pass the ship's rail, the contract of carriage is arranged, freight prepaid, to the named port, and insurance is obtained on the cargo.
The buyer is responsible for all risks associated with the goods after they have passed the ship's rail to be loaded on board the vessel, as well as the costs and risks related to the goods (receipt of the goods from the carrier) in the importing country.
The seller is responsible to arrange for the pre-carriage and main-carriage of the goods. The seller is responsible for the export clearance of the goods. The buyer is responsible for the import clearance of the goods.
CPT Carriage Paid To
The seller's responsibility is fulfilled when the goods are delivered to a carrier, pass the ship's rail, the contract of carriage is arranged, freight prepaid, to the named place of destination.
The buyer is responsible for all risks associated with the goods after they have been delivered to the named place of destination, as well as the costs and risks related to the goods (receipt of the goods from the carrier) in the importing country, including insurance.
The seller is responsible to arrange for the pre-carriage and main-carriage of the goods. The seller is responsible for the export clearance of the goods. The buyer is responsible for the import clearance of the goods.
CIP Carriage and Insurance Paid To
The seller's obligation is fulfilled when the goods are delivered to a carrier, and the contract of carriage is arranged, freight prepaid – the named place of destination, and insurance is obtained on the cargo.
The buyer is responsible for all costs and risks associated with the goods after receipt by the carrier – prior to loading on board the vessel or aircraft, as well as the costs and risks related to the goods (receipt of the goods from the carrier) upon arrival in the importing country.
The seller is responsible to arrange for the pre-carriage and main carriage of the goods. The seller is responsible for the export clearance of the goods. The buyer is responsible for the import clearance of the goods.
DAF Delivered At Frontier
The seller's obligation ends when they have delivered the goods to the disposal of the buyer on board the ship, cleared for export, but not cleared for import but delivered the named port of destination before discharging.
The buyer is responsible for customs clearance at the country of import and all charges for discharging off the ship (Destination Unloading, Terminal Handling and/or Container Service Charges-CSC).If the seller is also to be responsible for discharging the goods off the ship, then the DEQ term should be used.
DEQ Delivered Ex Quay
The seller's obligation ends when they have delivered the goods to the disposal of the buyer on board the ship, cleared for export, but not cleared for import but delivered the named port of destination after discharging goods off the vessel at the quay (wharf).
The buyer is responsible to clear the goods for import and pay for all formalities, duties, taxes, and other charges upon import.
If the seller is also to be responsible for delivering the goods past the quay to another place (warehouse, terminal, etc.) in our outside the port, the DDU or DDP terms should be used.
DDU Delivered Duty Unpaid
The seller's obligation is fulfilled when the goods have been made available to the buyer at the named place of destination – uncleared for importation.
The buyer is responsible for all costs and risks associated with the goods upon importation at the named place of destination.
The seller is required to arrange for the entire contract of carriage (pre-carriage, main-carriage, on-carriage) to the named place of destination.
The seller is required to arrange for the export clearance of the goods. The buyer is responsible for the import clearance of the goods, including the payment of any applicable duties, taxes and fees.
DDP Delivered Duty Paid
The seller's obligation is fulfilled when the goods have been made available to the buyer at the named place of destination – cleared for importation.
The buyer is responsible to take delivery of the goods from the named place of destination.
The seller is required to arrange for the entire contract of carriage (pre-carriage, main-carriage, on-carriage) to the named place of destination.
The seller is required to arrange for the export clearance of the goods. The seller is required to arrange for the import clearance of the goods, including the payment of any applicable duties, taxes and fees.
INCO Terms vs. Mode of Transport
Any Mode: EXW, FCA, CPT, CIP, DAF, DDU, DDP
Maritime and inland waterways only: FAS, FOB, CFR, CIF, DES, DEQ
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