Membership in international business organizations
|
For effective business terminology, phrases must mean the same thing throughout the industry. That is why the International Chamber of Commerce (ICC) created "INCOTERMS" in 1936. INCOTERMS are designed to create a bridge between different members of the industry by acting as uniform language they can use.
Each INCOTERMS refers to a type of agreement for the purchase and shipping of goods internationally. There are 13 different terms, each of which helps users deal with different situation involving the movement of goods.
INCOTERMS also deal with the documentation required for global trade, specifing which parties are responsible for which documents. Determining the paperwork required to move a shipment is an important job, since requirement vary so much between countries.
In global trade, "delivery" refers to the seller fulfilling the obligation of the terms of sale or to completing a contractual obligation. "Delivery" can occur while the merchandise is on a vessel on the high seas and the parties involved are thousands of miles from the goods. In the end, however, the terms wind up boiling down to a few basic specifics: Costs: who is responsible for the expenses involved in a shipment at a given point in the shipment's journey?
Control: who owns the goods at a given point in the journey?
Liability: who is responible for paying damage to goods at a given point in a shipment's transit?
It is essential for shippers to know the exact status of their shipments in terms of ownership and responsibility. It is also vital for sellers & buyers to arrange insurance on their goods while the goods are in their "legal" possession. Lack of insurance can result in wasted time, lawsuits, and broken relationships.
Recently the ICC has changed basic aspects of the definitions of a number of INCOTERMS, so buyers and sellers should be aware of this. Terms that have changed have a star alongside them.
EXW
EX WORKS
(... named place) |
| "EX Works" means that the seller delivers when he places the goods at the disposal of the buyer at the seller's premises or another named place (i.e. works, factory, warehouse, etc.) not cleared for export and not loaded on any collecting vehicle.
This term respesents the minimum obligation for the seller, and the buyer has to bear all costs and risks involved in taking the goods from the seller's premises.
However, if the parties wish the seller to be responsible for the loading of the goods on departure and to bear the risks and all the costs of such loading, this should be made clear by adding explicit wording to this effect in the contract of sale. This term should not be used when the buyer cannot carry out the export formalities directly or indirectly. in such circumstances, the FCA term should be used, provided the seller agrees that he will load at his cost and risk. |
FCA
FREE CARRIER
(... named place) |
| "Free CArrier" means that the seller delivers the goods, cleared for export, to the carrier nominated by the buyer at the named place. It should be noted that the choosen place of delivery has an impact on the obligations of loading and unloading the goods at that place. If delivery occurs at the seller's premises, the seller is responsible for loading. If delivery occurs at any other palce, the seller is not responsible for unloading.
This term may be used irrespective of the mode of transport, includig multimodal transport.
"Carrier" means any person who, in a contract of carriage, undertakes to perform or to procure the performance of transport by rail, road, air, sea, inland waterway or by a combination of such modes.
If the buyer nominates a person other that a carrier to receive the goods, the seller is deemed to have fulfilled his obligation to deliver the goods when they are delivered to that person. |
FAS
FREE ALONGSIDE SHIP
(... named port of shipment) |
| "Free Alongside Ship" means that the seller delivers when the goods are placed alongside the vessel at the named port of shipment. This means that the buyer has to bear all costs and risks of loss of or damage to the goods from that moment.
The FAS term required the seller to clear the goods for export.
THIS IS A REVERSAL FROM PREVIOUS INCOTERMS VERSIONS WHICH REQUIRED THE BUYER TO ARRANGE FOR EXPORT CLEARANCE.
However, if the parties wish the buyer to clear the goods for export, this should be made clear by adding explicit wording to this effect in the contract of sale.
This term can be used only for sea or inland waterway transport. |
FOB
FREE ON BOARD
(... named port of shipment) |
| "Free On Board" means that the seller delivers when the goods pass the ship's rail at the named port of shipment. This means that the buyer has to bear all costs and risks of loss of or damage to the goods from that point. The FOB term requires the seller to clear the goods for export. This term can be used only for sea or inland waterway transport. If the parties do not intend to deliver goods across the ship's rail, the FCA term should be used. |
CFR
COST AND FREIGHT
(... named port of destination) |
| "Costs and Freight" means that the seller delivers when the goods pass the ship's rail in the port of shipment.
The seller must pay the costs and freight necessary to bring the goods to the named port of destination BUT the risk of loss of or damage to the goods, as well as any additional costs due to events occurring after the time of delivery, are transferred from the seller to the buyer.
The CFR term requires the seller to clear the goods for export.
This term can be used only for sea and inland waterway transport. If the parties do not intend to deliver the goods across the ship's rail, the CPT term sould be used. |
CIF
COST, INSURANCE AND FREIGHT
(... named port of destination) |
| "Cost, Insurance and Freight" means that the seller delivers when the goods pass the ship's rail in the port of shipment.
The seller must pay the costs and freight necessary to bring the goods to the named port of destination BUT the risk of loss of or damage to the goods, as well as any additional costs due to events occurring after the time of delivery, are transferred from the seller to the buyer. However, in CIF the seller also has to procure marine insurance against the buyer's risk of loss of or damage to the goods during the carriage.
Consequently, the seller contracts for insurance and pays the insurance premium. The buyer should note that under the CIF term the seller is required to obtain insurance only on minimum cover. Should the buyer wish to have the protection of greater cover, he would either need to agree as much expressly with the seller or to make his own extra insurance arrangements.
The CIF term required the seller to clear the goods for export.
This term can be used only for sea and inland waterway transport. If the parties do not intend to deliver the goods across the ship's rail, the CIP term sould be used. |
CPT
CARRIAGE PAID TO
(... named place of destination) |
| "Carriage Paid To..." means that the seller delivers the goods to the carrier nominated by him but the seller must in addition pay the cost of carriage necessary to bring the goods to the named destination. This means that the buyer bears all risks and any other costs occuring after the goods have been so delivered.
"Carrier" means any person who, in a contract of carriage, undertakes to perform or to procure the performance of transport by rail, road, air, sea, inland waterway or by a combination of such modes.
If subsequent carriers are used for the carriage to the agreed destination, the risk passes when the goods have been delivered to the first carrier.
The CPT term requiers the seller to clear the goods for export.
This term may be used irrespective of the mode of transport including multimodal transport. |
CIP
CARRIAGE AND INSURANCE PAID TO
(... named place of destination) |
| "Carriage and Insurance Paid to..." means that the seller delivers the goods to the carrier nominated by him but the seller must in addition pay the cost of carriage necessary to bring the goods to the named destination. This means that the buyer bears all risks and any additional costs occurring after the goods have been so delivered. However, in CIP the seller also has to procure insurance against the buyer's risk of loss of or damage to the goods during the carriage.
Consequently, the seller contracts for insurance and pays the insurance premium.
The buyer should note that under the CIP term the seller is required to obtain insurance only on minimum cover. Should the buyer wish to have the protection of greater cover, he would either need to agree as much expressly with the seller or to make his own extra insurance arrangements.
"Carrier" means any person who, in a contract of carriage, undertakes to perform or to procure the performance of transport by rail, road, air, sea, inland wateway or by a combination of such modes.
If subsequent carriers are used for the carriage to the agreed destination, the risk passes when the goods have been delivered to the first carrier.
The CIP term requires the seller to clear the goods for export.
This term may be used irrespective of the mode of transport including multimodal transport. |
DAF
DELIVERED AT FRONTIER
(... named place) |
| "Delivered At Frontier" means that the seller delivers when the goods are placed at the disposal of the buyer on the arriving means of transport not unloaded, cleared for export, but not cleared of import at the named point and place at the frontier, but before the customs border of the adjoining country. The term "frontier" may be used for any frontier including that of the country of export. Therefore, it is of vital importance that the frontier in question be defined precisely by always naming the point and place in the term.
However, if the parties wish the seller to be responsible for the unloading of the goods from the arriving means of transport and to bear the risks and costs of unloading, this should be made clear by adding explicit wording to this effect in the contract of sale.
This term may be used irrespective of the mode of transport when goods are to be delivered at a land frontier. When delivery is to take place in the port of destination, on board a vessel or on the quay (wharf), the DES or DEQ term should be used. |
DES
DELIVERED EX SHIP
(... named port of destination) |
| "Delivered Ex Ship" means that the seller delivers when the goods are placed at the disposal of the buyer on board the ship not cleared for import at the named port of destination. The seller has to bear all the costs and risks involved in bringing the goods to the named port of destination before discharging. If the parties wish the seller to bear the costs and risks of discharging the goods, then the DEQ term should be used.
This term can be used only when the goods are to be delivered by sea or inland waterway or multimodal transport on a vessel in the port of destination. |
DEQ
DELIVERED EX QUAY
(... named port of destination) |
| "Delivered Ex Quay" means that the seller delivers when the goods are placed at the disposal of the buyer not cleared for import on the quay (wharf) at the named port of destination. The seller has to bear costs and risks involved in bringing the goods to the named port of destination and discharging the goods on the quay (wharf). The DEQ term required the buyer to clear the goods for import and to pay for all formalities, duties, taxes and other charges upon import.
THIS IS A REVERSAL FROM PREVIOUS INCOTERMS VERSIONS WHICH REQUIRED THE SELLER TO ARRANGE FOR IMPORT CLEARANCE.
If the parties wish to include in the seller's obligations all or part of the costs payable upon import of the goods, this should be made clear by adding explicit wording to this effect in the contract of sale.
This term can be used only when the goods are to be delivered by sea or inland waterway or multimodal transport on discharging from a vessel onto the quay (wharf) in the port of destination. However if the parties wish to include in the seller's obligations the risk and costs of the handling of the goods from the quay to another place (warehouse, terminal, transport, station, etc.) in or outside the port, the DDU or DDP terms should be used. |
DDU
DELIVERED DUTY UNPAID
(... named port of destination) |
| "Delivered Duty Unpaid" means that the seller delivers the goods to the buyer, not cleared for import, and not unloaded from any arriving means of transport at the named place of destination. The seller has to bear the costs and risks involved in bringing the goods thereto, other than, where applicable, any "duty" (which term includes the responsibility for and the risks of the carrying out of customs formaliteis, and the payment of formalities, customs duties, taxes and other charges) for import in the country of destination. Such "duty" has to be borne by the buyer as well as any costs and risks caused by his failure to clear the goods for import in time.
However if the parties wish the seller to carry out customs formalities and bear the costs and risks resulting therefrom as well as some of the costs payable upon import of the goods, this should be made clear by adding explicit wording to this effect in the contract of sale.
This term may by used irrespective of the mode of transport but when delivery is to take place in the port of destination on board the vessel or on the quay (wharf), the DES or DEQ terms should by used. |
DDP
DELIVERED DUTY PAID
(... named port of destination) |
| "Delivered Duty Paid" means that the seller delivers the goods to the buyer, cleared for import, and not unloaded from any arriving means of transport at the named place of destination. The seller has to bear all the costs and risks involved in bringing the goods thereto including, where applicable, any "duty" (which term includes the responsibility for and risks of the carring out of customs formalities and the payment of formalities, customs duties, taxes and other charges) for import in the country of destination.
Whilst the EXW term represents the minimum obligation for seller, DDP represents the maximum obligation.
This term should not be used if the seller is unable directly to obtain the import licence.
However, if the parties wish to exclude form the sellers's obligations some of the costs payable upon import of the goods (such as value-added tax: VAT), this should be made clear by adding explicit wording to this effect in the contract of sale.
If the parties wish the buyer to bear all risks and costs of the import, the DDU term should be used.
This term may be used irrespective of the mode of transport but when delivery is to take place in the port of destination on board the vessel or on the quay (wharf), the DES or DEQ terms should be used. |
|
|
