SPECIAL TRADE TERMS IN

INTERNATIONAL SALES CONTRACTS

International Commercial Terms (Incoterms, 2000)
Incoterms, 2000
International trade contracts contain certain commercial terms (incoterms)
which carry a specific set of rights and obligations between the parties. The adoption of
incoterms is optional. Regarding the scope of incoterms, the introductory part of the
official publication states that ;
(a) The scope of incoterms is limited to rights and obligations of parties to the contract
of sale.
(b) It applies to delivery of tangible goods and not intangibles such as computer
software.
(c) It does not relate to other contracts required for international sales, such as
contracts of carriage, insurance and financing. However, choosing a particular incoterm
has an implication on these contracts.
(d) Incoterms deal only with specific terms of contract of sale such as packing,
clearance, transportation and delivery of goods. A great number . of problems that may
arise in such contracts like transfer of ownership and other property rights, breaches of
contract and exemptions from liability in certain cases are not covered by incoterms.
The incoterms were created in 1936 by the Paris-based International Chamber of
Commerce (ICC). The following Incoterms 2000 have been published in September, 1999 revising the
incoterms 1990 and came into effect from January 1, 2000. (The Standard abbreviations
are given in brackets). The ICC's Incoterms 2000 include 13 trade terms that specify the
buyer's and sellers' rights, costs, and obligations when they use those terms in an
international sales contract.

1) Ex works (Exw) [ .... 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 thus represents the minimum obligation for the seller, and the buyer as to
bear all costs and risks involved in taking the goods from the seller's premises Incoterms
2000].
The seller should bear all costs and risks in packing the goods, arranging for checking
operations like checking quantity, measurements, weighing and counting, that ay be
necessary for the purpose of placing the goods at the disposal of the buyer. e should give
reasonable notice to the buyer as to when the goods would be at his disposal. This term
'Ex works' 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.

(2) Free Carrier (FCA) [ ..... 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 chosen
place of delivery has an impact on the obligation 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 place, the seller is not responsible for unloading [Incoterm
2000]
This term may be used irrespective of .the mode of transport, including multi-modal
transport. This term corresponds to FOB under sea transport. The seller fulfils his
obligation to deliver when he has handed over the goods, cleared for export, into the
charge of the carrier named by the buyer at the named place or point. If the named place
is the seller's premises, delivery is completed when the goods have been loaded on the
means of transport provided by the carrier. If any other place is mentioned, the seller
carries the goods there and places the goods at the disposal of the carrier without
unloading from the seller's means of transport. If no precise point is indicated by the
buyer, the seller may choose within the place or range stipulated where the carrier shall
take the goods into his charge.
If the buyer nominates a person other than a carrier to receive the goods, the sel1er is
deemed to have fulfilled his obligation to deliver the goods when they are delivered to
that person.
'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.

(3) Free Alongside Ship (FAS) [ 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 [Incoterms 2000].

This term can be used only for sea or inland waterway transport. The buyer is to
contract the carrier and arrange for the transportation. He should intimate the seller about
the name and loading-berth of the ship and the delivery dates. The seller should outtain
the export licence or other official authorisation, where applicable and carry out customs
formalities. He should tender to the buyer dock or warehouse receipt or warrant which
evidences the delivery of goods alongside the ship. He has to bear the cost of any
checking operations such as checking quality, measuring, weighing and counting which
are necessary for delivering the goods alongside the ship.
The seller may arrange for booking the cargo with the shipping company and obtain a
bill of lading. In such cases, the cost should be borne by the buyer. The seller may also
provide at the buyer's request and cost, the certificate of origin and any other documents
that the latter may require. The documents that the seller has to submit to the buyer are:
(i) Dock or Warehouse Receipt or warrant; (ii) invoice; and (iii) any other document as
required by the buyer.

(4) Free on Board (FOB) [ . 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 [Incoterms 2000].
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 the goods
across the ship's rail, the FCA term should be used.
The seller's duty is to arrange to prepare the goods, pack them, place them on the
vessel as per the terms of the contract and obtain a bill of lading evidencing shipment. He
has to bear the cost of any checking operations like checking quality, measuring, etc.
which may be necessary for delivering of goods. He has to obtain export licence and pay
export taxes and fees that may be required. If the buyer requests he has to provide him
with a certificate of origin, the cost of which has to be borne by the buyer. As regarding
charges at the port in the seller's country, the. seller has to bear to the extent they are not
included in the freight.
The buyer should arrange for the space in the vessel and intimate the seller so that the
latter may arrange to take the goods to the port at the appropriate time and get them
placed on the vessel. The right in the goods passes on to the importer the moment goods
are placed on the vessel as per his instructions and hence any loss of or damage to the
goods after this stage should be borne entirely by the buyer. The buyer has to pay freight
at destination and arrange for insurance covering the journey.

(5) Cost and freight (CFR) [ ... named port of destination]

"Cost and freight" means that the seller delivers when the goods pass the ship's
rail in the port of shipment.
3

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. [Incoterms 2000]
This term can be used only for sea and inland waterway transport. If the. parties do not
intend to deliver goods across the ship's rail, the CPT term should be used.

(6) Cost Insurance and Freight (CIF) [ .... 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 cost 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 carriage [Incoterms 2000].
This term can be used only for sea and inland waterway transport. If the parties end to
deliver the goods across the ships rail, the CIP term should be used.
The seller must pay the costs of goods, freight charges up to named destination and
insurance covering the voyage. In other words, all the expenses incurred up to the port of
destination are borne by the seller. Unless otherwise specified in the contract, insurance
for 110% of contract price with minimum cover of the Institute Cargo all be obtained.
The buyer should note that under the CIF terms the seller is required to obtain insurance
only on minimum cover. Should the buyer wish to have 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 risk in the goods passes on to the buyer the moment they are
placed on board a vessel in the seller's country.

(7) Carriage Paid To (CPT) [ .... 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 occurring after the goods have been so delivered [Incoterms 2000].
This term may be used irrespective of the mode of transport including multi-modal
transport. The CPT terms requires the seller to clear the goods for export.

'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.
If the buyer instructs the seller to deliver the cargo to a person, e.g., a freight
forwarder who is not a carrier, the seller is deemed to have fulfilled his obligation to
deliver the goods when they are in custody 'of that person.

(8) Carriage and Insurance Paid TD (CIP) [ ... 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 other 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 [Incoterms 2000].
This term may be used irrespective of the mode of transport, including multi-modal
transport. The CIP term requires the seller to clear the goods for export.
'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. The seller should arrange for insurance for the goods only on
minimum cover and furnish the buyer with the insurance policy or other acceptable
document. Unless otherwise agreed it should be for 110% of the contract value with
minimum cover of the Institute Cargo Clauses. 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 arrangement.
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.

(9) Delivered at Frontier (DAF) [ ... named place]

'Delivery 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 for 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 [Incoterms 2000].

Therefore, it is of vital importance that the' frontier in question be defined precisely by

always naming the point and place in the term.
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 vessel or on the quay (wharf), the DES or DEQ terms should be used.
Under this contract, the seller's obligations are fulfilled when the goods have arrived at
the frontier, but before the customs border of the adjoining country. The seller should
arrange for packing the goods, checking operations where required, procure exchange
control authorisation required for exportation of the goods, contract for transportation of
the goods to the place named in the contract and bear all risks and expenses up to this
stage.
The buyer should arrange for taking delivery of the goods at the frontier. He should
obtain import licence and pay import duties, taxes and fees that may be required for this
purpose.

(10) Delivered Ex Ship (DES) [ ..... 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 discharge [Incoterms 2000]
This term can be used only when the goods are to be delivered by sea or inland
waterway or multi-modal transport on a vessel in the port of destination.
The responsibility, under the Ex Ship contract, of the seller is to make available to the
buyer the goods at the named destination. Therefore, the risk is borne by the seller till the
goods are carried to the port of destination. The risk is transferred to the buyer from the
time he takes delivery of the goods.
If the parties wish the seller to bear the costs and risks of discharging the goods then
the DEQ term should be used.

(11) Delivered Ex Quay (DEQ) [ .... 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
requires the buyer to clear the goods for import and to pay for all formalities, duties, taxes
and other charges upon imports [Incoterms2000].

This term can be used only when the goods are to be delivered by sea or inland
waterway or multi-modal transport on discharge from a vessel onto the quay (wharf) in
the port of destination.
The DEQ term requires the buyer to clear the goods for import and to pay for all
formalities, duties, taxes and other charges upon import and obtain the import licence.
The DEQ is in effect an extension of the DES contract. The seller has to bear the
additional risks and costs to bring the goods ashore and make them available to the buyer
on the wharf at the destination named in the sale contract. That means, he has to prepare
the goods, pack them, arrange for checking operations, transport and, insure them. The
risk of loss or damage to the goods passes to the buyer from the time the goods are placed
at the quay. The buyer's duty is to take delivery of the goods from the quay or wharf at
the port of destination. If the parties wish to include seller's obligation all or part of the
costs payable upon imports of the goods, d be made clear by adding explicit wording to
this effect in the contract of sale.

(12) Delivered duty unpaid (DDU) [ ... named place 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 formalities, 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 [Incoterms 2000]
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.
This term is similar to DDP except that the seller's obligation excludes obtention of
import licence, payment of duties, taxes and other official charges payable upon
importation. If the parties wish the seller to carry out customs formalities and bear the
costs and risks resulting therefrom, this has to be made clear by adding words to this
effect.

(13) Delivered Duty Paid (DDP) [ .... named place 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 the risks of the carrying out of customs formalities and the payment
of formalities, customs duties, taxes and other charges) for import in the country of
destination [Incoterms 2(00).
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.
While the EXW term represents the minimum obligation for the seller, DDP represents
the maximum obligation. When the term DDP is used the seller has to do all that is
necessary to place the goods at the premises of the buyer. He has to prepare the goods,
pack them, arrange for their transportation, comply with the export and import
formalities, arrange for the internal transport in the buyer's country and ultimately place
the goods at premises of the buyer. Till that time the risk in the goods also rests with the
seller. If the buyer has indicated a place other than his premises as the destination for the
goods, the seller should provide buyer with a customary document of transport
warehouse, warrant, dock warrant, delivery order or the like, as the case may be, to
enable the buyer to take delivery of the goods. The seller retains the risks of the goods till
they reach such destination. The seller should reimburse the buyer for any assistance
rendered by the buyer in getting import licence, etc.
The buyer's only duty is to take delivery of the goods at the destination. If the parties
wish that the seller should clear the goods for import but that some of the costs payable
upon the import of the goods should be excluded-such as value added tax (VAT) and/or
other similar taxes-this should be made clear by adding words to this effect in the contract
of sale.