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INCOTERMS: TERMINOLOGY USED BY EXPORTERS

International traders use a widely agreed-upon shorthand type of terminology called


INCOTERMS to define the basis for the sale.

Once the buyer and seller agree on one of these terms, it will clarify: (1) where in the journey
the seller releases the goods to the buyer; (2) what charges and documentation are the
seller’s responsibility prior to that point; and (3) what charges and documentation are the
buyer’s responsibility after that point.

An INCOTERM is always paired with a location and is meaningless without it. For instance, FCA
Memphis is quite a different price from DAF Laredo, but the same goods may pass through
both points en route to a customer in Mexico.

Here are the available choices (as per INCOTERMS 2000):

Any Mode of Transport, including Multimodal:

• EXW - Ex Works (+ named place)


• FCA - Free Carrier (+ named place)
• CPT - Carriage Paid To (+ named place of delivery)
• CIP - Carriage and Insurance Paid to (+ named delivery place)
• DAF - Delivered at Frontier (+ named place along border)
• DDU - Delivered Duty Unpaid (+ named place of delivery)
• DDP - Delivered Duty Paid (+ named place of delivery)

Sea and Inland Waterway Transport Only:

• FAS - Free Along Side (+ named port of shipment)


• FOB - Free on Board (+ named port of shipment)
• CFR - Cost and Freight (+ named destination port)
• CIF - Cost, Insurance and Freight (+ named destination port)
• DES - Delivered Ex Ship (+ named destination port)
• DEQ - Delivered Ex Quay (+ named destination port)

The International Chamber of Commerce released the first version of INCOTERMS in 1936.
Periodic revisions have been necessary due to innovations such as intermodal containers,
blended rail/sea cargo rates, roll on/roll off vehicles, and electronic data interchange. The
latest version is INCOTERMS 2000. Certain INCOTERMS in widespread usage tend to persist
despite the revision process. If you see a term that you do not recognize, such as C&F
Guayaquil, your trading partner may simply be using an earlier version of INCOTERMS. He
might speak of a price that is CIF Mexico City Airport, although the current modern term is CIP
Mexico City Airport.
Here are a few thumbnail examples from the U.S. exporter’s perspective:

• EXW New Orleans means, "Here are the goods; come and get them." Any export
permits are the buyer’s concern; seller does not even have to load the truck.

• FCA New Orleans shows where goods properly cleared for export will be turned over to
the main carrier for shipment abroad. Whatever means of conveyance picks up the
goods from seller’s place of business, exporter pays any cost of loading it aboard. If
main carrier does not provide cargo pickup services free to the exporter, he pays cost
of inland delivery to that carrier’s terminal in New Orleans. Overseas buyer is liable for
transportation and insurance expenses once main carrier receives the cargo. (If
railroad in New Orleans issues a Maersk bill of lading, accepting cargo destined for
shipment by Maersk Lines out of a California port, exporter has documented FCA
compliance.)

• CPT Istanbul means the vendor’s price includes freight all the way there, but insurance
is up to the buyer. Seller has no stake in insuring anything past the point where he
turns the cargo over to the export carrier.

• CIP Lisbon means vendor’s price includes freight and insurance all the way to Lisbon.
Once it comes over the ship’s side or down the plane’s ramp at the other end, the
buyer takes full possession.

• DAF Laredo means vendor’s goods, properly cleared for export, will be at border point
ready to cross over to the other side. Vendor will bear all costs and risks of moving
goods across the border and beyond.

• DDU Mendoza means that transport of the goods all the way inland to Mendoza is paid
for by the seller, although the city is not the place of entry. Getting the goods through
Argentine customs in Buenos Aires is the buyer’s responsibility and at the buyer’s
expense.

• DDP Madrid means the exporter’s delivered price includes customs duties and
surcharges in the country of destination. Exporter also bears the risk that his goods
may be rejected by customs for whatever reason (diseased fruit, inadequate product
labeling, banned ingredient, lower-than-expected quota, etc.).

• FAS New Orleans means the price includes delivery to a point alongside the vessel,
whereupon ownership of the cargo passes to the buyer. Any export permits are the
buyer’s concern. (Documentary evidence of FAS compliance is a clean dock receipt,
with no shortages or damage apparent.)

• FOB vessel Houston means the vendor undertakes to get the cargo that is properly
cleared for export loaded onto the outbound vessel. (Documentary evidence of FOB
compliance is a clean on-board bill of lading.)

• CFR Guayaquil means the vendor’s price includes ocean freight all the way there, but
the insurance is up to the buyer. Exporter has no stake in insuring anything past the
point where he turns the cargo over to the export carrier. (Documentary evidence of
CFR compliance is a clean on-board bill of lading showing freight prepaid to the
destination port.)

• CIF Yokohama means the vendor’s price includes freight and insurance all the way
there. Once the cargo passes the ship’s rail at the destination port, it belongs to the
buyer. (Documentary evidence of CIF compliance is a marine insurance certificate plus
a clean on-board bill of lading, showing freight prepaid to the destination port.)

• DES Hong Kong means the buyer will take ownership of the goods while they are still
on board the vessel in the destination port, before unloading.

• DEQ Rotterdam obliges the vendor to get the export cargo offloaded onto the quay or
wharf at the other end before passing ownership to the buyer. Since goods are
normally liable for import duties as soon as they touch the wharf, DEQ Rotterdam duty
unpaid is a modification that relieves the seller of responsibility for getting the goods
through customs.
Normally it is in the exporter’s interest to insure any portion of the cargo movement for which
he could be held liable under the INCOTERM. However, the CIF and CIP terms are the only
ones that assure the buyer that the exporter has obtained insurance.

For more information about INCOTERMS, log on to the International Chamber of Commerce’s
website at www.incoterms.org.