INCOTERMS : INternational

COmmercial TERMS
INCOTERMS define the mutual
obligations of seller and buyer
arising from the movement of goods
under an international contract from
the standpoint of risks, costs and
documents
What are they?

Set of international rules for the

interpretation of the most commonly
used foreign trade terms
Devised an published by the ICC
introduced Incoterms in 1936
Incoterms 2012 - 4 groups E, F, C
and D
Why are they Important?

Reduce the uncertainty caused by

trade practices in different countries.
Simplify the negotiations involved in
international commerce.
Ensure common understanding of
obligations
The Steps of Global
Logistics
Customs Clearance
for Export
2 3 4
Handling
Loading Outbound
1 Preliminary
Transportation
5
Packing
6
Insurance
Main
Customs International
Clearance Transportatio 7
Duties n

11 10 9 8

Unloading Final Handling

Transportation Inbound
The Categories

Incoterms Code
Ex works EXW E Terms
Free carrier FCA
Free alongside ship FAS F Terms
Free on board FOB
Cost & freight CFR
Cost, insurance & freight CIF
C Terms
Carriage paid to CPT
Carriage and insurance paid to CIP
Delivered at frontier DAF
Delivered ex ship DES
Delivered ex quay DEQ D Terms
Delivered duty unpaid DDU
Delivered duty paid DDP
 Introduction
The Terms

The E Term is the term in which sellers

obligation is at its minimum
The F Term require the seller to deliver
as instructed by the buyer
The C Term require the seller to
contract for carriage at his expense
The D Term signifies arrival contracts
 Acronym (named location)
Acronym dictates mode and where the lines are drawn

Export Import
SELLER Clearance ClearanceBUYER

Goods

PRE -CARRIAGE MAIN CARRIAGE ON-CARRIAGE

Sellers Risk

Sellers Cost
E Terms: Departure

EXW (named place)

Under E-terms, the seller minimizes
his risk by only making the goods
available at his own premises.
Export Import
SELLER Clearance Clearance BUYER
Goods

PRE -CARRIAGE MAIN CARRIAGE ON-CARRIAGE

Sellers Risk

Sellers Cost
 EXW - Ex Works
Goods available only at sellers premises.
Buyer: loads the goods on truck or container
at the sellers premises, and takes into
account the subsequent costs and risks.
 EXW = Ex Works

The seller fulfills his obligation to deliver

when he has made the goods available
at his premises to the buyer.
The seller is not responsible for loading
the goods on the vehicle provided by
the buyer
The seller is not responsible for clearing
the goods for export, unless agreed.
The buyer bears all costs and risks
involved in taking the goods from the
sellers premises to the desired
Group F: Main Carriage Not
Paid by Seller

FAS - Free Alongside Ship

FCA - Free CArrier
FOB - Free On Board

Under F-terms, the seller arranges

and pays for pre-carriage in the
country of export. Including export
clearance under FCA and FOB
 FAS (named port of shipment)
Seller
delivers goods alongside ship

Export Import
SELLER Clearance Clearance BUYER

Goods

PRE-CARRIAGE MAIN CARRIAGE ON-CARRIAGE

Sellers Risk
Buyer
export documents
Sellers Cost nominates carrier,
contracts carriage
pays freight
 FAS - Free Alongside Ship
Seller: places the goods alongside the ship at
the named port, loaded at his expense.
Buyer: pays loading fee, main carriage/freight,
cargo insurance and other costs risks.
 FCA - Free Carrier
Delivery at the specified point of departure: the
sellers premises or a named cargo terminal /
railroad station
Buyer: main carriage/freight, cargo insurance
and other costs and risks
 FCA (named place)
Seller
clears export customs,
delivers goods to carrier
Export Import
SELLER Clearance Clearance BUYER

Goods

PRE-CARRIAGE MAIN CARRIAGE ON-CARRIAGE

Sellers Risk
Buyer
Sellers Cost nominates carrier,
contracts carriage
pays freight
 FOB - Free On Board
Delivery of goods on board the vessel at the
port of origin is at the sellers expense.
Buyer is responsible for main carriage/freight,
cargo insurance and other costs risks.
Seller
FOB (named port of shipment)
clears export customs,
delivers and loads goods on ship

Export Import
SELLER Clearance Clearance BUYER

Goods

PRE-CARRIAGE MAIN CARRIAGE ON-CARRIAGE

Sellers Risk

Sellers Cost Buyer

nominates carrier,
contracts carriage
pays freight
 Group C: Main Carriage
Paid by Seller

CFR - Cost & FReight

CIF - Cost, Insurance & Freight
CPT - Carriage Paid To
CIP - Carriage & Insurance Paid to

Under C-terms, the seller arranges

and pays for the main carriage but
without assuming the risk of the
main carriage.
 CFR - Cost and Freight
Seller: pays the costs and freight to bring
the goods to the port of destination.
Risk: transferred once the goods have
crossed the ships rail.
CFR (named port of destination)

SELLER Export Import BUYER

Clearance Clearance

Goods

PRE-CARRIAGE MAIN CARRIAGE ON-CARRIAGE

Sellers Risk

Sellers Cost
CIF - Cost Insurance and
Freight
Used exactly the same way as CFR except that
Seller: must in addition procure and pay for
insurance for the cargo insurance and delivery
of goods to the port of destination
the seller has the obligation under the term to take
out insurance cover in the name of the buyer, it
limits the sellers obligation to taking out minimum
cover of insurance.
Buyer: responsible for the import customs
clearance & other costs and risks
CIF (named port of destination)

SELLER Export Import BUYER

Clearance Clearance

Goods

PRE-CARRIAGE MAIN CARRIAGE ON-CARRIAGE

Sellers Risk

Sellers Cost + Insurance

 CPT - Carriage Paid To
Seller delivers the goods at the named place of
destination at his expense.
Buyer assumes the cargo insurance, import
customs clearance, payment of customs
duties and taxes, and other costs and risks.
Risk transferred at the delivery of goods
 CIP - Carriage & Insurance
Paid To
Seller delivers the goods on the ship. On board,
the risk is transferred to the buyer.
Buyer is accountable for the import customs
clearance, payment of customs duties and
taxes, and other costs and risks until goods
reach their final destination.

the seller has the obligation under the term to take out
insurance cover in the name of the buyer, it limits the
sellers obligation to taking out minimum cover of
insurance.
Ocean vs Other

Ocean Terms Other Terms

CFR CPT
CIF CIP
Group D: Arrival

DAF - Delivered At Frontier

DES - Delivered Ex Ship
DEQ - Delivered Ex Quay
DDU - Delivered Duty Unpaid
DDP - Delivered Duty Paid
Under D-terms, the sellers cost/risk is maximized
because he must make the goods available at the
agreed destination. Including import clearance
under DEQ and DDP
 DAF - Delivered At Frontier
Delivery of goods is done at the specified point at
the frontier at the seller's expense.
Buyer is responsible for the import customs
clearance, payment of customs duties and taxes.
The transfer of risk is made at the frontier
DAF (named place)

Export Import
SELLER Clearance Clearance BUYER

Goods

PRE-CARRIAGE MAIN CARRIAGE ON-CARRIAGE

Sellers Risk

Sellers Cost
 DES - Delivered Ex Ship
Seller assumes expenses linked to the delivery of goods.
At the arrival of the ship, the risk is transferred to the
buyer.
Buyer is accountable for the unloading fee, import
customs clearance, payment of customs duties and
taxes, cargo insurance to the final destination, and
other costs
DES (named port of destination)

Export Import
SELLER Clearance Clearance BUYER

Goods

PRE-CARRIAGE MAIN CARRIAGE ON-CARRIAGE

Sellers Risk

Sellers Cost
 DEQ - Delivered Ex Quay
Delivery of goods is done to the quay of the port
at the seller's expense. He is also responsible
for the import customs clearance and payment
of customs duties and taxes at the buyer's
end.
Buyer assumes the cargo insurance and other
costs and risks
DEQ (named port of destination)

Export Import
SELLER Clearance Clearance BUYER

Goods

PRE-CARRIAGE MAIN CARRIAGE ON-CARRIAGE

Sellers Risk

Sellers Cost
 DDU - Delivered Duty
Unpaid
Delivery of goods and the cargo insurance to the final
destination, which is often the project site or buyer's
premises, is done at the seller's expense.
Buyer is responsible for the import customs clearance
and payment of customs duties and taxes
DDP - Delivered Duty Paid
Seller is responsible for most of the expenses,
which include the cargo insurance, import
customs clearance, and payment of customs
duties and taxes at the buyer's end, and the
delivery of goods to the final point at
destination, which is often the project site or
the buyer's premises.
It is a door to door delivery.
Risk is transferred when the goods are delivered
Ocean vs Other

Ocean Terms Other Terms

DES DDU
DEQ DDP
Conclusion
Incoterms cannot be applied by themselves
to a variety of situations, of medium of
transports, technologies....
They must be supplemented by additional
details adapted to these particular case.
Define the geographical points where the
transfers of risks and expenses will take
place.
Quick Quiz
Sources

www.wto.org
www.icc.org
UNCTAD at United Nations
Local Chambers of Commerce
International Chamber of
Commerce - New York City Office