INCO Terms

World of Finance by M.Vijaya Sai

Incoterms are standard trade definitions most commonly used in international sales contracts. Devised and published by the International Chamber of Commerce, they are at the heart of world trade.Among the best known Incoterms are EXW (Ex works), FOB (Free on Board), CIF (Cost, Insurance and Freight), DDU (Delivered Duty Unpaid), and CPT (Carriage Paid To).ICC introduced the first version of Incoterms - short for "International Commercial Terms" - in 1936. Since then, ICC expert lawyers and trade practitioners have updated them six times to keep pace with the development of international trade.ICC is currently revising Incoterms 2000. The new edition, Incoterms 2011, is expected to enter into force on 1 January 2011.Most contracts made after 1 January 2000 will refer to the latest edition of Incoterms, which came into force on that date. The correct reference is to "Incoterms 2000". Unless the parties decide otherwise, earlier versions of Incoterms - like Incoterms 1990 - are still binding if incorporated in contracts that are unfulfilled and date from before 1 January 2000.

Versions of Incoterms preceding the 2000 edition may still be incorporated into future contracts if the parties so agree. However, this course is not recommended because the latest version is designed to bring Incoterms into line with the latest developments in commercial practice.The English text is the original and official version of Incoterms 2000, which have been endorsed by the United Nations Commission on International Trade Law (UNCITRAL). Authorized translations into 31 languages are available from ICC national committees.

Correct use of Incoterms goes a long way to providing the legal certainty upon which mutual confidence between business partners must be based. To be sure of using them correctly, trade practitioners need to consult the full ICC texts, and to beware of the many unauthorized summaries and approximate versions that abound on the web.

As the guardian and originator of Incoterms, ICC has a responsibility to consult regularly all parties interested in international trade to keep Incoterms relevant, efficient and up-to-date. This is a long and costly process for ICC, which is a non-governmental, self-financed organization. The work is financed out of sales of Incoterms 2000 and related publications, which are protected by copyright.

  

"Incoterms" is an ICC trademark, registered in the European Union and elsewhere.The text of Incoterms in whole or in part is subject to ICC's copyright. The copyright covers the Introduction, the Preambles, and the Seller's and Buyer's Obligations. Other related ICC publications, in printed or electronic form, are also subject to copyright.

ICC protects its trademark and copyright ownership. Only the original texts of Incoterms are to be considered as authoritative for incorporation into sales contracts.When quoting Incoterms correctly - for example "FCA Incoterms 2000" - traders throughout the world are referring to the same set of rules. This is one essential reason why ICC is vigilant in protecting its copyright.

Why Incoterms?
Incoterms are international rules that are accepted by governments, legal authorities and practitioners worldwide for the interpretation of the most commonly used terms in international trade. They either reduce or remove altogether uncertainties arising from differing interpretations of such terms in different countries.

What do they cover?
The scope of Incoterms is limited to matters relating to the rights and obligations of the parties to the contract of sale with respect to the delivery of goods sold, but excluding "intangibles" like computer software.

What are the 13 Incoterms?
Each Incoterm is referred to by a three-letter abbreviation. Here is a complete list, with the meanings spelled out.

EXW EX WORKS (named place)*

FCA FREE CARRIER (named place)

FAS FREE ALONGSIDE SHIP (named port of shipment)*

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)*

What does it take to use Incoterms correctly?
ICC recommends that "Incoterms 2000" be referred to specifically whenever the terms are used, together with a location. For example, the term "Free Carrier (FCA)" should always be accompanied by a reference to an exact place to which delivery is to be made. To prevent misunderstandings, variations of the three-letter Incoterms should be strictly avoided.

Here are three examples of correct use of Incoterms:
FCA Kuala Lumpur Incoterms 2000
FOB Liverpool Incoterms 2000
DDP Frankfurt Schmidt GmbH Warehouse 4 Incoterms 2000

Why do Incoterms need revising periodically?
The main reason is the need to adapt Incoterms to contemporary commercial practice. For instance, in the 1990 version, the clauses dealing with the seller's obligation to provide proof of delivery allowed paper documentation to be replaced by e-mail for t hat purpose for the first time.

Can you name some main innovations in Incoterms 2000?
They take account of international traders' growing reliance on intermodal transport. Increased use of FCA (Free Carrier) prompted ICC to simplify delivery obligations under this term. A further advantage of the new Incoterms is that they clearly allocate the loading and unloading requirements of both buyer and seller.

Two other changes are worth mentioning:

Under FAS (FREE ALONGSIDE SHIP) the seller is required to clear the goods for export. This is a reversal from previous Incoterms versions, which required the buyer to arrange for export clearance.

Under DEQ (DELIVERED EX QUAY) the buyer is required 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.

I keep reading about "E"-terms and "C"-terms. What does that mean?
Incoterms 2000, like its immediate predecessor, groups the terms in four categories denoted by the first letter in the three-letter abbreviation.

• Under the "E"-term (EXW), the seller only makes the goods available to the buyer at the seller's own premises. It is the only one of that category.
• Under the "F"-terms (FCA, FAS and FOB), the seller is called upon to deliver the goods to a carrier appointed by the buyer.
• Under the "C"-terms (CFR, CIF, CPT and CIP), the seller has to contract for carriage, but without assuming the risk of loss or damage to the goods or additional costs due to events occurring after shipment or dispatch.
• Under the "D"-terms (DAF, DES, DEQ, DDU and DDP), the seller has to bear all costs and risks needed to bring the goods to the place of destination.

All terms list the Seller's and the Buyer's obligations. The respective obligations of both parties have been grouped under up to 10 headings where each heading on the seller's side "mirrors" the equivalent position of the buyer. Examples are: Delivery, Transfer of risks, Division of costs.

This layout helps the user to compare the parties' respective obligations under each Incoterm.
  

EXW - Ex-Works, named place where shipment is available to the buyer, not loaded.

The seller will not contract for any transportation.


International Carriage NOT Paid by Seller

FCA - Free Carrier, unloaded at the seller's dock OR a named place where shipment is available to the international carrier or agent, not loaded.
This term can be used for any mode of transport.

FAS - Free Alongside Ship, named ocean port of shipment.
Ocean shipments that are NOT containerized.

FOB - Free On Board vessel, named ocean port of shipment.
This term is used for ocean shipments only where it is important that the goods pass the ship's rail.

International Carriage Paid by the Seller

CFR - Cost and Freight, Named ocean port of destination.
This term is used for ocean shipments that are not containerized.

CIF - Cost, Insurance and Freight, named ocean port of destination.
This term is used for ocean shipments that are not containerized.

CPT - Carriage Paid To, named place or port of destination.
This term is used for air or ocean containerized and roll-on roll-off shipments.

CIP - Carriage and Insurance Paid To, named place or port of destination.
This term is used for air or ocean containerized and roll-on roll-off shipments.

Arrival At Stated Destination

DAF - Delivered At Frontier, named place of destination, by land, not unloaded.
This term is used for any mode of transportation but must be delivered by land.

DES - Delivered Ex-Ship, named port of destination, not unloaded.
This term is used for ocean shipments only.

DEQ - Delivered Ex-Quay, named port of destination, unloaded, not cleared.
This term is used for ocean shipments only.

DDU - Delivered Duty Unpaid, named place of destination, not unloaded, not cleared.
This term is used for any mode of transportation.

DDP - Delivered Duty Paid, named place of destination, not unloaded, cleared.
This term is used for any mode of transportation.