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Incoterms

Dr. A.K. SenguptaFormer Dean, Indian Institute of Foreign

Trade

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Category Applicable for sea transport only

Applicable for all modes of transport (including water)

E terms:Departure terms

EXW (Ex works)

F terms:Shipment terms, main carriage unpaid

FAS (Free alongside ship)FOB (Free on board)

FCA (Free carrier)

C terms:Shipment terms, main carriage paid

CFR (Cost and freight)CIF (Cost, insurance, and freight)

CPT (Carriage paid to)CIP (Carriage and insurance paid to)

D terms:Delivery terms

DES (Delivered ex ship)DEQ (Delivered ex quay)

DAF (Delivered at frontier)DDU (Delivered duty unpaidDDP (Delivered duty paid)

Source: Based on Joshi, Rakesh Mohan, International Marketing, New Delhi, Oxford University Press, 2005, p. 383

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INCOTERMSIn international transaction a set of terms used:

To describe the rights and responsibilities of the buyer and seller with regard toSale and transport

•Uniform interpretation of these commercial terms (INCOTERMS) defining the cost, risks, and obligations of buyers and sellers have been developed by International Chamber of Commerce (ICC) in Paris

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Incoterms 2000 include a set of 13 terms as under:

EXW – (Ex Works) named place

The seller’s obligation to deliver goods is complete when he places the goods at the disposal of the buyer at his own premises or another place such as factory, warehouse etc. Here the goods are not cleared for exports

FCA – (Free Carrier) named placeHere the seller’s obligation to deliver the goods is complete when he delivers to the carrier nominated by the buyer at the named place cleared for export

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FAS – (Free Alongside Ship) named port of shipment

The seller delivers the goods by placing them alongside the vessel at the named port of shipment. The buyer bears all costs and risks of loss or damage to the goods from that moment

FOB – (Free on Board) named port of shipment

Under this term, the seller fulfills his obligation of delivery when the goods pass the ship rail at the named port of shipment. From that point onwards the buyer bears all costs and risks. The seller clears the goods for export

CFR (Cost and Freight) named port of destination

In CFR, the obligation of delivery is fulfilled, when the goods pass, just as in FOB, the ships rail in the port of shipment. The only addition is that the seller also pays freight necessary to bring the goods to the port of destination

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CIF, - (Cost, Insurance and Freight) named port of destination

Here also the delivery point is, the goods passing the ship’s rail in the port of shipment. The seller, however pays the cost and freight necessary to bring the goods to the port of destination and also pays the insurance premium. The seller obtains insurance only for the minimum cover. If the buyer wish to have a greater cover he would either need to agree with the seller a make his own extra insurance arrangements.

CIP (Carriage and insurance paid) named place of destination

Seller delivers the goods to a carrier it nominates and also pays the cost of bringing the goods to the named destination. The seller also obtains insurance against the buyer’s risk of loss or damage during carriage and clears the goods for export

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CPT (Carriage paid) named place of destinationSeller delivers goods to carrier it nominates and pays cost of bringing the goods to the named destination. The seller also clears the goods for export

DAF (Delivered at Frontier) named placeAny mode of transport to a land frontier. The seller delivers when goods are placed at the buyer’s disposal on the arriving means of transport, (not unloaded) cleared for export but not cleared for import before the customs border of the destination country

DES (Delivered ex ship) named port of destinationMaritime and inland waterway only; the seller delivers when goods are at the buyer’s disposal on board the ship not cleared for import. The buyer pays discharging costs.

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DEQ (Delivered quay) named port of destinationMaritime and inland waterway only; the seller delivers when the goods are placed at the buyer’s disposal, not cleared for import, on the dock (quay) at the named port of destination. The seller pays discharging costs, but the buyer pays for import clearance

DDU (Delivered Duty Unpaid) named place of destinationAny mode of transport the seller delivers the goods to the buyer, it is not cleared for import and not unloaded from the arriving means of transport at the named destination, but the buyer is responsible for all import clearance formalities and cost

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DDP (Delivered duty paid) named place of destinationAny mode of transport; the seller delivers goods to the buyer, cleared for import (including import licence, duties, and taxes) but not unloaded from the means of transport

Ex-works (EXW) involves lowest obligation while the DDP involves highest obligation for a seller

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•The price quotation under various incoterms should include the expenses as mentioned. For instance, XYZ International, a Jaipur-based export firm, has to make price quotations for 1000 pieces of greeting cards made from hand-made paper. The firm decides to offer a unit price of US$5 per piece that works out to a total price of US$5000. The firm should include the following expenses while making a price quotation

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Incoterm Expenses to be included Additional cost

(in US$)

Total price to be quoted(in US$)

EXW Ex-works JaipurExport packing, marking shipping marks

200 5000

FCA Free on carrier at Jaipur stationCarriage and insurance for delivery to railway station by road transport including insurance

150 5350

FAS Free alongside ship at Kandla. Rail transport to port (including insurance) and getting goods on the quay alongside ship

400 5750

FOB Free on board Kandla. Dock dues, loading goods on board ship. Preparing shipping documents

120 5870

CFR Cost and freight. Sea freight to Singapore (nearest port to Singapore)

230 6100

CIF Cost, insurance and freight. Sea freight plus marine insurance (port to port)

100 6200

DES Delivered ex ship at Singapore. Landing charges at Singapore port

80 6280

DDP Delivery duty paid at Customer’s warehouse in Singapore•Import duties for 1000 pieces of greeting cards•Transportation

68040

7000