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Incoterms

INCOTERMS 2015:

  • EXW – Ex Works (named place of delivery) = The seller makes the goods available at their premises. This term places the maximum obligation on the buyer and minimum obligations on the seller. The Ex Works term is often used when making an initial quotation for the sale of goods without any costs included. EXW means that a buyer incurs the rthe goods, he does so at buyer's risk and cost. If parties wish seller to be responsible for the loading of the goods on departure and to bear the risk and all costs of such loading, this must be made clear by adding explicit wording to this effect in the contract of sale.

    The buyer arranges the pickup of the freight from the supplier's designated ship site, owns the in-transit freight, and is responsible for clearing the goods through Customs. The buyer is also responsible for completing all the export documentation.

    These documentary requirements may cause two principal issues. Firstly, the stipulation for the buyer to complete the export declaration can be an issue in certain jurisdictions (not least the European Union) where the customs regulations require the declarant to be either an individual or corporation resident within the jurisdiction. Secondly, most jurisdictions require companies to provide proof of export for tax purposes. In an Ex Works shipment, the buyer is under no obligation to provide such proof, or indeed to even export the goods. It is therefore of utmost importance that these matters are discussed with the buyer before the contract is agreed. It may well be that another Incoterm, such as FCA seller's premises, may be more suitable.

  • FCA – Free Carrier (named place of delivery) = The seller delivers the goods, cleared for export, at a named place. This can be to a carrier nominated by the buyer, or to another party nominated by the buyer.

    It should be noted that the chosen place of delivery has an impact on the obligations of loading and unloading the goods at that place. If delivery occurs at the seller's premises, the seller is responsible for loading the goods on to the buyer's carrier. However, if delivery occurs at any other place, the seller is deemed to have delivered the goods once their transport has arrived at the named place; the buyer is responsible for both unloading the goods and loading them onto their own carrier.

  • CPT – Carriage Paid To (named place of destination) = CPT replaces the venerable C&F (cost and freight) and CFR terms for all shipping modes outside of non-containerised seafreight.

    The seller pays for the carriage of the goods up to the named place of destination. Risk transfers to buyer upon handing goods over to the first carrier at the place of shipment in the country of Export. The seller is responsible for origin costs including export clearance and freight costs for carriage to named place of destination (either final destination such as buyer's facilities or port of destination has to be agreed by seller and buyer, however, named place of destination is generally picked due to cost impacts). If the buyer does require the seller to obtain insurance, the Incoterm CIP should be considered.

  • CIP – Carriage and Insurance Paid to (named place of destination) = This term is broadly similar to the above CPT term, with the exception that the seller is required to obtain insurance for the goods while in transit. CIP requires the seller to insure the goods for 110% of their value under at least the minimum cover of the Institute Cargo Clauses of the Institute of London Underwriters (which would be Institute Cargo Clauses (C)), or any similar set of clauses. The policy should be in the same currency as the contract.

    CIP can be used for all modes of transport, whereas the equivalent term CIF can only be used for non-containerised seafreight.

  • DAT – Delivered at Terminal (named terminal at port or place of destination) = This term means that the seller covers all the costs of transport (export fees, carriage, unloading from main carrier at destination port and destination port charges) and assumes all risk until destination port or terminal. The terminal can be a Port, Airport, or inland freight interchange. Import duty/taxes/customs costs are to be borne by Buyer.

  • DAP – Delivered at Place (named place of destination) = Inco Terms 2010 defines DAP as “Delivered at Place” that the seller delivers when the goods are placed at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination. When does the risk pass from seller to buyer under DAP terms? Under DAP terms, the risks passes from seller to buyer from the point of destination mentioned in the contract of delivery by seller.

    Once goods are ready for shipment, the necessary packing is done by seller at his own cost, so as to reach the material up to final destination safely. The materials are moved to customs location opted by seller at exporting country at his own expenses under DAP. All necessary legal formalities in exporting country is completed by seller at his own costs and risks to move the goods to destination mentioned in DAP. Apart from necessary customs clearance procedures and formalities at exporting country, the insurance up to the destination mentioned in DAP terms is arranged by seller at his own costs and risks. In a DAP terms, necessary carriage expenses with any terminal expenses are paid by seller up to the destination mentioned. The necessary unloading cost at final destination has to be borne by seller under DAP terms, if specifically not mentioned in contract. If unloading expenses can not be met by seller, better terms of shipping can be DAT (Delivered at Terminal of place mentioned).

    Once after arrival of goods at destination mentioned in DAP terms, the customs clearance at importing country needs to be completed by the buyer at his own cost and risk. Transportation from the point of destination mentioned in DAP terms to final destination of buyer, need to be undertaken by seller at his own cost and risks. Under DAP terms of shipping, the seller meets all expenses and risks to deliver the goods up to the destination mentioned in the contract. From such point of location mentioned in DAP terms, the buyer undertakes all risks and responsibilities to reach the goods at his premises at his own expenses.

  • DDP – Delivered Duty Paid (named place of destination) = Seller is responsible for delivering the goods to the named place in the country of the buyer, and pays all costs in bringing the goods to the destination including import duties and taxes. The seller is not responsible for unloading. This term is often used in place of the non-Incoterm "Free In Store (FIS)". This term places the maximum obligations on the seller and minimum obligations on the buyer. With the delivery at the named place of destination all the risks and responsibilities are transferred to the buyer and it is considered that the seller has completed his obligations.

  • FAS – Free Alongside Ship (named port of shipment) = The seller delivers when the goods are placed alongside the buyer's 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. The FAS term requires the seller to clear the goods for export, which is a reversal from previous Incoterms versions that required the buyer to arrange for export clearance. However, if the parties wish the buyer to clear the goods for export, this should be made clear by adding explicit wording to this effect in the contract of sale. This term can be used only for sea or inland waterway transport.

  • FOB – Free on Board (named port of shipment) = Officially it relates only to sea freight, but in China it is very often used in relation to air freight or air courier shipments. It means that the supplier bears all costs to the point where the goods are loaded on board the carrier’s transport.

    The seller must also arrange for export clearance.

    The buyer pays cost of marine freight transportation, bill of lading fees, insurance, unloading and transportation cost from the arrival port to destination.

    Risk passes from the seller to the buyer when the goods are loaded aboard the vessel.

  • CFR – Cost and Freight (named port of destination) = The seller pays for the carriage of the goods up to the named port of destination. Risk transfers to buyer when the goods have been loaded on board the ship in the country of Export. The Shipper is responsible for origin costs including export clearance and freight costs for carriage to named port. The shipper is not responsible for delivery to the final destination from the port (generally the buyer's facilities), or for buying insurance. If the buyer does require the seller to obtain insurance, the Incoterm CIF should be considered. CFR should only be used for non-containerized seafreight; for all other modes of transport it should be replaced with CPT.

  • CIF – Cost, Insurance & Freight (named port of destination) = This term is broadly similar to the above CFR term, with the exception that the seller is required to obtain insurance for the goods while in transit to the named port of destination. CIF requires the seller to insure the goods for 110% of their value under at least the minimum cover of the Institute Cargo Clauses of the Institute of London Underwriters (which would be Institute Cargo Clauses (C)), or any similar set of clauses. The policy should be in the same currency as the contract. CIF can be used by any transport by sea and air not limited to containerized or non-containerized cargo and includes all charges up to the port/terminal of entrance. CIP covers additional charges at the port/terminal of entrance.

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