CHAPTER 4

INCOTERMS
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”
UNCTAD, 1990
What are they?

Set of international rules for the

interpretation of the most commonly used
foreign trade terms
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 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
Carriage paid to CPT
C Terms
Carriage and insurance paid to CIP
Delivered at terminal DAT
Delivered at Place DAP
Delivered Duty paid DDP D Terms
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 Transportation 7
Duties

11 10 9 8

Unloading Final Handling

Transportation Inbound
 Acronym (…named location)
Acronym dictates mode and where the lines are drawn

Export Import
SELLER Clearance Clearance BUYER

Goods

PRE -CARRIAGE MAIN CARRIAGE ON-CARRIAGE

Seller’s Risk

Seller’s 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

Seller’s Risk

Seller’s Cost
 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 seller’s premises to
the desired destination.
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
• evidence of delivery
Export Import
SELLER Clearance Clearance BUYER

Goods

PRE-CARRIAGE MAIN CARRIAGE ON-CARRIAGE

Seller’s Risk
Buyer
• export documents
Seller’s Cost • nominates carrier,
• contracts carriage
• pays freight
FAS (…named port of shipment)

Seller: deliver the goods alongside ship

All risks are transferred to the buyer after
the goods are alongside ship.
If goods are delivered to carrier to be
packaged in containers, the seller must
deliver goods at the named terminal, not
alongside ship.FAS is not suitable. FCA
should be used.
 FCA (…named place)
Seller
• clears export customs,
• delivers goods to carrier
• evidence of delivery
Export Import
SELLER Clearance Clearance BUYER

Goods

PRE-CARRIAGE MAIN CARRIAGE ON-CARRIAGE

Seller’s Risk
Buyer
Seller’s Cost • nominates carrier,
• contracts carriage
• pays freight
FCA (named place)

Goods are delivered to the carrier at the

named place
The seller is responsible for custom
clearance
Evidence of delivery
Seller
FOB (…named port of shipment)
• clears export customs,
• delivers and loads goods on ship
• evidence of delivery
Export Import
SELLER Clearance Clearance BUYER

Goods

PRE-CARRIAGE MAIN CARRIAGE ON-CARRIAGE

Seller’s Risk

Seller’s Cost Buyer

• nominates carrier,
• contracts carriage
• pays freight
FOB (named port of shipment)

If goods are delivered to carrier to be

packaged in containers, the goods must
be delivered at the named terminal. FOB
condition is not possible. FCA should be
used.
 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 (…named port of destination)

Export Import
SELLER Clearance Clearance BUYER

Goods

PRE-CARRIAGE MAIN CARRIAGE ON-CARRIAGE

Seller’s Risk

Seller’s Cost
CFR (named port of
destination)

The seller:
Loading the goods on ship
Risk is transferred to the buyer right after
the goods are already on ship board.
Hire shipment and pays transport cost up the
named port of destination, including
unloading of the goods.
Export custom clearance
CIF (…named port of destination)

Export Import
SELLER Clearance Clearance BUYER

Goods

PRE-CARRIAGE MAIN CARRIAGE ON-CARRIAGE

Seller’s Risk

Seller’s Cost + Insurance

CIF (named port of
destination)

If goods are delivered to the carrier to be

packaged in containers, the goods must
be delivered at the named terminal. CIF
condition is not possible. CIP should be
used.
The seller takes export custom clearance.
The seller buys insurance
Ocean vs Other

Ocean Terms Other Terms

CFR CPT
CIF CIP
CIP – Carriage and Insurance paid
to (named place of destination)

The seller:
Deliver the goods to the carrier at named
place
Buys insurance
Free when goods are delivered to the carrier,
not to the buyer (also applied to CPT, CFR,
CIF).
Pay for unloading of the goods.
CPT – carriage paid to (named
place of destination)

The seller:
Deliver the goods to the carrier at named
place
Free when goods are delivered to the carrier,
not to the buyer (also applied to CIP, CFR,
CIF).
Pay for unloading of the goods.
Export Custom clearance
Group D: Arrival

DAP - Delivered At Place

DDP - Delivered Duty Paid
DAT- Delivered at Terminal

Under D-terms, the seller’s cost/risk is maximized

because he must make the goods available at the agreed
destination. Including import clearance under DEQ and
DDP
DAP - Delivered At Place (place of
named destination)

The seller:
Deliver the goods to named place of
destination (not the carrier)
Buys insurance
Pay for unloading of the goods.
 Export Custom clearance
DAT- Delivered at Terminal (named
terminal)

The seller:
Deliver the goods to the terminal at named
place
Pay for unloading of the goods.
Export Custom clearance
DDP - Delivered Duty Paid (named place of
destination)

The seller:
Deliver the goods to the at named place of
destination.
Pay for unloading of the goods.
Export Custom clearance and Import custom
clearance.
Maximum reponsibility.