Location :
Mumbai - India
Utility - Incoterms
Word definitions often differ from industry to industry.
This is especially true in International trade, where such
fundamental phrases as "delivery" can have a far different
meaning in the business than in the rest of the world.
For International Trade to be effective, phrases must mean
the same thing throughout the industry. That is why the
International Chamber of Commerce created "INCOTERMS" in
1936. INCOTERMS are designed to create a bridge between
different members of the industry by acting as a uniform
language they can use.
Each INCOTERM refers to a type of agreement for the purchase
and shipping of goods internationally. There are 13
different terms, each of which helps users deal with
different situations involving the movement of goods.
INCOTERMS also deal with the documentation required for
global trade, specifying which parties are responsible for
which documents. Determining the paperwork required to move
a shipment is an important job, since requirements vary so
much between countries.
In global trade, "delivery" refers to the seller fulfilling
the obligation of the terms of sale or to completing a
contractual obligation. "Delivery" can occur while the
merchandise is on a vessel on the high seas and the parties
involved are thousands of miles from the goods. In the end,
however, the terms wind up boiling down to a few basic
specifics viz Costs, Control and Liability
It is essential for each party to know the exact status of
their shipments in terms of ownership and responsibility. It
is also vital for sellers & buyers to arrange insurance on
their goods while the goods are in their "legal" possession.
Lack of insurance can result in wasted time, lawsuits, and
broken relationships.
INCOTERMS can thus have a direct financial impact on a
company's business. What is important is not the acronyms,
but the business results.
Recently the ICC changed basic aspects of the definitions of
a number of INCOTERMS, buyers and sellers should be aware of
this. Terms that have changed have a star alongside them.
EX-Works
One of the simplest and most basic shipment arrangements
places the minimum responsibility on the seller with greater
responsibility on the buyer. In an EX-Works transaction,
goods are basically made available for pickup at the
shipper/seller's factory or warehouse and "delivery" is
accomplished when the merchandise is released to the
consignee's freight forwarder. The buyer is responsible for
making arrangements with their forwarder for insurance,
export clearance and handling all other paperwork.
FOB (Free On Board)
One of the most commonly used-and misused-terms, FOB means
that the shipper/seller uses his freight forwarder to move
the merchandise to the port or designated point of origin.
Though frequently used to describe inland movement of cargo,
FOB specifically refers to ocean or inland waterway
transportation of goods. "Delivery" is accomplished when the
shipper/seller releases the goods to the buyer's forwarder.
The buyer's responsibility for insurance and transportation
begins at the same moment.
FCA (Free Carrier)
In this type of transaction, the seller is responsible for
arranging transportation, but he is acting at the risk and
the expense of the buyer. Where in FOB the freight forwarder
or carrier is the choice of the buyer, in FCA the seller
chooses and works with the freight forwarder or the carrier.
"Delivery" is accomplished at a predetermined port or
destination point and the buyer is responsible for
Insurance.
FAS (Free Alongside Ship)*
In these transactions, the buyer bears all the
transportation costs and the risk of loss of goods. FAS
requires the shipper/seller to clear goods for export, which
is a reversal from past practices. Companies selling on
these terms will ordinarily use their freight forwarder to
clear the goods for export. "Delivery" is accomplished when
the goods are turned over to the Buyers Forwarder for
insurance and transportation.
CFR (Cost and Freight)
This term formerly known as CNF (C&F) defines two distinct
and separate responsibilities-one is dealing with the actual
cost of merchandise "C" and the other "F" refers to the
freight charges to a predetermined destination point. It is
the shipper/seller's responsibility to get goods from their
door to the port of destination. "Delivery" is accomplished
at this time. It is the buyer's responsibility to cover
insurance from the port of origin or port of shipment to
buyer's door. Given that the shipper is responsible for
transportation, the shipper also chooses the forwarder.
CIF (Cost, Insurance and Freight)
This arrangement similar to CFR, but instead of the buyer
insuring the goods for the maritime phase of the voyage, the
shipper/seller will insure the merchandise. In this
arrangement, the seller usually chooses the forwarder.
"Delivery" as above, is accomplished at the port of
destination.
CPT (Carriage Paid To)
In CPT transactions the shipper/seller has the same
obligations found with CIF, with the addition that the
seller has to buy cargo insurance, naming the buyer as the
insured while the goods are in transit.
CIP (Carriage and Insurance Paid To)
This term is primarily used for multimodal transport.
Because it relies on the carrier's insurance, the
shipper/seller is only required to purchase minimum
coverage. When this particular agreement is in force,
Freight Forwarders often act in effect, as carriers. The
buyer's insurance is effective when the goods are turned
over to the Forwarder.
DAF (Delivered At Frontier)
Here the seller's responsibility is to hire a forwarder to
take goods to a named frontier, which usually a border
crossing point, and clear them for export. "Delivery" occurs
at this time. The buyer's responsibility is to arrange with
their forwarder for the pick up of the goods after they are
cleared for export, carry them across the border, clear them
for importation and effect delivery. In most cases, the
buyer's forwarder handles the task of accepting the goods at
the border across the foreign soil.
DES (Delivered Ex Ship)
In this type of transaction, it is the seller's
responsibility to get the goods to the port of destination
or to engage the forwarder to the move cargo to the port of
destination uncleared. "Delivery" occurs at this time. Any
destination charges that occur after the ship is docked are
the buyer's responsibility.
DEQ (Delivered Ex Quay)*
In this arrangement, the buyer/consignee is responsible for
duties and charges and the seller is responsible for
delivering the goods to the quay, wharf or port of
destination. In a reversal of previous practice, the buyer
must also arrange for customs clearance.
DDP (Delivered Duty Paid)
DDP terms tend to be used in intermodal or courier-type
shipments. Whereby, the shipper/seller is responsible for
dealing with all the tasks involved in moving goods from the
manufacturing plant to the buyer/consignee's door. It is the
shipper/seller's responsibility to insure the goods and
absorb all costs and risks including the payment of duty and
fees.
DDU (Delivered Duty Unpaid)
This arrangement is basically the same as with DDP, except
for the fact that the buyer is responsible for the duty,
fees and taxes..
