International Commercial Terms 2010 (INCOTERMS 2010) – Part II | Trade Samaritan

International Commercial Terms 2010 (INCOTERMS 2010) – Part II

Incoterm minimizes the risk of dispute arising in the sales contract. We have discussed DAT and DAP in Part I now let us discuss the balance incoterms which are a part of both Incoterms 2000 and Incoterms 2010.

In Part I we introduced Incoterms 2010 and discussed the differences between Incoterms 2000 and Incoterms 2010 with a detailed description of two newly introduced incoterms which are Delivered at Place (DAP) and Delivered at Terminal (DAT). And that following terms from Incoterms 2000 have been eliminated in Incoterms 2010.

  1. Delivered at Frontier (DAF)
  2. Delivered Ex-Ship (DES)
  3. Delivered Ex-Quay (DEQ)
  4. Delivered Duty Unpaid (DDU)

We have already discussed DAT and DAP in Part I now let us discuss the balance incoterms which are a part of both Incoterms 2000 and Incoterms 2010.

Incoterms 2010

The ‘E’ terms

Ex-Works

Goods are deemed to be delivered by the seller when he places the goods at the disposal of the buyer at the seller’s premises or any other named place such as factory, works, warehouse etc. not cleared for export and not loaded on any mode of transport or vehicle. This term represents the minimum obligation on seller and buyer has to bear all costs and risks which are involved in taking the goods from the seller’s premises. Goods should be suitably packed by the seller. Buyer is responsible for export formalities as well, hence this term should be used only if the buyer is capable to do so, else the term Free Carrier (FCA) may be used.

The ‘F’ terms

Free carrier (FCA)

Seller clears the goods for exports and delivers goods suitably packed to the carrier nominated by the buyer at the named place. Seller completes the export formalities such as license, duties and taxes. This term can be used for multi modes of transport. If delivery to the carrier occurs at seller’s premises, the seller is oblige to load however if the delivery occurs at any other place the seller is not responsible for unloading. Buyer may nominate a person other than the carrier to receive the goods. From the point of delivery to the carrier or the named person by the seller, the buyer is responsible to make all arrangements to cover and carry goods to own premises.

Free Alongside Ship (FAS)

Goods are deemed to be delivered by the seller when the suitably packed goods are placed alongside the vessel at the named port of shipment. The buyer has to bear all costs and risks from that point till his own premises. The FAS term requires the seller to clear the goods for exports by obtaining the necessary license, costs and taxes. This term can be used only for Sea or Inland water transport. Buyer has to make the necessary arrangement with the shipping company for transport of goods by sea.

Free On Board (FOB)

Seller has deemed to be delivered when the goods pass the ship’s rail and have been loaded on board at the named ship and the port of shipment. The buyer has to bear all costs and risks from that point till his own premises. Seller is required to clear the goods for exports. FOB term can be used only for Sea or Inland water transport.

The ‘C’ terms

 Cost and Freight (CFR)

Seller delivers the goods pass the ship’s rail loaded on board with cost and freight paid up to the named port. FOB and CFR look quite similar at the first glance however the main difference is that in the cost allocation. Under FOB goods are placed on board by the seller incurring the costs only till the ship’s rail (i.e. is lifted from the quay/pier onto the vessel) whereas under CFR, the seller pays all costs to deliver the goods up to the named port of destination. Once the ship arrives at the named port of destination the responsibility, risks and costs of the seller ends and that of the buyer’s begins. This term can be used only for Sea or Inland water transport.

 Carriage Paid To (CPT)

Seller delivers the suitably packed goods to the carrier or the named person nominated by the buyer and pays the cost of carriage necessary to transport the goods to the named destination. Buyer bears all the risks and costs once the goods have been delivered at the named destination. This term can be used irrespective of the mode of transport and also for multimodal transport. If is more than one (multiple) carriers involved in the transport of a single consignment, the risk and the title is transferred from the seller to the buyer when the goods are delivered to the first carrier.

 Cost, Insurance and Freight (CIF)

Seller clears the suitably packed goods for exports and delivers the goods to the carrier or the named person nominated by the buyer and pays the cost of carriage necessary to transport the goods to the named destination, in addition the seller has to procure marine Insurance against the buyer’s risk of loss or damage to the goods during the carriage i.e. till ship’s rail at the port of destination. Insurance risk falls on the buyer only once the goods have crossed the ship’s rail at the named port of destination. In other words CIF = CPT + Marine Insurance.  CIF term can be used for Sea or Inland water transport only, transactions involving other than sea transport can use Carriage and Insurance Paid to (CIP).

 Carriage and Insurance Paid To (CIP)

Seller clears the suitably packed goods for exports and delivers the goods to the carrier or the named person nominated by the buyer and pays the cost of carriage necessary to transport the goods to the named destination, in addition the seller has to procure marine Insurance against the buyer’s risk of loss or damage to the goods during the carriage. This term can be used irrespective of the mode of transport including multimodal transport. CIP and CIF are confusing as they seem to mean the same but it is important to note that CIF is a maritime (sea/waterway transport) Incoterm, whereas CIP Incoterm is a multimodal Incoterm. CIP Incoterm has much more flexibility since, besides for being usable with any type of transport mode and combination thereof, buyer and seller may agree upon any point in the destination country for delivery, whether it is an airport, a train terminal, a port, your client’s home, a transporter, etc. whereas CIP case of use will be CIF Port of Barcelona.

The ‘D’ terms (DAT and DAP have been discussed in Part I)

Delivered Duty Paid (DDP)

Seller delivers the suitably packed goods to the buyer, cleared for import pending for unloading from any arriving means of transport at the named place or destination. The seller is obliged to incur all costs and risks of bringing the goods to the named place or destination. Seller is responsible for both export and import formalities. Whilst the Ex-Works incoterm means minimum responsibility on the seller and maximum responsibility on the buyer, Delivered Duty Paid puts maximum responsibility on the seller and minimum responsibility on the buyer as the goods are delivered at the doorstep of the buyer. This incoterm can be used regardless of the mode of transport including multimodal transport.

It is important to note that FAS, FOB, CFR and CIF terms apply only in case of Sea or Inland water transport.

That brings us to the end of the discussion on Incoterms 2010 and here are some key differences in the three ‘D’ – Delivery based incoterms which will help the readers to avoid confusion.

Points of Difference DAT DAP DDP
1. Unloading of goods Seller Buyer Buyer
2. Point of risk transfer from the seller to the buyer *Named Terminal Final Destination or Place Final Destination or Place
3. Import Clearance Buyer Buyer Seller

 

*Terminal includes any place whether covered or not, such as quay, warehouse, container yard or rail, road or air cargo terminal.

 

Reference

International Chamber of Commerce 

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