APPENDIX "A"
INCOTERMS
International Trade Terms
(excerpted "A Guide to Incoterms)
Published by the International Chamber of Commerce
Ex works
(ex factory, ex mill, ex plantation, ex warehouse, etc.)
"Ex works" means that the seller's only responsibility is to make the
goods available at his premises (i.e. works or factory). In particular he is not
responsible for loading the goods on the vehicle provided by the buyer...The buyer bears
the full cost and risk involved in bringing the goods from there to the desired
destination. This term thus represents the minimum obligation for the seller.
FAS
Free Alongside Ship...(named port of shipment)
Under this term the seller's obligations are fulfilled when the goods have been
placed alongside the ship on the quay or in lighters. This means that the buyer has to
bear all costs and risks of loss of or damage to the goods from that moment....Unlike FOB,
the present term requires the buyer to clear the goods for export.
FOB
Free on Board....(named port of shipment)
The goods are placed on board a ship by the seller at a port of shipment named in
the sales contract. The risk of loss or damage to the goods is transferred from the seller
to the buyer when the goods pass the ship's rail.
C & F
Cost and Freight...(named port of destination)
The seller must pay the costs and freight necessary to bring the goods to the named
destination but the risk of loss of or damage to the goods, as well as of any cost
increases, is transferred from the seller to the buyer when the goods pass the ship's rail
in the port of shipment.
CIF
Cost, Insurance and Freight...(named port of destination)
The term is the same as C&F but with the addition that the seller has to
produce marine insurance against the risk of loss of or damage to the goods during the
carriage. The seller contracts with insurer and pays the insurance premium.
Highlights of the 1990 Incoterms
The following covers highlights of those terms most commonly used in
export quotations and the most recent changes.
EXW (Ex Works) (. . . named place)
EXW is the price applied to the goods only at the point of origin. All costs,
including loading or "stuffing" the container, are for the account of the buyer.
EXW imposes no transit responsibilities on the seller beyond providing the packing
necessary to pick up the goods, but is of minimum value to the overseas importer who has
no way of determining the cost of getting the shipment to a port.
FCA (Free Carrier) (. . . named place)
FCA was adopted by Incoterms in order to clarify the former term FOB (named carrier at
named inland point), especially in the case of FOB air, and to solve the increasing
problems and confusion created by the rapid growth of multimodal transportation,
containerization, and special handling techniques. The seller has fulfilled all
obligations when the goods are handed over and cleared for export into the charge of the
carrier named by the buyer at the named place. If the buyer instructs the seller to
deliver the cargo to a freight forwarder, the seller's obligations are fulfilled when the
goods are in the custody of that entity. The term may be used for any mode of
transportation, including intermodal. Therefore, it is fully suitable for, and replaces
FOB Airport and FOR/FOT quotations. FOB terms should be reserved for water transport only.
The nomenclature "Freight/Carriage Paid To" and "Freight/Carriage and
Insurance Paid to" in the 1980 Incoterms is abandoned, which is perhaps just as well
because their usage did not become commonplace and this FCA term will be more readily
understood. It is anticipated to be some time before FOB ceases to be used in a generic
way, albeit incorrectly. The use of FCA is strongly recommended even if it requires an
explanation to the buyer.
FAS (Free Alongside Ship) ( ... named port of shipment)
In the FAS quotation, the price includes all charges to deliver the goods alongside the
vessel. FAS is in regular use, but not as common as FOB, because the continuing mobility
of the goods being exported is temporarily interrupted. The basic difference between this
and FOB Vessel is that when prices are quoted FAS, the buyer, rather than the seller must
clear the goods for export and have them loaded on board. Therefore, the title passes in
theory when delivery alongside the vessel is acknowledged, usually by means of a dock
receipts This type of quotation is usually reserved for situations in which it serves a
specific purpose, mostly for the benefit of the buyer.
FOB (Free On Board) (... named port of shipment)
The term FOB was originally intended for use exactly
as it implies-free on board the ship (vessel), at which point the title transfers
as the goods "cross the ship's rails." As far as Incoterms are concerned, this
still applies and the FOB term is applicable now only for ocean or inland waterway
transport. The exporter will be responsible for all costs necessary to put the shipment
aboard a vessel in the named port. This includes arrangements for the shipment and bearing
all costs of inland freight, packing, containerization, port, and loading on board
charges. For practical purposes, it is very difficult to obtain a letter of credit with
shipping terms nearer to the origin of the merchandise than FOB vessel, or the equivalent.
This is because the ocean bill of lading is the preferred instrument for negotiating a
letter of credit and for less than FOB terms, documents such as dock receipts, truck bills
of lading, or other still less verifiable documents must be utilized. Your buyer's bank
will discourage such inland terms.
FOB-any U.S. port
FOB any U.S. port is an acceptable variation of Incoterms sometimes used for the
convenience of the buyer who may not know which is the closest or most appropriate port
relative to the source of supply. However, it is also for the convenience of the seller
who then is free to find the fastest and/or cheapest routing after determining the best
source of supply, and therefore it is often to everyone's advantage.The same might apply
to many of the Incoterms.
It should again be stressed that FOB terms naming an inland point, no point or airport are
Incoterms, but are still used in part for the American Revised Foreign Trade Definitions.
It is mentioned here only to minimize confusion because it remains such a prevalent
quotation in spite of the fact that Incoterms provide alternates to accomplish the same
meaning. See "FCA-Free Carrier" or "CPT-Carriage Paid To" terms.
CFR (Cost and Freight) (... named port of shipment)
CFR was formerly designated as C&F, C'n F and continues to have the same
meaning. It also is to be used only for water shipment and does not apply to airfreight
(see CPT). The seller accepts the responsibility for paying the freight, as well as taking
care of the loading and all incidental charges that may be necessary to obtain a clean
bill of lading. However, it does not change the point in time that the buyer assumes the
risk of loss, namely when the goods cross the ship's rails.
CIF (Cost, Insurance, and Freight) (. . . named port of
destination)
CIF together with FOB, is probably the most used overseas price quote. As the
term implies, this includes all of the charges arrived at the CFR quotation, plus the cost
of minimum insurance coverage for the shipment, unless an underlying contract requires
otherwise. In either case, most shippers include full coverage as part of the quotation
for their own protection in case of a dispute. Most shipments are insured for 110 percent
of CIF value (the standard, unless otherwise specified), on an all risk,
warehouse-to-warehouse basis. It would be well to discuss and clarify any deviations from
this common practice with your agent. Even though the seller is providing the insurance,
title, and risk transfer just as they do in the case of FOB or CFR.
CPT (Carriage Paid To) (... named place of destination)
The seller pays the freight for the carriage to the named point. Carrier means
any person, who in contract for carriage undertakes to perform or to procure the
performance of carriage by rail, road, sea, air, or any combination of these. The risk of
loss is transferred at the time the seller has delivered the goods into the custody of the
carrier. It is the correct and appropriate term for what some would have named as C&F
via air carrier.
CIP (Carriage and Insurance Paid to) (. . . named place of
destination)
CIP is the same as in CPT, except that insurance is included in the same sense of
CIF. Also available for air as above.
There are other terms covering the seller's obligations beyond CIF, that delay transfer of
risk and title until arrival or beyond. Although they are not common enough to describe
here in detail, you should have general knowledge of them. One of these is DEQ Delivered
Ex Quay (duty paid ... named port). This lets the buyer pick up the completed, customs
cleared import at the overseas dock. Going even further, the opposite of the near zero
obligations imposed on the seller under Ex Works terms, is the term DDP Delivered Duty
Paid (... named place of destination in the country of importation). With DDP the seller
assumes all responsibilities for shipping, clearing for import, and inland transportation
to the selected point of delivery in the country specified by the buyer.
One of the most interesting changes in the new Incoterms is the manner of
presentation in four groups as follows:
Group E
EXW (Ex Works) Goods available only at sellers own premises.
Group F
FCA (Free Carrier) Any transport mode or intermodal
FAS (Free Alongside Ship) Water transport only
FOB (Free On Board) Water bourne only
The main carriage is not paid and the seller is called upon to deliver the goods to a
carrier who is appointed by the buyer.
Group C
CFR (Cost and Freight) Water bourne only
CIF (Cost, Insurance and Freight) Water bourne only
CPT (Carriage Paid To) Any transport mode or intermodal
CIP (Carriage and Insurance Paid To) Any transport mode or
intermodal
The main carriage must be paid by the seller who has to contract for carriage, but without
assuming the risk of loss or damage to the goods or additional costs incurred after
shipment and dispatch.
Group D
DAF (Delivered At Frontier) Rail or road primarily
DES (Delivered Ex Ship) Water bourne only
DEQ (Delivered Ex Quay) Water bourne only
DDU (Delivered Duty Unpaid) Any transport mode or intermodal
DDP (Delivery Duty Paid) Any transport mode or intermodal
Seller pays all freight and bears all risks to the point of the goods arrival at the named
destination in the country of the buyer.
Sometimes it is believed the FOB contract differs from the CIF contract in
terms of the first being a delivery contract and the second a shipment contract. However,
the Group C terms are the same as the Group F terms in that the seller fulfills the
contract in the country of dispatch. The Group C terms differ from all other groups,
however, in that the risk for loss or damage passes after. shipment even though the seller
must arrange and pay for the main carriage. It is for this reason that ICC strongly
recommends against adding obligations of the seller to the Group C terms, such as some
landed cost, which will very likely lead to misunderstandings, since the additional
obligations occur after the seller is relieved of risks. ICC recommends the seller use
terms "which do not attach the handing over of goods for carriage to shipment 'on
board,' namely FCA, CPT or CIP instead of FOB, CFR and CIF." The reason for this is
that today goods are usually delivered by the seller well before the goods are taken On
Board.
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