Incoterms are standard definitions of terms used in international commerce, developed by the International Chamber of Commerce (ICC). These can be ordered in 31 languages from the ICC. A revision of the terms is currently underway and expected to be in force by the beginning of 2011.
A list of the most common Incoterms follows:
CIF: Cost, Insurance and Freight (to a named port of destination)
Similar to CFR, however the exporter must also obtain and pay for the marine insurance against the buyer’s risk of loss or damage to the goods during carriage. The exporter is only required to obtain insurance for minimum coverage.
FOB: Free on Board (to a named port of shipment)
Under the ICC’s Incoterms, FOB is usually from the named port of loading and is for sea freight only. The buyer takes over the responsibility for insurance and other costs such as freight, etc., from the time the goods arrive on board the ship at the port of departure. Modern usage and the growth in e-commerce has seen FOB shipping point or FOB destination used more frequently. Some countries, notably North America, have a different meaning of FOB. Care should be taking to ensure all parties agree and understand the terms clearly.
DDP: Delivered Duty Paid (to named place of destination)
The exporter must complete all the paper work and pay all costs to get the goods delivered to the buyer’s destination. This term places the most responsibility on the exporter and the minimum responsibility on the buyer.
DDU: Delivered Duty Unpaid (to named place of destination)
The exporter accepts responsibility for delivery to a specific destination. The responsibility for payment of duties and taxes must be stipulated in the agreement.
EXW: (Ex Works)
EXW places the most responsibility on the buyer. The buyer is responsible for organising the collection of the goods from the exporter’s premises. This means the exporter has no legal liability for anything that occurs to the goods after the buyer or a carrier has collected them from the factory or warehouse. This leaves the buyer responsible for ensuring that all the relevant paper work is completed prior to the goods leaving the country. The buyer is also responsible for organising transport to the port, and insurance between the exporter and the port.
CFR: Cost and Freight (to a named port of destination)
CFR is used for water transport and means that the quoted price includes the cost of the goods plus freight charges. The exporter must clear the goods for export and is responsible for all freight charges necessary to get the goods to the named port of destination. But it is the buyer’s responsibility to insure the goods from the time the goods arrive on board the ship at the port of departure.
CPT: Carriage Paid to (a named place of destination)
Under CPT the exporter must clear the goods for export and pay the freight cost to the buyer’s destination. However, the risk of loss or damage is the buyer’s, as well as any costs arising after the exporter has delivered the goods to the carrier.
CIP: Carriage and Insurance Paid to (a named place of destination)
Similar to CPT, but the exporter also has to purchase insurance against the risk of loss or damage to the goods during carriage.
DAF: Delivered at Frontier (to a named place)
Here the exporter must clear the goods for export and deliver them to the stipulated customs border. This could be the customs border of the originating country or any other border stipulated in the agreement.
DES: Delivered ex Ship (to named port of destination)
Used for sea transport only. The exporter must complete all the formalities up to the point where the ship arrives at its destination port. The buyer must take responsibility from this point and arrange to get the goods off the ship and through customs.
DEQ: Delivered ex Quay (Duty Paid) (to named port of destination)
DEQ is similar to DES, except the agreement includes unloading the goods off the ship, placing them for collection on the quay (port), and clearing them though customs. The documentation must state that duty has been paid.
FCA: Free Carrier (to a named point)
The exporter must clear the goods for export and then hand them over to a carrier named by the buyer. If the buyer asks the exporter to help contract a carrier, then the exporter is acting at the buyer’s risk.
FAS: Free Alongside Ship (to a named port of shipment)
This term is used only for water transport. The exporter is responsible for the goods until they are deposited alongside the ship. After this point the buyer is responsible for the risk. This term is not appropriate unless the buyer is prepared to be directly involved in carrying out the export formalities.