The International Chamber of Commerce have published Incoterm® rule that is effective from 01.01.2020
The Incoterm® are the selling terms that buyer & seller of goods both agree to during international transactions. This term is not for one country but for all. It is very important to understand the Incoterm® because it state which task, cost & risk are associated with the buyer and the seller.
Incoterm® is an acronym standing for International Commercial Terms.
➤Helps In
1. Filing a purchase order/ sales contract/ purchase contract
2. Deciding obligation- who does what as a buyer & seller
3. Identifying the party responsible for cost towards Carriage, Transportation, Insurance, Packing & Labelling.
4. How/When does the risk transfer from the seller to the buyer.
Incoterms rules traditionally grouped into 4 terms.
1. EXW - Ex Works
👉 The seller delivers when it places the goods at the disposal of the buyer at the seller's premises or at another named place i.e. Factory, Warehouse etc
👉 The seller does not need to load the goods on any collecting vehicle, nor does it need to clear the goods for export, where such clearance is applicable.
2. FCA - Free Carrier
👉 The seller delivers the goods to the carrier or another person nominated by the buyer at the seller's premises or another named place.
👉 The parties are well advised to specify as clearly as possible the point within the named place of delivery, as the risk passes to the buyer at that point.
3. FAS - Free Alongside Ship
👉 The seller delivers when the goods are placed alongside the vessel (e.g. on a quay or a barge) nominated by the buyer at the named port of shipment.
👉 The risk of loss of or damage to the goods passes when the products are alongside the ship. The buyer bears all costs from that moment onwards.
4. FOB - Free On Board
👉 The seller delivers the goods on board the vessel nominated by the buyer at the named port of shipment or procures the goods already so delivered.
👉 The risk of loss or damage to the goods passes when the products are on board the vessel. The buyer bears all costs from that moment onwards.
5. CPT - Carriage Paid to
👉 The seller delivers the goods to the carrier or another person nominated by the seller at an agreed place.
👉 The seller must contract for and pay the cost of carriage necessary to bring the goods to the named place of destination.
6. CIP - Carriage and Insurance Paid to
👉 The seller has the same responsibility as CPT, but they also contract for insurance cover against the buyer's risk of loss of or damage to the goods during the carriage.
👉 The buyer should note that under CIP the seller is required to obtain insurance only on minimum cover. Should the buyer wish to have more insurance protection, it will need either to agree as much expressly with the seller or to make its own extra insurance arrangements.
7. CFR - Cost and Freight
👉 The seller delivers the goods on board the vessel or procures the goods already so delivered.
👉 The risk of loss of or damage to the goods passes when the products are on board the vessel.
👉 The seller must contract for and pay the costs and freight necessary to bring the goods to the named port of destination.
8. CIF - Cost, Insurance and Freight
👉 The seller deliver the goods on board the vessel or procure the goods already so delivered. The risk of loss or damage to the goods passes when the products are on the ship.
👉 The seller must contract for and pay the cost and freight necessary to bring the goods to the named port of destination.
👉 The seller also contract for insurance cover against the buyer's risk of loss of or damage to the goods during the carriage.
👉 The buyer should note that under CIF the seller is required to obtain insurance only on minimum cover. Should the buyer wish to have more insurance protection, it will need either to agree as much expressly with the seller or to make its own extra insurance arrangements.
9. DAP- Delivered At Place
👉 The seller delivers when the goods are placed at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination.
👉 The seller bears all risk involved in bringing the goods to the named place.
10. DPU - Delivered At Placed Unloaded
👉 The seller delivers when the goods, once unloaded are placed at the disposal of the buyer at a named place of destination.
👉 The seller bears all risks involved in bringing the goods to, and unloading them at the named place of destination.
11. DDP- Delivered Duty Paid
👉 The seller delivers the goods when the goods are placed at the disposal of the buyer, cleared for import on the arriving means of transport ready for unloading at the named place of destination.
👉The seller bears all the cost and risks involved in bringing the goods to the place of destination. They must clear the products not only for export but also for import, to pay any duty for both export and to carry out all customs formalities.
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