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5.3 INCOTERMS 2010
INCOTERMS are International Commercial TERMS, which are used as standard trade definitions for international sales contracts and recognized around the world. In 2010 INCOTERMS were last revised to take into account development in global trade. The number of rules were reduced from 13 to 11 with the addition of two new rules. All contracts made under INCOTERMS 2000 remain valid even after 2011 and it is important to clearly specify the chosen version of INCOTERMS 2010 or INCOTERMS 2000. Companies should be familiar with INCOTERMS and understand the associated risks, responsibility and costs. Because documentary requirements vary between countries, INCOTERMS are very helpful in smoothing trade transactions. INCOTERMS typically appear on invoices and shipping documentation.
The 2010 Incoterms are listed below in order of increasing risk/liability to the exporter:
3 Largely borrowed from the Virginia Economic
Rules for Sea & Inland Waterway Transport:
FAS - Free Alongside Ship: Risk passes to buyer, including payment of all transportation and insurance costs, once delivered alongside the ship (realistically at named port terminal) by the seller. The export clearance obligation rests with the seller.
FOB - Free On Board: Risk passes to buyer, including payment of all transportation and insurance costs, once delivered on board the ship by the seller. This is a step further than FAS.
CFR - Cost and Freight: Seller delivers goods and risk passes to buyer when on board the vessel. Seller arranges and pays cost and freight to the named destination port. This is a step further than FOB.
CIF - Cost, Insurance and Freight: Risk passes to the buyer when delivered on board the ship. Seller arranges and pays cost, freight and insurance to destination port. This adds insurance costs to CFR.
Rules for Any Mode or Modes of Transportation
EXW - Ex Works: Seller delivers (without loading) the goods at disposal of buyer at seller's premises. Long held as the most preferable term for exporters who are fairly new in the export business since represents the minimum liability to the seller. On these routed transactions, the buyer has limited obligation to provide export information to the seller.
FCA - Free Carrier: Seller delivers the goods to the carrier and may be responsible for clearing the goods for export (filing the EEI). FCA is more realistic than EXW because it includes loading at pickup, which is commonly expected.
CPT - Carriage Paid To: Seller delivers goods to the carrier at an agreed place, shifting risk to the buyer, but seller must pay cost of carriage to the named place of destination.
CIP - Carriage and Insurance Paid To: Seller delivers goods to the carrier at an agreed place, shifting risk to the buyer, but seller pays carriage and insurance to the named place of destination.
DAT - Delivered at Terminal: Seller bears cost, risk and responsibility until goods are unloaded (delivered) at named quay, warehouse, yard, or terminal at destination. Demurrage or detention charges may apply to seller. Seller clears goods for export, not import. DAT replaces DEQ, DES.
DAP - Delivered at Place: Seller bears cost, risk and responsibility for goods until made available to buyer at named place of destination. Seller clears goods for export, not import.
DDP - Delivered Duty Paid: Seller bears cost, risk and responsibility for cleared goods at named place of destination at buyers' disposal. Buyer is responsible for unloading. Seller is responsible for import clearance, duties and taxes so buyer is not "importer of record".
Additional Information on Incoterms is available at the International Chamber of Commerce website:http://www.iccwbo.org/incoterms/.