International Trade Terms - INCOTERMS

Globalization has given impetus of international trade which is increasing by the day. International trade involves multiple agencies, transportation agents, carriers as well as Customs and Banks etc of the two countries involved in trade.

Any Export or Import transaction involves transportation of goods predominantly via sea or air and in some cases over the road transportation too. Export and Import transactions are essentially dependant upon documentation and information to flow across all related agencies smoothly.

In fact it is essential for information to flow to the agencies involved in each sector in advance before the physical goods arrive or move.

The advancement of technology in terms of internet and EDI has helped smoothen the transactions internationally across all countries. Similarly in the case of international terms of trade too, things have been smoothened and standardized across all countries with the introduction of INCOTERMS published by ICC or International Chamber of Commerce in 1936.

INCOTERMS are the standard terms of trade that define the rights and obligations of the parties involved in trade. It specifies the responsibility of the buyer and the seller by defining the transaction and the cost aspects concerning the transaction and especially related to carriage, custom duties as well as Insurance, etc. However it limits itself to the scope of the liability of costs and definition thereof and does not deal with the ownership or transfer of title of goods.

INCOTERMS are divided into 4 groups namely E,F,C & D.

  1. GROUP – E

    This group contains only one Incoterm namely EXW - Ex. Works.

    This term represents minimum liability on the part of the Seller. Seller&s responsibility ends with delivering goods at his factory doc. The rest of the risk and expenses involved are borne by the Buyer and would have to be carried out through his agent at Origin.

  2. GROUP – F

    Consists of FCA, FAS & FOB terms. Under this category the Seller pays for the pre carriage expenses at the Origin and the main carriage as well as Destination charges are borne by the Buyer.

    FCA - Free Carrier - Seller delivers goods to the Buyer&s nominated vehicle and his responsibility ceases with delivery. Unloading, transportation as well as Insurance from this point will be borne by the Buyer.

    FAS - Free Alongside Ship - Seller completes Export formalities and delivers cargo alongside ship. From this point onwards the risk and costs including transportation and Insurance pass on to the Buyer.

    FOB - Free On Board - Seller responsible for inland transportation, Export clearance as well as delivery cargo onboard the Ship. Once Onboard the Ship the risk and responsibility shifts to the Buyer who pays the transportation, Insurance and Destination Charges.

  3. GROUP – C

    Under this group the Seller arranges for and pays for transportation but does not take on the risk.

    CFR - Cost and Freight - Seller pays transportation cost up to Destination Port. Insurance and Risk are with the Buyer from the time the Seller delivers cargo on board.

    CIF - Cost, Insurance & Freight - Seller pays for transportation and Insurance but the Risk passes to the buyer as soon as the cargo is delivered on board the ship.

    CPT - Seller pays transportation cost. The risk and insurance lies with the buyer from the point of delivery of cargo to the carrier by the Seller.

    CIP - Carriage & Insurance Paid to - Seller pays transportation and Insurance. The risk passes to the buyer when Seller delivers cargo to carrier.

  4. GROUP – D

    Under this group the Seller assumes all or most of the risk and takes responsibility of delivery at Destination upto the agreed point of delivery.

    DAF - Delivered at Frontier - Seller responsible to deliver cargo upto the point of entry at Destination. Risk and responsibility further passes on to the Buyer.

    DES - Delivered Ex Ship - Seller assumes risk until the ship with the cargo reaches the port of Destination. Then the risk shifts to Buyer from the point of discharge of vessel onwards.

    DEQ - Delivered Ex. Quay Duty Paid - Seller takes responsibility until the cargo is delivered after import clearance at destination and customs duty paid and delivered to the point on buyers dock.

    DDU - Delivered Duty Unpaid - Seller takes responsibility to deliver cargo at the destination port where the Buyer takes on the responsibility for import clearance, Import duties and onward delivery.

    DDP - Delivered Duty Paid - Seller takes responsibility until the cargo reaches destination, clears the customs, pays the duty and delivers cargo at Buyer&s dock.

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