Incoterms - Trade expressions and terms used in International business
To provide a common terminology for international shipping and minimize misunderstandings, the INTERNATIONAL CHAMBER OF COMMERCE developed a set of terms, known as INCOTERMS.
- Cost and Freight (CFR): the exporter pays the costs and freight necessary to get the cargo to the port of destination, but the risk of loss or damage is assumed by the buyer once the cargo is loaded at the port of embarkation.
- Cost, Insurance and Freight (CIF): the exporter pays the cost of goods, cargo and insurance plus all transportation charges to the named port of destination.
- Delivered at Frontier (DAF): the exporter/seller's obligations are met when the cargo arrives at the frontier, but before they reach the Customs border of the importing country named in the sales contract. The expression is commonly used when goods are carried by road or rail.
- Delivered Duty Paid (DDP): this expression puts maximum responsibility on the seller/exporter in terms of delivering the cargo, assuming the risk of damage/loss and paying duty. It is at the other extreme from the "ex works" expression listed below, under which the seller assumes the least responsibility.
- Delivered Ex Quay (DEQ): the exporter/seller makes the goods available to the buyer on the quay or wharf at the destination named in the sales contract, and bears all costs/responsibility up to this point. There are two types of ex quay contracts in use: ex quay duty paid, whereby the seller incurs the liability to clear the cargo for import, and ex quay duties on buyer's account, whereby the buyer assumes this responsibility.
- Delivered Ex Ship (DES): the exporter/seller must make the goods available to the buyer on board the ship at the location stipulated in the contract. All responsibility/cost for bringing the cargo up to this point falls on the seller.
- Ex Works (EXW): opposite to "delivered duty paid." This minimal obligation requires the seller only to make the goods available to the buyer at the seller's premises. The seller is not responsible for loading the goods on the vehicle provided by the buyer, unless otherwise agreed. The buyer bears all responsibility for transportation of the cargo from the seller's place of business or warehouse to final destination.
- Free Alongside Ship (FAS): the cargo must be placed on the docks by the seller, alongside the vessel. The seller's obligations are fulfilled at this point. The buyer bears all costs and risks of loss or of damage to the goods from that moment.
- Free on board (FOB): the cargo is placed on board the vessel by the seller at the port of shipment specified in the sales contract. The risk of loss or damage is transferred to the buyer when the goods pass the ship's rail.
- Free Carrier . . . (named port): recognizing the requirements of modern transportation, including multi modal shipping, this principal is similar to FOB, except that the exporter's obligations are met when the cargo is delivered into the custody of the carrier at the named port. The risk of loss/damage is transferred to the buyer at this time, and not at the ship's rail. The carrier can be any person contracted for transportation of the freight by road, air, sea, rail or a combination thereof.
- Carriage Paid to . . . (named place of destination): the seller pays the freight for the transportation of the goods to the named destination. The risk of loss or damage to the goods is transferred from the seller to the buyer when the cargo has been delivered to the custody of the carrier.
(Source: from Incoterms 1990, International Chamber of Commerce)