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TERMS OF SALE / INCO TERMS
Incoterms are the
internationally accepted definitions for terms of sale legislated by the
International Chamber of Commerce (ICC). It is vital that U.S. exporters
are familiar with these terms, as they identify the precise moment when
ownership of goods passes from seller to buyer. Incoterms further assign
each party their respective performance responsibilities, elements of cost,
and risks. The inclusion of Incoterms in a sales agreement commits the
buyer and seller to a strict interpretation of these standard definitions.
Note that the
following terms must designate a place or port to be valid.
EXW - EX WORKS
The seller’s only
responsibility is to make the goods available at his premises in a condition
prepared for export. The seller is not responsible for loading the goods in
the vehicle provided by the buyer, unless otherwise agreed. The buyer bears
the full cost and risk involved in bringing the goods from there to the
desired destination.
FAS - FREE ALONGSIDE SHIP
The seller’s obligations are fulfilled when the goods have been placed
alongside the ship on the quay (wharf). The buyer bears all costs and risks
of loss or damage to the goods from that moment. Unlike FOB, FAS requires
the buyer to clear the goods for export.
FOB - FREE ON BOARD VESSEL
The goods are placed on board a ship by the seller at a port of shipment
named in the sales contract. The risk of loss or damage to the goods is
transferred from the seller to the buyer when the goods pass the ship’s
rail during loading. This term only applies to transportation by sea or
inland waterway only.
CFR - COST AND FREIGHT
The seller must pay the costs freight necessary to bring the goods to the
named destination, but the risk of loss or damage, as well as any cost
increases, is transferred from the seller to the buyer when the goods pass
the ship’s rail in the port of shipment. Applicable for sea or inland
waterway transport only.
CIF - COST, INSURANCE AND FREIGHT
This term has the same meaning as CFR, but with the addition that the
seller has to procure marine insurance against the risk of loss or damage
to the goods during carriage. The seller pays the insurance premium.
DES - DELIVERED EX SHIP
The seller makes the goods available to the buyer on board the ship at the
destination named in the sales contract. The seller bears the full cost and
risk involved in bringing the goods there.
DEQ - DELIVERED EX QUAY (DUTY PAID)
This term means that the seller must deliver the goods to the buyer on the
quay (wharf) at the named port of destination, cleared for importation. The
seller has to bear all risks and costs including duties, taxes and other
charges for delivering the goods.
This term should not be used if the seller is unable to obtain the
import license.If the buyer is the party who will clear the goods for
importation and pay the duty, then the term is changed to "DUTY
UNPAID". This term applies to sea or inland waterway transport.
DDU - DELIVERED DUTY UNPAID
DDU means that the seller makes the goods available to the buyer at the
named place (e.g. door –Tokyo , Japan) in the country of importation. The
seller has to pay the costs and bear the risks involved in bringing the
goods to that point . The buyer pays the costs and risks of carrying
out customs formalities, obtaining the import license and duties, taxes and
official charges payable upon importation in his country.. This term may be
used irrespective of the mode of transport.
DDP - DELIVERED DUTY UNPAID
While the term "EX-WORKS" signifies the seller’s minimum
obligation, DDP, when followed by the buyer’s location in the destination
country, denotes the seller’s maximum obligation. The seller provides the
import license and is responsible for delivery, import duties, taxes, other
import-related charges. This term may be used irrespective of the mode of
transport.
FCA - FREE CARRIER
This term has been designed to meet the requirements of modern transport,
particularly such "multimodal" transport as container or
"Roll on / Roll off" traffic by trailers and ferries as well as
carriage by air. FCA is based on the same principle as FOB except that the
seller fulfills his or her obligation when goods are delivered into the
custody of the carrier at the named point. If no precise point can be
mentioned at the time of the contract of sale, the parties should refer to
the place or range where the carrier should take goods into his charge. The
risk of the loss or damage to the goods is transferred from the seller to
the buyer at that time and not at the ship’s rail. "Carrier"
means a person by whom or in whose name a contract of carriage by road,
rail, air, sea or a combination of modes has been made.
CPT - CARRIAGE PAID TO
Like CFR, CPT means that the seller pays the freight for the carriage of
the goods to the named destination. However, the risk of loss or damage to
the goods, as well as any cost increases, it transferred from the seller to
the buyer when the goods have been delivered into the custody of the first
carrier and not at the ship’s rail. It can be used for all modes of
transportation.
CIP - CARRIAGE AND INSURANCE PAID TO
This term is the same as "Carriage Paid to-" but with the
addition that the seller has to procure transport insurance against the
risk of loss or damage to the goods during the carriage. The seller pays
the insurance premium.
DAF - DELIVERED AT FRONTIER
DAF means that the seller’s obligations are fulfilled when the goods have
arrived at the frontier, but before the "customs border" of the
country named in the sales contract. The term may be used for any frontier
including that of the country of export. Therefore, it is important that
the frontier be defined precisely by naming the point and place in the
term. The term is primarily intended to be used when goods are to be
carried by rail or over the road, but it may be used irrespective of the
mode of transport.
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