Incoterms

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So that buyers and sellers can work out exactly what their costs and responsibilities are during any international trade, both parties need to know what the terms of the deal are.

This basically means you have to establish who pays for what during the delivery and who assumes which risks. To make this easier, the International Chamber of Commerce based in Paris has drawn up a list of the commonly used terms to regulate shipment and avoid confusion. The definitions are established from the point of view of the seller. It is important to note that this system does not deal with the ownership of the goods, the Incoterms are only a standardised set of rules for agreeing where, geographically, responsibilities change hands.

This list of three letter abbreviations is known in its most recent incarnation as Incoterms 2000 (derived from International Commercial Terms) and is actually copyright of the International Chamber of Commerce. There are thirteen abbreviated terms and there are strict rules about what they actually mean and how they should be used. To avoid confusion it is recommended that you specify you are using Incoterms 2000 rather than one of the other versions. Although they are not in themselves legally binding, their widespread acceptance means that they should be specified as early as possible in any negotiation and should definitely be written into the contracts governing the trade to avoid complications later on.

In brief, the Incoterms are a way of describing when the buyer begins to pay for the shipment of the goods, ranging from the factory gates, (EXW - Ex Works) where the buyer has to pay for insurance, shipment and all fees, so the seller pays for nothing, right through to delivery of the goods on the seller's doorstep (DDP - Delivery Duty Paid) where the seller takes on all of the cost of delivery. It is generally recommended that the actual place where the handover of responsibilities takes place is included with the Incoterms.

A thorough understanding of how to use Incoterms should help you avoid some of the major problems associated with international trade.

And here they all are:

EXW EX WORKS

FCA FREE CARRIER

FAS FREE ALONGSIDE SHIP

FOB FREE ON BOARD

CFR COST AND FREIGHT

CIF COST, INSURANCE AND FREIGHT

CPT CARRIAGE PAID TO

CIP CARRIAGE AND INSURANCE PAID TO

DAF DELIVERED AT FRONTIER

DES DELIVERED EX SHIP

DEQ DELIVERED EX QUAY

DDU DELIVERED DUTY UNPAID

DDP DELIVERED DUTY PAID


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