INCOTERMS

The INCOTERMS (International Commercial Terms) is a universally recognized set of definitions of international trade terms, such as FOB, CFR and CIF developed by the international chamber of commerce (ICC) in Paris, France. It defines the trade contract responsibilities and liabilities between buyer and seller. It is invaluable and a cost saving tool. The exporter and the importerneet not undergo a lengthy negotiation about the conditions of each transaction. Once they have agreed on a commercial term like FOB, they can sell and buy at FOB without discussing who will be responsible for the freight, cargo insurance, and other costs and risks.

The INCOTERMS was first published in 1936 – INCOTERMS 1936 – and it is revised periodically to keep up with changes in the international trade needs. The complete definition of each term is available from the current publication – INCOTERMS 2000. The publication in available at your Local Chamber of Commerce affiliated with the international Chamber of Commerce (ICC).

Many importers and exporters worldwide are accustomed to and may still use the INCOTERMS 1980, the predecessor of INCOTERMS 1990 and INCOTERMS 2000.
Under the INCOTERMS 2000, the international commercial terms are grouped into E, F, C and D designated by the first letter of the term (acronym), as follows

International Commercial Terms

Group term stands for
E –
EXW – Ex Works

F –
FCA – Free Carrier
FAS – Free Alongside Ship
FOB – Free On Board

C –
CFR – Cost and Freight
CIF – Cost, Insurance and Freight
CPT – Carriage Paid To
CIP – Carriage and Insurance Paid to

D –
DAF – Delivered At Frontier
DES – Delivered Ex Ship
DEQ – Delivered Ex Quay
DDU – Delivered Duty Unpaid
DDP – Delivered Duty Paid

In practice, trade terms are written with either all upper case letters (E.g. FOB, CFR, CIF and FAS) or all lover case letters (E.g. fob, cfr, cif and fas). They may be written with periods (E.g. F.O.B. and c.i.f.).

In international trade, it would be best for exporters to refrain, wherever possible, from dealing in payments of import customs duties and taxes and/or other costs and risks at the buyer’s end, for example the trade terms DEQ (Delivered Ex Quay) and DDP (Delivered Duty Paid). Quite often, the charges and expenses at the buyer’s end may cost more to the seller than anticipated. To overcome losers, hire a reliable customs broker or freight forwarder in the importing country to handle the import routines.

Similarly, it would be best for importers not to deal in EXW (Ex Works), which would hold the buyer responsible for the export customs clearance, payment of export customs charges and taxes, and other costs and risks at the seller’s end.