Understanding INCOTERMS for Logistics and SCM Contracts

WHAT ARE INCOTERMS?

INCOTERMS?are a set of three-letter standard trade terms most commonly used in international contracts for the sale of goods. First published in 1936, INCOTERMS?provide internationally accepted definitions and rules of interpretation for most common commercial terms. In the US, INCOTERMS are increasingly used in domestic sales contracts rather than UCC shipment and delivery terms.

WHAT INCOTERMS DO

INCOTERMS inform the sales contract by defining the respective obligations, costs and risks involved in the delivery of goods from the Seller to the Buyer.

WHAT INCOTERMS DO NOT DO

INCOTERMS by themselves?DO NOT:

• Constitute a contract;
• Supersede the law governing the contract;
• Define where title transfers; nor,
• Address the price payable, currency or credit terms.

These items are defined by the express terms in the sales contract and by the governing law.

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1. TERMS FOR ANY TRANSPORT MODE

• EXW – EX WORKS (… named place of delivery)
• The Seller’s only responsibility is to make the goods available at the Seller’s premises. The Buyer bears full costs and risks of moving the goods from there to destination.
• FCA – FREE CARRIER (… named place of delivery)
• The Seller delivers the goods, cleared for export, to the carrier selected by the Buyer. The Seller loads the goods if the carrier pickup is at the Seller’s premises. From that point, the Buyer bears the costs and risks of moving the goods to destination.
• CPT – CARRIAGE PAID TO (… named place of destination)
• The Seller pays for moving the goods to destination. From the time the goods are transferred to the first carrier, the Buyer bears the risks of loss or damage.
• CIP – CARRIAGE AND INSURANCE PAID TO (… named place of destination)
• The Seller pays for moving the goods to destination. From the time the goods are transferred to the first carrier, the Buyer bears the risks of loss or damage. The Seller, however, purchases the cargo insurance.
• DAT – DELIVERED AT TERMINAL (… named terminal at port or place of destination)
• The Seller delivers when the goods, once unloaded from the arriving means of transport, are placed at the Buyer’s disposal at a named terminal at the named port or place of destination. “Terminal” includes any place, whether covered or not, such as a quay, warehouse, container yard or road, rail or air cargo terminal. The Seller bears all risks involved in bringing the goods to and unloading them at the terminal at the named port or place of destination.
• DAP – DELIVERED AT PLACE (… named place of destination)
• The Seller delivers when the goods are placed at the Buyer’s disposal on the arriving means of transport ready for unloading at the names place of destination. The Seller bears all risks involved in bringing the goods to the named place.
• DDP – DELIVERED DUTY PAID (… named place)
• The Seller delivers the goods -cleared for import – to the Buyer at destination. The Seller bears all costs and risks of moving the goods to destination, including the payment of Customs duties and taxes.

2. MARITIME-ONLY TERMS

• FAS – FREE ALONGSIDE SHIP (… named port of shipment)
• The Seller delivers the goods to the origin port. From that point, the Buyer bears all costs and risks of loss or damage.
• FOB – FREE ON BOARD (… named port of shipment)
• The Seller delivers the goods on board the ship and clears the goods for export. From that point, the Buyer bears all costs and risks of loss or damage.
• CFR – COST AND FREIGHT (… named port of destination)
• The Seller clears the goods for export and pays the costs of moving the goods to destination. The Buyer bears all risks of loss or damage.
• CIF – COST INSURANCE AND FREIGHT (… named port of destination)
• The Seller clears the goods for export and pays the costs of moving the goods to the port of destination. The Buyer bears all risks of loss or damage. The Seller, however, purchases the cargo insurance.

About Author

Dheeraj Gupta , Logistics Professional, B.Tech( Mech. AMIE) MBA (Operations) having rich experience of 15+ years while associating with Project Logistics Management for various Domestics & International Power, Renewable Energy, Refinery and Petrochemical Construction Projects.

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