INTERNATIONAL

COMMERCIAL
TERMS

(INCO TERMS)

By Paul V Komban
INTERNATIONAL COMERCIAL TERMS - INCO TERMS

To facilitate commerce around the world, the International

Chamber of Commerce (ICC) publishes a set of Incoterms,
officially known as international commercial terms.
Globally recognized, Incoterms prevent confusion
in foreign trade contracts by clarifying the obligations of
buyers and sellers.

Parties involved in domestic and international

trade commonly use Incoterms as a kind of shorthand to
help understand one another and the exact terms of their
business arrangements. Some Incoterms apply to any
means of transportation, while others apply strictly to
transportation across water.

By Paul V Komban
WHY TO USE THE INCOTERMS ?
Incoterms Clarify Responsibilities of Parties to a Sales
Transaction
• For example, in each Incoterm rule, a statement is provided
as to seller’s responsibility to provide the goods and
commercial invoice in conformity with the contract of sale.
Likewise, a corresponding statement is provided
which stipulates that the buyer pays the price of goods as
provided in the contract of sale.
• Each Incoterm rule has a statement stipulating which party
is responsible for obtaining any export license or other
official authorization required for export and for carrying out
the customs formalities necessary for the export to proceed.
Similarly, each rule has a corresponding statement as
to which party is responsible for obtaining any import
license or other official authorization required for import and
for carrying out the customs formalities required for the
import of goods. These statements also specify which party
bears the cost of handling these tasks.
By Paul V Komban
WHY TO USE THE INCOTERMS ?

• Similarly, each Incoterm rule specifies which party to the

transaction, if any, is obligated to contract for the carriage of the
goods.
• Another point addressed in each Incoterm rule is which party, if
any, is obligated, to provide for cargo insurance coverage.
• These statements also specify which party bears the cost of
handling these tasks.
• Each rule also contains statements, among others, as to which
party is responsible for packing the goods for transport
overseas and for bearing the costs of any pre-shipment
inspections.
• A final example is cargo delivery. Each Incoterm rule specifies
the seller’s obligations for cargo delivery and clarifies when
delivery takes place. Each rule also specifies when the risk of
loss or damage to the goods being exported pass from the
seller to the buyer by reference to the delivery provision.

By Paul V Komban
INCOTERMS - INTRODUCTION

Incoterms are most frequently listed by category.

 Terms beginning with F refer to shipments where the primary cost

of shipping is not paid for by the seller.
 Terms beginning with C deal with shipments where the seller pays
for shipping.
 E-terms occur when a seller's responsibilities are fulfilled when
goods are ready to depart from their facilities.
 D terms cover shipments where the shipper/seller's responsibility
ends when the goods arrive at some specific point. Because
shipments are moving into a country, D terms usually involve the
services of a customs broker and a freight forwarder. In addition,
D terms also deal with the pier or docking charges found at
virtually all ports and determining who is responsible for each
charge.

By Paul V Komban
INCOTERMS - INTRODUCTION
The seven Incoterms® 2020 rules for any mode(s) of transport are:

EXW - Ex Works (insert place of delivery)

FCA - Free Carrier (Insert named place of delivery)
CPT - Carriage Paid to (insert place of destination)
CIP - Carriage and Insurance Paid To (insert place of destination)
DAP - Delivered at Place (insert named place of destination)
DPU - Delivered at Place Unloaded (insert of place of destination)
DDP - Delivered Duty Paid (Insert place of destination).

The four Incoterms 2020 rules for Sea and Inland Waterway Transport
are:

FAS - Free Alongside Ship (insert name of port of loading)

FOB - Free on Board (insert named port of loading)
CFR - Cost and Freight (insert named port of destination)
CIF - Cost Insurance and Freight (insert named port of destination)
By Paul V Komban
INCOTERMS - Details……….1

EXW (Ex-Works) :

One of the simplest and most basic shipment arrangements

places the minimum responsibility on the seller with greater
responsibility on the buyer. In an EX-Works transaction, goods
are basically made available for pickup at the shipper/seller's
factory or warehouse and "delivery" is accomplished when the
merchandise is released to the consignee's freight forwarder.
The buyer is responsible for making arrangements with their
forwarder for insurance, export clearance and handling all other
paperwork.

Under an EXW agreement, the buyer accepts all responsibilities and costs of picking
up and transporting goods to their desired destination. Under specific
circumstances, an EXW agreement is less expensive than the FOB alternative, but
the buyer must be prepared for and know the costs of transporting goods to the
place they want them. The best instances for using an EXW are when the seller
cannot export goods or when the buyer intends to consolidate purchases to reduce
costs

By Paul V Komban
INCOTERMS - Details……….2

FCA (Free Carrier):

Free carrier is a trade term dictating that a seller of goods is
responsible for the delivery of those goods to a destination specified
by the buyer. When used in trade, the word "free" means the seller has
an obligation to deliver goods to a named place for transfer to a
carrier. The destination is typically an airport, shipping terminal,
warehouse, or other location where the carrier operates. It might even
be the seller's business location. The seller includes
transportation costs in its price and assumes the risk of loss until
the carrier receives the goods. At this point, the buyer assumes all
responsibility. Free Carrier (FCA) has been revised for Incoterms®
2020 to the parties to agree that the buyer will instruct the carrier to
issue an on-board bill of lading to the seller once the goods have been
loaded on board, and for the seller then to tender the document to the
buyer (often through the banks).

Under FCA shipping terms, the seller is responsible for pre-carriage to a terminal, delivery to the
agreed upon destination, and proof of delivery. The seller is also responsible for export
packaging, licenses, and customs formalities. On the other hand, under FCA shipments, the
buyer pays for the goods, is responsible for the main means of transportation, and pays for
loading charges. The buyer also covers import duties, taxes, and formalities.
By Paul V Komban
INCOTERMS - Details……….4

CPT (Carriage Paid To):

In CPT transactions the shipper/seller has the same obligations

found with CIF, with the addition that the seller has to buy cargo
insurance in CIF, naming the buyer as the insured while the
goods are in transit.

In a CPT transaction, the seller must clear the goods for export and deliver
them to a carrier or appointed person at a mutually agreed-upon (between
the seller and buyer) destination. Also, the seller pays the freight charges to
transport the goods to the specified destination. Carriage Paid To (CPT)
places the majority of the responsibility and cost on the seller, as it
stipulates that the seller must absorb all costs and risks until the goods are
transported to the first carrier in the transportation chain.

By Paul V Komban
INCOTERMS - Details……….4

CIP (Carriage and Insurance Paid To)

Carriage and insurance paid to (CIP) means that the seller will
pay freight and insurance when sending goods to someone
they choose at a location they both agreed on. The seller has to
insure the goods being sent for 110% of their contract value.
The CIP Incoterms rule now requires a higher level of cover,
compliant with the Institute Cargo Clauses (A) or similar
clauses.

AS per INCO Terms 2020 the major difference between CIF and CIP is in the
extend of Insurance cover required.

By Paul V Komban
INCOTERMS - Details……….5

DAP (Delivered At Place) :

DAP term is used for any type of shipments. The

shipper/seller pays for carriage to the named place, except for
costs related to import clearance, and assumes all risks prior
to the point that the goods are ready for unloading by the
buyer.

Seller agrees to pay all costs and suffer any potential losses of moving
goods sold to a specific location. In DAP agreements, the buyer is
responsible for paying import duties and any applicable taxes, including
clearance and local taxes, once the shipment has arrived at the specified
destination. Under DAP, the seller bears much of the responsibility when
it comes to the preparation and cost of shipping until the goods reach
their destination. Upon arrival, the buyer takes over.

By Paul V Komban
INCOTERMS - Details……….4

DPU (Delivered at Place Unloaded) { DAT- Delivered At Terminal

of 2010}

This term is used for any type of shipments. The shipper/

seller pays for carriage to the terminal and unload, except for
costs related to import clearance, and assumes all risks up to
the point that the goods are unloaded at the terminal.

The former Delivered at Terminal (DAT) has been changed to Delivered

at Place Unloaded (DPU) to emphasize that the place of destination can
be any place and not just a “terminal,” and to underscore the sole
difference from Delivered at Place Unloaded (DPU) – under DAP the
seller does not unload the goods, under DPU, the seller does unload the
goods. And since delivery under DAP happens before unloading,
Incoterms® 2020 presents the newly named DPU after DAP.

By Paul V Komban
INCOTERMS - Details……….5

DDP (Delivered Duty Paid):

DDP term tend to be used in intermodal or courier-type

shipments. Whereby, the shipper/seller is responsible for
dealing with all the tasks involved in moving goods from the
manufacturing plant to the buyer/consignee's door. It is the
shipper/seller's responsibility to insure the goods and absorb
all costs and risks including the payment of dues and fees.

Under DDP shipping terms, a vendor has to pay for the transportation
costs. In addition, the vendor usually holds all risks and responsibilities
for the transportation of the goods until the buyer receives them.
DDP indicates that the seller (exporter) assumes all the risk and
transportation costs. The seller must also clear the goods for export at
the shipping port and import at the destination. Moreover, the seller must
pay export and import duties for goods shipped under DDP.

By Paul V Komban
INCOTERMS - Details……….3

FAS (Free Alongside Ship)* :

In these transactions, the buyer bears all the transportation

costs and the risk of loss of goods. FAS requires the
shipper/seller to clear goods for export, which is a reversal
from past practices. Companies selling on these terms will
ordinarily use their freight forwarder to clear the goods for
export. “Delivery" is accomplished when the goods are
turned over to the Buyers Forwarder for insurance and
transportation.

FAS is a term used in overseas shipping that denotes delivery has been
made when the goods have been offloaded from the seller's ship and
cleared through export customs. Under FAS, the buyer is responsible
for the cost of clearing export and unloading.

By Paul V Komban
INCOTERMS - Details……….3

FOB (Free On Board):

One of the most commonly used-and misused-terms, FOB

means that the shipper/seller uses his freight forwarder to
move the merchandise to the port or designated point of
origin. Though frequently used to describe inland
movement of cargo, FOB specifically refers to ocean or
inland waterway transportation of goods. "Delivery" is
accomplished when the shipper/seller releases the goods
to the buyer's forwarder. The buyer's responsible for
insurance and transportation begins at the same moment.
Free on Board, or FOB is an Incoterm, which means the seller is responsible
for loading the purchased cargo onto the ship, and all costs associated. The
point the goods are safe aboard the vessel, the risk transfers to the buyer,
who assumes the responsibility of the remainder of the transport.

By Paul V Komban
INCOTERMS - Details……….3

CFR (Cost and Freight):

It is term formerly known as CNF (C&F) defines two distinct and
separate responsibilities-one is dealing with the actual cost of
merchandise "C" and the other "F" refers to the freight charges
to a predetermined destination point. It is the shipper/seller's
responsibility to get goods from their door to the port of
destination. "Delivery" is accomplished at this time. It is the
buyer's responsibility to cover insurance from the port of origin
or port of shipment to buyer's door. Given that the shipper is
responsible for transportation, the shipper also chooses the
forwarder. With a cost and freight sale, the seller is not
responsible for procuring marine insurance against the risk of
loss or damage to the cargo during transit.

Under CFR, the seller is responsible for all the planning and costs associated with
exporting goods by sea to the destination port specified by the recipient. However, as
soon as the goods are loaded on the vessel, the buyer is responsible for providing
marine insurance on them—and for transporting the goods via truck to their final
destination, import fees, and so on.9
By Paul V Komban
INCOTERMS - Details……….3

CIF (Cost, Insurance and Freight):

It is arrangement similar to CFR, but instead of the buyer

insuring the goods for the maritime phase of the voyage,
the shipper/seller will insure the merchandise. In this
arrangement, the seller usually chooses the forwarder.
"Delivery" as above, is accomplished at the port of
destination.

CIF Incoterms rule, which is reserved for use in maritime trade and
often used in commodity trading, the Institute Cargo Clauses (C)
remains the default level of coverage, giving parties the option to
agree to a higher level of insurance cover.

By Paul V Komban
INCOTERMS - A SNAPSHOT

By Paul V Komban
The Purpose of Institute Cargo Clauses
Within the context of marine insurance, Institute Cargo Clauses serve a
specific purpose. This is to specify what is and is not covered when there
is damage or loss to the shipment. Cover can include anything from the
cargo to the container that holds it and even the transportation used to
ship said cargo. The difference in coverage is detailed by each different
category of clause: A, B, and C. Clause C is the most restrictive of the
three, with A being the broadest.
 Institute Cargo Clause A: As stated above, Institute Cargo Clause A is
the widest coverage you can purchase, also known as an ‘All Risks’
Cargo insurance policy. For this reason, it is the most expensive of the
three. What exactly does it cover? Clause A covers maximum risks. It
can cover the cargo, container, and transportation, and any exclusions
can be found in the General Exclusion Clauses.

 Institute Cargo Clause B: This clause is a more restrictive kind of

coverage. For this reason, you should expect to pay a moderate
premium. In the case of this clause, you might only request for the
more valuable items in your cargo to be covered or for partial cargo
coverage.
By Paul V Komban
The Purpose of Institute Cargo Clauses

 Institute Cargo Clause C : This clause, of course, is the most

restrictive of the three. It covers only very limited risks. Furthermore,
most of the situations covered must happen during carriage. The main
aspects of cover include:
 General average
 Fire / explosion
 Vessel grounding / capsizing
 Collision
 General average sacrifice

The Differences Between Institute Cargo Clauses A, B, and C

The main differences between the three levels of Institute Cargo Clauses
are what they cover, and in what circumstances said items are covered.
Each clause sets forth detailed parameters for what it does and doesn’t
cover. Because of the difference in cover the premium payable for each
will vary.

By Paul V Komban