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Chapter 1 - INCOTERMS (International Commercial Terms)

What is 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) . It defines the trade contract responsibilities and liabilities between buyer and seller. It is invaluable and a cost-saving tool. The Exporter and the Importer need 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.

Mode of Pricing and INCOTERMS

While finalising the terms of Import contract, the Importer should,  be fully conversant with the mode of pricing and the manner of payment for the Imports. As regards mode of pricing, the overseas supplier normally quote the terms prevailing in international trade. The Importer for his benefits should know the meaning of the technical terminology. To avoid ambiguity in interpretation of such terms, International Chamber of Commerce, Has give detailed definition of a few standard terms popularly known as 'INCOTERMS'. These terms have almost universal acceptance and are explained below

Ex-work

Ex-work' The seller makes the goods available to the buyer at his place, means that the full cost and risk involved in bringing the goods from his place to the desired destination will be borne by the buyer. These terms thus represents the minimum obligation for the seller.

(F.O.R) Free on Rail/ (F.O.T) Free on Truck

These terms are used when the goods are to be carried by rail, or by road transport. The seller's obligations are fulfilled as soon as the goods are delivered to the carrier.

(F.A.S) Free Alongside Ship

Once the goods have been placed alongside the vessel at the port of export and notified to the buyer the exporters obligations are fulfilled. The buyer has to bear all costs incurred in delivering the goods and risks of loss or damage to the goods hereafter.

(F.O.B) Free on Board

The seller's responsibility ends the moment the contracted goods are placed on board the ship, free of cost to the buyer at a port of shipment named in the sales contract. 'On board' means that a Received for Shipment' Bill of Lading is not sufficient. Such B/L if issued must be converted into 'Shipped on Board B/L' by using the stamp 'Shipped on Board' and must bear signature of the carrier or his authorized representative together with date on which the goods were 'boarded'.

(C & F/ C.F.R ) Cost and Freight

This price covers F.O.B value of the goods plus freight charges contract for the carriage of the goods to the port of destination named in the sale contract. This being a shipment contract, the risk and cost is transferred to the buyer at the port of shipment.

(C.I.F) Cost Insurance Freight

The term is basically the same as C & F but in addition the seller has to obtain marine insurance at his cost up to the port of destination against the risks of loss or damage to the goods during the carriage.

(C.P.T) Carriage Paid To

Seller pays freight and charges to the named destination. Title, risk and insurance cost pass to buyer when delivered to carrier by seller who pays transportation cost to destination. Used for any mode of transportation

(D.D.U) Delivered Duty Unpaid

Seller fulfills his obligation when goods have been made available at the named placed in the country of importation. He has to pay the cost and bear the risk involved in custom formalities.

(D.D.P) Delivered Duty Paid

Title and risk pass to buyer when seller delivers goods to names destination point cleared for import. Used for any mode of transportation



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