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INCOTERMS
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EXV - ExWorks
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ExWorks
means , which is the seller's premises. EXW applies to goods available only at the seller's premises. Buyer is responsible for loading the goods on truck or container at the seller's premises, and for the subsequent costs and risks.
In practice, it is not uncommon that the seller loads the goods on truck or container at the seller's premises without charging loading fee.
In the quotation, indicate the named place (seller's premises) after the acronym
EXW, for example: EXW Budapest and EXW Coppenhagen. The term EXW is commonly used between the manufacturer (seller) and export-trader (buyer), and the export-trader resells on other trade terms to the foreign buyers.
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| | FCA - Free Carrier
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The delivery of goods on truck, rail car or container at the specified point (depot) of departure, which is usually the seller's premises, or a named railroad station or a named cargo terminal or into the custody of the carrier, at seller's expense. The point (depot) at origin may or may not be a customs clearance center. Buyer is responsible for the main carriage/freight, cargo insurance and other costs and risks.
In the air shipment, technically speaking, goods placed in the custody of an air carrier is considered as delivery on board the plane. In practice,
many importers and exporters still use the term FOB in the air shipment. The term
FCA is also used in the RO/RO</a> (roll on/roll off) services. In the export quotation, indicate the point of departure (loading) after the acronym
FCA, for example FCA Vancouver and FCA Seattle.
Some manufacturers may use the former terms FOT (Free On Truck) and FOR (Free On Rail) in selling to export-traders.
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FAS - Free Alongside Ship
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Goods are placed in the dock shed or at the side of the ship, on the dock or lighter, within reach of its loading equipment so that they can be loaded aboard the ship, at seller's expense. Buyer is responsible for the loading fee, main carriage/freight, cargo insurance, and other costs and risks.
In the export quotation, indicate the port of origin (loading) after the acronym
FAS. FAS Caracas and FAS Lima.
The FAS term is popular in the break-bulk shipments and with the importing countries using their own vessels.
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FOB - Free On Board
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FOB (Free On Board) is one of the commoner trade terms in
use. Yet this 'common' aspect of the term has resulted in the myriad definitions found all
over the world for FOB. Some of these directly contradict others, and many are
supported by domestic legislation making such definitions unique to a specific country or
port. In defining FOB as an INCOTERMS, it is expressed as being Monomodal and it can only be used for transactions where
sea freight is the main carriage. Therefore, as an INCOTERMS, there is no application for FOB in road, rail or air transport.
Under INCOTERMS 2000, risk and responsibility pass from the seller to the buyer when the goods pass over the (named or unnamed) ship's rail at the
(named) port of loading, cleared for export by the seller. For FOB to apply, the seller must be in the physical position of being able to load the cargo over the rail under their own direct control i.e. the
loading is undertaken by the seller's own labour, or by an agent that is under the
contractual control of the seller. Further this process would have to be monitored by both
the seller and buyer or their representatives. Generally, from the modern deep-sea export perspective, this
control often cannot be achieved as the seller is either not allowed into the harbour area
or, even in those extreme circumstances where they are, they have no influence over the
party loading the vessel. The INCOTERMS FOB still has an application in some markets,
but these are more and more in the minority. Note that the use of an 'on-board' Bill of
Lading or mate's receipt could be appropriate in recording the passage of risks under FOBmaking FOB one of the few terms still unavoidably dependant on such documents.
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CFR - Cost and FReight
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Terms
beginning 'C' are 'Contracts of Dispatch'. They differ from other INCOTERMS as
they segregate the point at which risk and responsibility passes from the point
at which costs pass.
Under all other terms, the point of transferring risk and the point at which
responsibility for cost is also transferred are simultaneous. With the 'C' terms
this is NOT the case. CFR (Cost and Freight) has a long history and outside of
INCOTERMS a definition with consensus is difficult. As an INCOTERMS risk passes
from the seller to the buyer when the cargo crosses the ship's rail at the
origin port. However, the responsibilities for the costs of transit only pass
from the seller to the buyer at the destination port. CFR and CIF are Monomodal
expressions used when the main carriage is by sea and both are suited to the use
of Bills of Lading. Because the ship's rail is seen as triggering these terms, it is often
inappropriate to use either in a modern port and reference should be made to the
notes on this subject under FOB.
Buyers are disadvantaged with contracts of dispatch. The buyer must take risks
for a period of carriage during which the buyer has no means of controlling or
limiting those risks. The carrier used; the costs incurred for carriage and the
timing of the carriage are all under the seller's control. The buyer must
consider this disparity before accepting a C termed contract. From the seller's
perspective, the C terms represent exceptional risk-management opportunities and
are actively pursued as a consequence.
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CIF - Cost,Isurance and Freight
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CIF
represents the condition of CFR with the addition
of Insurance. This is the first of only two terms that place a compulsory
responsibility for insurance on the seller. Under all other terms, the buyer
considers insurance as an optional responsibility. (Refer CIP)
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CPT - Carriage Paid to
CPT
is the multimodal equivalent of CFR. The named place where
the seller's costs end can be a point other than a seaport (as well as being a
seaport), in the buyer's country.
CPT may be used for airfreight, roadfreight and railfreight as well as for
seafreight when the ship's rail serves no purpose. E.g. if the destination is an
inland point or a modern port with conditions as discussed under FOB.
CPT requires the use of multimodal documents and documents such as Bills of
Lading or Airwaybills may prove inappropriate in recording the passage of risks
under this term. Under CPT, risk and responsibility passes when the cargo is handed to the first
carrier (with a carrier defined as either an Actual or Contractual carrier i.e.
a Freight Forwarder or Multi Transport Operator could act as 'carrier' as could
an airline or shipping line). However, responsibility for costs only transfer when the goods arrive at the
stated place where carriage is 'paid to'. The diagram represents this condition
with a brace, indicating that the place where carriage is paid to may be any
point in the country of destination. The cautions expressed for buyers using CFR are equally applicable to CPT with
added complications in that the transfer of risks can begin earlier. If the
carrier is collecting the cargo from the seller's premises then the risks of
carriage pass to the buyer at that point, while the buyer's ability to control
the costs and timing of carriage only pass at the destination point.
Although these reservations warrant serious consideration for a buyer, they
represent great risk-management opportunities for the seller.
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CIP - Carriage & Insurance Paid to
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CIP
represents CPT with the inclusion of
Insurance. The cautions and notes made regarding CPT equally apply to CIP.
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DAF
Terms prefixed 'D' are 'Contracts of Arrival' involving the
passing of risk and responsibility at the point where costs also terminate.
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DES - Delivered Ex Ship
DES is
Monomodal. Although not triggered by the use of the ship's rail, the point of handover (ship's side, arrived) will be
inappropriate in a modern port. The buyer may not be able to take control at a point in a
restricted port area. An alternative D term such as DDU might be better suited to
represent an achievable point of handover for both parties. DES will often financially correlate to
CFR. But, for the buyer DES represents CFR without the disadvantages of placing risks on the buyer, over
which they have no control. (See CFR)
From the seller's perspective, DES reverses the risk advantages of CFR, placing all risks
with the seller until the cargo arrives at the named port.
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DEQ - Delivered Ex Quay
DEQ
extends the shipper's responsibility beyond the arrival of
the vessel to the point where the goods are discharged. Although not triggered
by the use of the ship's rail, the point of handover (landside on the harbour,
duty paid) is frequently inappropriate in a modern port environment. The buyer
may not be able to take control at that point and an alternative D term such as
DDP may be better suited to identify an achievable point of handover between the
two parties.
Seller's using DEQ are cautioned that they must be in a position to pay the
destination discharge fees both in physical terms as well as administratively in
accordance with any Exchange Control Regulations applicable in the country of
Origin.
Caution is appropriate when using D prefixed terms with Documentary Credits as
few 'documents' are geared to record the passing of risks on arrival.
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DDU - Delivered Duty Unpaid
DDU is a
Multimodal term that must be further qualified by naming the place up to which
the seller is prepared to take responsibility for transport costs (and the
corresponding risks of transit). This is excluding the payment of domestic
duties and the ancillary clearance charges associated with the import process at
destination.
DDU will often financially correlate to CPT. But, for the buyer DDU represents
CPT without the disadvantages of placing risks on the buyer, over which they
have no control. (See CPT) From the seller's perspective, DDU reverses the risk
advantages of CPT, placing all risks with the seller until the cargo arrives at
the named port.
As with all of the D prefixed terms, this term is not easy to use in conjunction
with a Documentary Credit and as a multimodal term, would require the use of
Multimodal transport documents over any traditional monomodal documents such as
Bills of Lading or Airwaybills. Sellers are further cautioned that, if the intended transit is beyond the point
of entry in the country of destination, then their ability to move the goods to
the final destination may be dependent on the buyer's ability to first clear the
goods through the customs authority. The possibility of delays in transit and
any resultant storage charges (should the buyer fail to conduct clearance in
good time), should be noted. Seller's should be equally aware of additional charges which may be due for
payment resultant from local taxes which do not fall into the category of
'duty', but are nevertheless payable prior to release. DDU (and DDP) correlates closely to the generic expressions of 'free domicile',
'franco domicile' and 'free house', which are frequently used in the transport
industry. Each should be avoided due to their ambiguous nature.
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DDP - Delivered Duty Paid
DDP is a
Multimodal term that must be qualified by naming the place to which the seller
is taking responsibility for transport costs and the risks of transit. These
risks and costs include the payment of domestic duties in the buyer's country
and any ancillary charges associated with the import clearing process at
destination.
As with all of the D prefixed terms, this term is not easy to use in conjunction
with a Documentary Credit and in the case of DDP this payment difficulty extends
to any form of Exchange document. As a multimodal term, DDP requires the use of
Multimodal transport documents over monomodal documents such as Bills of Lading
or Airwaybills.
Sellers are cautioned that the payment of foreign duties and taxes may be
contrary to the Exchange Control regulations of their country and that they
should seek clarity on this point from their bank or appropriate authority.
Equally, both parties should consider VAT if payable in the buyer's country. DDP
may be modified to exclude the seller from having to pay a VAT that the buyer
could recover directly. If this is not done, the seller's price may include this
amount which otherwise could actually be recovered by the buyer. Regulations regarding sellers claiming VAT paid to foreign revenue services vary
from country to country, and there is no clear-cut position in this matter. Both
parties should seek guidance in this. Additionally, although the seller will pay Duties, the buyer would be named on
the import customs entry and will have the obligation to the domestic Customs
Authority for the accuracy of the declared tariff headings used and the rates of
duty applied. Should these subsequently prove to be incorrect the buyer will
have the obligation to bring any under recovery to account.
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DAF - Delivered At Frontier
DAF
is a monomodal (land) expression which should be further
qualified by naming the frontier (border post) up to which the seller is
prepared to take responsibility for transport costs and the corresponding risks
of transit. The frontier is deemed to be on the seller's side of the applicable
border unless the term is modified to express that the point of transfer is the
frontier on the buyer's side of the border. The seller must clear the cargo
through customs on the export side of the border of handover, whereas the buyer
must clear the goods through customs on the import side.
Because the Frontier falls on the seller's side of the border, DAF can vary from
other D terms in that the seller may not be responsible for all or even a part
of the main carriage. For example, if the transit involved the movement of cargo
through several frontiers, the seller may pass risk and responsibility at the
first of these, obligating the buyer to arrange the main carriage thereafter. As
a land term the application of DAF is for land-based operations and other D
terms such as DDU or DDP should be considered if the transaction is not
land-based. (i.e. it is not exclusively road or rail or a road/rail combination)
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