INCOTERMS - More JargonNov 01, 2018
Most professions love their jargon, personally I hate jargon I feel it’s use to confuse or make people feel superior as such I always try and explain things in simple plain English. However there are times when you cant avoid a bit of jargon and import and transportation is one of these areas. So import and transportation have their own repertoire of jargon known has INCOTERMS refer to the set of international rules for the interpretation of the chief terms used in foreign trade contracts first published by the International Chamber of Trade in 1936 (now International Chamber of Commerce) and amended in 1953, 1967, 1976, 1980, 1990 and 2000. Although the use of INCOTERMS is optional, they can reduce difficulties encountered by importers and exporters.
So now you know what they are, that they are optional let’s jump into some of the common abbreviations, terms used and outline their actual interpretations.
Caveats this list is non-exhaustive, some of these terms are widely misconstrued ie see FOB.
EXW - Ex Works
The buyer pays all costs and bears all risk involved in taking the goods from the seller's premises to the desired destination. The seller's obligation is to make the goods available at their premises. We generally use this for goods we have in our warehouse in the UK. FCA - Free Carrier The seller's obligation is to hand over the goods, cleared for export, into the charge of the carrier named by the buyer at the named place or point. The image at the bottom can be a little misleading as it refers to importing whereas EXW can be from the UK for example there's no import duty liability for the buyer .
FOB - Free On Board
The seller must load the goods on board the vessel nominated by the buyer. Cost and risk are divided when the goods are actually on board of the vessel. The seller must clear the goods for export. The term is applicable for maritime and inland waterway transport only but NOT for multimodal sea transport in containers (see Incoterms 2010, ICC publication 715). The buyer must instruct the seller the details of the vessel and the port where the goods are to be loaded, and there is no reference to, or provision for, the use of a carrier or forwarder. This term has been greatly misused over the last three decades ever since Incoterms 1980 explained that FCA should be used for container shipments. I must admit we use the term FOB when we should be using FCA.
CFR - Cost and Freight
The seller must pay the costs and freight required in bringing the goods to the named port of destination. The risk of loss or damage is transferred from seller to buyer when the goods pass over the ship's rail in the port of shipment. The seller is required to clear the goods for export.
CIF - Cost, Insurance & Freight
The seller has the same obligations as under CFR however he is also required to provide insurance against the buyer's risk of loss or damage to the goods during transit. The seller is required to clear the goods for export.
CPT - Carriage Paid To
The seller pays the freight for the carriage of goods to the named destination. The risk of loss or damage to the goods occurring after the delivery has been made to the carrier is transferred from the seller to the buyer. This term requires the seller to clear the goods for export.
CIP - Carriage & insurance Paid
The seller has the same obligations as under CPT but has the responsibility of obtaining insurance against the buyer's risk of loss or damage of goods during the carriage. The seller is required to clear the goods for export however is only required to obtain insurance on minimum coverage. This term requires the seller to clear the goods for export.
DDP - Delivered Duty Paid
The seller is responsible for delivering the goods to the named place in the country of importation, including all costs and risks in bringing the goods to import destination. This includes duties, taxes and customs formalities. This term may be used irrespective of the mode of transport.