INCOTERMS

The right ‘Term of Sale’

Terms of Sale serve two basic functions:

They determine who pays the costs involved in transportation
They determine where the risk passes from seller to buyer

If you are sending goods overseas by air or road using the Term of Sale 'FOB' (free on board) then, according to INCOTERMS 2000, you could be using the incorrect Term of Sale.

INCOTERMS 2000 states that FOB should only be used when sending goods by sea.

INCOTERMS a brief explanation

INCOTERMS provide a shorthand method of addressing contractual issues such as; who will bear the costs and risks associated with the delivery of the goods; to what place they will be delivered; who, if anyone, will insure them while in transit; who will pay the charges at the destination such as customs clearance, duties and taxes.

Having been in existence since 1936 (last revised in 2000), INCOTERMS are recognised throughout the world and their use is recommended by major banks, the legal profession, forwarding agents, chambers of commerce and other advisory organisations.

All professional exporters are advised to adopt the use of INCOTERMS 2000 in all overseas contracts and include them on all documents that refer to the contract, for example, pro forma invoices, commercial invoices, documentary letters of credit and so on.

INCOTERMS 2000 currently comprises of thirteen separate Terms of Sale, each with different degrees of responsibility for the seller and buyer when transporting goods.

Common mistakes

Some commonly known and widely used INCOTERMS such as FOB or C&F are misused or not fully understood by exporters. In the case of a dispute these mistakes could prove extremely costly.

A quick guide to INCOTERMS 2000

The following is an outline of the INCOTERMS definitions but should only be used as a rough guide.

For a fully comprehensive definition of all thirteen terms, we strongly recommend that you purchase a copy of INCOTERMS 2000 from your local Chamber of Commerce.

INCOTERMS 2000 your responsibility
EXW	(Ex Works..Named Place	Seller makes goods available at own premises. Pays no charges.
FCA	(Free Carrier..Named Place)	Seller delivers & pays to carrier.
FAS	(Free Alongside Ship..Named Port of Shipment).	Seller delivers & pays to carrier.
FOB	(Free On Board..Named Port of Shipment)	Seller delivers & pays on board ship.
CFR	(Cost & Freight..Named Port of Destination)	Seller arranges carriage and pays to Port or named place. Arranges Insurance if appropriate.
CIF	(Cost Insurance & Freight..Named Port of Destination)
CPT	(Carriage Paid to..Named Place of Destination)	Arranges insurance if appropriate.
CIP	(Carriage & Insurance Paid to..Named Place of Destination.)
DAF	(Delivered at Frontier..named Place)	Seller bears all costs & risks to named destination
DES	(Delivered Ex Ship..Named Port of Destination)
DEQ	(Delivered Ex Quay,Duty Paid..Named Port of Destination)
DDU	(Delivered Duty Unpaid..Named Place of Destination.)
DDP	(Delivered Duty Paid..Named Place of Destination.)

Please note

It is vital to ensure both seller and buyer are fully aware of their legal obligations under the agreed Terms of Sale. To avoid misunderstanding it is recommended that INCOTERMS 2000 are used and reference is made to such use on the contract of sale, plus all other relevant documents, i.e. pro-forma invoices, commercial invoices, documentary letters of credit etc. You should also ensure the correct INCOTERM is used so that in the event of any dispute, you have fulfilled your obligations under the chosen Term of Sale.

INCOTERMS from only part of the overseas contract of sale dealing solely with transportation. They are not a substitute for written trading conditions which should refer to other issues such as your right to retain ownership of the goods until paid for, payment terms, method of payment, the right to charge interest on overdue payments or liability for defective products etc.

For more information about INCOTERMS or how Future Forwarding can work with you to ensure your export needs are met please call +44 113 281 0050 or complete our online contact form.

Information

> Why Use An Agent?
> What Do They Need?
> Marine Insurance
> INCOTERMS

Futrack - Future Forwarding Worldwide Track and Trace System

> Terms and Conditions