International Commercial Terms
When goods are sent from a seller to a buyer, each party has to know exactly which of the costs and risks of transportation he had to bear. In order to avoid disagreements, the sales contract usually stipulates1 one of the thirteen terms of delivery developed by the International Chamber of Commerce (ICC) in Paris. These are known as Incoterms (International Commercial Terms) to define sellers' and buyers' responsibilities. The first version was introduced in 1936 and the present dates from 2000. Determinants of the choice of Incoterms are modes of transportation/intermodal, risk, location, buyer/seller relations, ability to arrange transport, nature of the cargo. In general, the choice of Incoterms is the exporter’s decision.
Incoterms are grouped into four groups according to the first letters:
Group E – Departure: the passing point of cost ad risk is when the goods leave the seller’s premises
EXW Ex-Works (named place): This term represents the maximum obligation for the buyer: the seller has the goods ready for collection at his factory, and the buyer has to cover all costs and bear all risks until they reach his warehouse. It can be used for all forms of transport.
Group F – Main Carriage Unpaid: the buyer pays the freight (carriage) costs
FCA Free carrier (named place): The seller delivers the goods cleared for export, into the custody of the first carrier (named by the buyer) at the named place (this is the point at which the passing of risk and costs from the seller to the buyer occurs). The buyer arranges and pays for transportation, freight and insurance. This term is suitable for all modes of transport, including carriage by air, rail, road, and containerised / multi-modal transport.
FAS Free alongside ship (named loading port):The seller must clear the goods for export and pays for transportation of the goods to the port of shipment, The buyer pays for everything else (loading, freight, insurance, unloading and transportation from the port of destination to his warehouse). The passing of risk occurs when the goods have been delivered and placed alongside the ship at the named port. Suitable for maritime transport only.
FOB Free on board (named loading port): The seller must load the goods on board the ship nominated by the buyer, cost and risk being divided at ship's rail. The seller must clear the goods for export. The exporter’s liability for goods ceases once they are delivered to the carrier. Maritime transport only. It also includes air transport when the seller is not able to export the goods on the schedule time mentioned in the letter of credit. In this case the seller allows a deduction of sum equivalent to the carriage by ship from the air carriage.
Group C – Main Carriage Paid: the seller pays the carriage costs.
CFR Cost and freight (named destination port): The exporter pays the ocean shipping/air freight costs to bring the goods to the port of destination. (For example, C&F Los Angeles: the exporter pays the ocean shipping/air freight costs to Los Angeles). However, risk is transferred to the buyer once the goods have crossed the ship's rail. Maritime transport only.
CIF Cost, insurance, and freight (named destination port):Exactly the same as CFR except that the seller must in addition procure and pay for insurance for the buyer. Maritime transport only.
CPT Carriage Paid To (named place of destination): The general/containerised/multimodal equivalent of CFR. The seller pays for carriage to the named point of destination, but risk and freight costs pass when the goods are handed over to the first carrier. The buyer arranges and pays for transportation and insurance.
CIP Carriage and Insurance Paid To (named place of destination): The containerised transport/multimodal equivalent of CIF. Seller pays for carriage and insurance to the named destination point, but risk passes when the goods are handed over to the first carrier.
Group D – Arrival: the passing point of cost and risk is on arrival in the buyer’s country
DAF Delivered at Frontier (named place): This term can be used when the goods are transported by overland transport (rail and road). The seller covers all costs and bears all risks until the goods reached a named point at the frontier. The passing of risk occurs at the frontier. The buyer pays all costs and bears all risks involved in transporting the goods from the frontier to his warehouse. He also pays duty and arranges for customs clearance.
DES Delivered ex ship (named port): The seller and the buyer share the costs exactly as described under CIF. The difference is in the passing of risk; this occurs after the ship has arrived at the port of destination and the goods made available for unloading to the buyer. Costs for unloading the goods and any duties, taxes, etc… are for the buyer. A commonly used term in shipping bulk commodities, such as coal, grain, dry chemicals.
DEQ Delivered ex Quay (named port): This is similar to DES, but the passing of risk does not occur until the goods have been unloaded at the port of destination.
DDP Delivery Duty Paid (named destination place): This term means that the seller pays for all transportation costs and bears all risk until the goods have been delivered and pays the duty. Also used interchangeably with the term "Free Domicile". This Incoterms constitutes the seller’s maximum obligation.
DDU Delivered Duty Unpaid: (named destination place)
The seller delivers the goods to the buyer to the named place of destination in the contract of sale. The goods are not cleared for import or unloaded from any form of transport at the place of destination. The buyer is responsible for the costs and risks for the unloading, duty and any subsequent delivery beyond the place of destination.
Thus, some terms are only for carriage by sea: FAS, FOB, CFR, CIF, DES, DEQ. For containerized manufactured goods: FCA, CPT or CIP. For break-bulk: EXW, FAS, FOB, CFR, CIF, DES, DEQ, DDU, DDP (not FCA, CPT, CIP, DAF) are used. EXW, DDU, DDP: for any cargo.
6. Give English equivalents for the words and phrases given below. Make up your own sentences with them:
доставить партию товара, оплатить таможенную пошлину, организовать отправку груза, перевозить товар с границы до склада, перевозка товара воздушным транспортом, плата за перевозку груза, порт погрузки, сквозная доставка товаров, товары, причал; переход, передача риска; порт погрузки; организовать отправку груза; возмещать; перила судна, леер; грузовой перевозчик; разгружать; склад; завод; поручни судна; наземный транспорт; порт назначения; первый перевозчик; максимальное обязательство; оплатить страховку.
7. Complete the sentences using words and expressions given below:
seller; destination; pay; buyer; carrier; obligation; shipment; carriage; transit; goods; contract; carrier
1. In the international trade transaction three parties are involved, the seller, the buyer and the ………….1.
2. One of the main purposes of Incoterms is to provide for the different roles of the parties in relation to the ……………2 of carriage.
3. While under the terms starting with the letter C or D it is for the ………….3 to make the contract with the………….4, under the trade terms starting with the letter E or F it is for the ………………..5 to do so.
4. If the seller has concluded a contract of carriage under the D-terms he must be in control during the entire ……………6 to the place where the……….7 are to be delivered to the buyer.
5. It is the seller’s ………………..8 to ensure that the goods can be delivered to the buyer at the indicated place of…………...9.
6. If something goes wrong during the ………….10 it is the seller's risk as distinguished from the situation where he merely has to arrange and …………11 for the carriage under the ……………..12 terms starting with the letter C.
8.Answer the questions:
What is the aim of Incoterms?
What Incoterm is suitable for all modes of transport?
Can you name the terms which are suitable for rail and road transport?
DAF can be used for transporting cargo by rail and by road. True or False?
DDP is the most favourable Incoterm for the buyer, isn’t it?
Do Incoterms state what means of transportation should be used?
Different Incoterms mean different costs, risks and responsibilities both for the seller and the buyer, don’t they?
Ex works means that the seller has the smallest responsibility. Is it true?
What Incoterms are meant for sea and inland waterway transport only
9. Translate the sentences using the text “International Commercial Terms”:
1. Инкотермс разделены на четыре групп (E, F, C и D) по моменту исполнения продавцом своей обязанности относительно поставки товара.
2. Группа E включает термины, охватывающие отгрузку: товар передается покупателю непосредственно в месте нахождения продавца.
3. Термины группа F подразумевают, что основная перевозка продавцом не оплачивается.
4. Группа C означает, что основная перевозка оплачивается продавцом.
5. К группе D относятся термины, связанные с прибытием товара.
10. Rewrite the sentences into reported questions, like this (See Language Notes):
1. Could you give me a quotation CIF? (He asked her if (whether) she could give him a quotation CIF).
2. She asked them “Do you send containerized goods?”
3. He asked Jack “Have you arrived at the port?”
4. They told us “Please, place the cargo alongside ship”.
5. She asked him “What’s your address?
6.He asked me “Does the price include insurance?”
7. She asked him “Let me know about the delivery as soon as possible”.
8. She asked him “Have you ever exported to Austria?”