International Trade Terms

INTERNATIONAL MARKETING

Section 1-E

International Trade Terms

        To facilitate better understanding among countries, the ICC (International Chamber of Commerce) has provided international rules for the interpretation of commonly used words the “International Rules for the Interpretation of Trade Terms”.

INCOTERMS (International Commercial Terms) – these delineates the responsibilities of the seller (or exporter) to the buyer (or importer).

There are 13 incoterms categorized into 4 groups:

A.      Departure (E) – release of goods by the seller to occur at the sellers’ location.

1.       EXW – Ex-Works Factory

-          The seller is responsible for the goods only inside/within the factory premises. The responsibility for the goods is transferred to the buyer once he picks up from the seller’s factory. 

-          The seller fulfills his obligation when he has made the goods available at his premises (warehouse or factory) with packaging.

-          The seller is not responsible for loading the goods on a ship, airline or any kind of transport.

-          The seller is not responsible for loading the goods on vehicle provided by the buyer or for clearing the goods for export, unless agreed upon.

-          The buyer bears all the costs and risks in taking the goods from seller’s premises to the specified destination, including the name and contracting of carriage that will bring them to his country.

-          For the price quotation (EXW) Read: USD 3.50 EXW (warehouse or location)

B.      Main Carriage Unpaid by the Seller (F)

2.       FCA – Free Carrier Arrangement

-          The arrangement between seller and buyer just like FOB Port of Shipment. However, this term can be used for any mode of transport.

-          The risk is transferred to the buyer when the delivery of goods has been made at a destination previously outlined by the buying party.

There are actually two FCA terms:

1.       FCA Seller’s Premises – where the seller is responsible only for loading the goods and not responsible for inland freight.

2.       FCA Named Place (International Carrier) – where the seller is responsible for the inland freight.

3.       FAS – Free Alongside Ship, Named Ocean Port of Shipment

-          This can only be used for LCL (less than a container) shipments. It cannot be used for containerized shipments.

4.       FOB – Free on Board Vessel, Named Ocean Port Of Shipment

-          This term is used for ocean shipments only where it is important that the goods pas the ship’s rail. Applicable only for sea shipments.

-          The risk is transferred to the buyer when the cargo passes the ship’s rail.

-          The seller fulfills his obligation to deliver when the goods have passed the ship’s rail at the named port of shipment until brought inside the ship.

-          The buyer has to bear all costs and risks of loss/damages to the goods form that point.

-          The buyer names the carrier and pays the freight cost.

Question: If in the process of loading, the goods fall. Answer: It depends on where it falls.

          The seller is responsible when the damage or breakage happened before they are loaded inside the ship.

          A third party, the friendly freight forwarder or the shipping company. ( Freight Forwarders

offers handling, documentation & facilitation, Arrastre and Port Services

Price Quotation read: USD 4.10 FOB (named port of destination)

C.      Main Carriage Paid by the Seller (C)

5.       CFR – Cost and Freight, named ocean port of destination. This term is used for ocean shipments that are not containerized.

-          The seller must pay the costs and freight necessary to bring the goods to the named port of destination.

-          The risk of loss or damage to the goods, as well as any additional due to any event occurring after the time the goods has been delivered on board the vessel, is transferred from the seller to the buyer when the goods pass the ship’s rail port of shipment.

-          It is actually FOB port of shipment plus the freight cost. In effect, the price of the product for export becomes more expensive since the exporter will put the cost as part of the quoted price.

-          It is used for LCL(less than a container) shipments.

-          Price quotation read: USD 5.10 CFR…(named port of destination)

6.       CIF – Cost Insurance and Freight, named ocean port of destination. This term is used for ocean shipments that are not containerized.

-          The seller has the same obligation as those under CFR Port of Destination, but with addition that he has to procure marine insurance against the buyer’s risk insurance and pays the insurance premium.

-          The buyer should note that under this term, the seller is only required insurance on minimum coverage.

-          This term requires the seller to clear goods for export.

-          This is an extension of CFR Port of Destination with marine insurance included. Thus, the insurance cost is an added increase again on the price of the product for export.

-          It can only be used for LCL ocean-bound shipments.

-          Price quotation read: USD 5.20 CIF…(named port of destination)

7.       CPT – Carriage Paid To, named place or port of destination. This term is used for air or ocean containerized and roll-on/roll-off shipments.

8.       CIP – Carriage Insurance Paid To, named place and port of destination. This term is used for air or ocean containerized and roll-on/roll-off shipments.

D.      Arrival at Stated Destination (D)

9.       DAF – Delivered At Frontier, named place of destination, by land, not unloaded. This term is used for any mode of transportation, but goods must be delivered by land.

10.   DES – Delivered Ex-Ship, named port of destination. This term is used for ocean shipments only.

11.   DEQ – Delivered Ex-Quay, named port of destination. For ocean shipments only.

12.   DDU – Delivered Duty Unpaid, named place of destination. For any mode of transport.

13.   DDP – Delivered Duty Paid, named place of destination. Used for any mode of transport.

“ The difference among them are the costs, risks, insurance and documents to be handled by either

     the exporter or the importer.” 

EXW

FCA

FAS

FOB

CFR

CIF

CPT

CIP

DAF

DES

DEQ

DDU

DDP

Services

Warehouse Storage

S

S

S

S

S

S

S

S

S

S

S

S

S

Warehouse Labor

S

S

S

S

S

S

S

S

S

S

S

S

S

Export Packing

S

S

S

S

S

S

S

S

S

S

S

S

S

Loading Charges

B

S

S

S

S

S

S

S

S

S

S

S

S

Inland Freight

B

B/S

S

S

S

S

S

S

S

S

S

S

S

Terminal Charges

B

B

S

S

S

S

S

S

S

S

S

S

S

Forwarder’s Fees

B

B

B

B

S

S

S

S

S

S

S

S

S

Loading on Vessel

B

B

B

S

S

S

S

S

S

S

S

S

S

Ocean/Air Freight

B

B

B

B

S

S

S

S

S

S

S

S

S

Charges on Arrival at Destination

B

B

B

B

B

B

S

S

B

B

S

S

S

Duty, Taxes and Customs Clearance

B

B

B

B

B

B

B

B

B

B

B

B

S

Delivery to Destination

B

B

B

B

B

B

B

B

B

B

B

S

S

Table E-1 - Shows the responsibility of the S(seller) and B(buyer) for each of the 13 INCOTERMS.