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OTAL Services > Customer Literature > Incoterms
What are Incoterms?
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Incoterms are a set of international rules for the interpretation of the most
commonly used trade terms. There are 13 main terms and several secondary terms.
These denote the points at which shipper, carrier and consigneee risk and responsibility
start and end.
This set of international rules was first published in
1936 known as "INCOTERMS
1936" by the International Chamber of Commerce. Incoterms are amended
every 10 years.
Incoterms are recognized globally by courts and other authorities.
Frequently, parties to a contract are unaware of the different trading practices
in their
respective countries. This lack of knowledge can lead to misunderstandings
and disputes between customer and supplier. The incorporation of Incoterms
in international sales contracts reduces this risk.
To access a comprehensive
flyer detailing buyers and sellers obligations click
here. (This file is in pdf format which can be read using
acrobat reader).
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Incoterms
2000 - How Will This Effect You
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As of January 1st 2000 a new set of Incoterms will apply. Included in these
are six minor differences which could prove costly if ignored.
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DDP
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Delivered Duty Paid - Delivery takes place on the premises
of the buyer where the arriving vehicle cargos are discharged from
the vehicle.
If delivery takes place elsewhere, delivery is completed by loading
the cargo onto the vehicle sent by the buyer to collect the goods.
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DDU
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Delivered Duty Unpaid - Delivery takes place on the
premises of the buyer, still loaded on the arriving vehicle.
If delivery takes place elsewhere, delivery is completed by loading
the cargo onto the vehicle sent by the buyer to collect the goods.
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DEQ
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Delivered Ex Quay - The obligation for customs clearance
and payment of of import duties will change from the seller/exporter
to the buyer/importer at the named port of destination.
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EXW
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Ex Works - The responsibility for loading cargo onto
a collecting vehicle at the sellers/exporters premises is no longer
the obligation of the seller/exporter. The buyer is now responsible.
If there is more than one loading area at the sellers premises the
seller has the option to designate any one of them for loading.
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FAS
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Free Alongside Ship - The obligation of customs entry
and obtaining an export license will change from the buyer/importer
to the seller/exporter at the named port of sailing.
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FCA
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Free Carrier - This defines two possibilities.
1. Delivery to the carrier at the premises of the seller, when the
latter is under the obligation to load the cargo onto the vehicle
of the carrier.
2. Delivery to the carrier at any other point such as a terminal, quay...etc,
where the carrier on behalf of the buyer is responsible for discharging
the shipment from the vehicle sent by the seller.
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The
Thirteen Incoterms: 1990
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CFR
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Cost and Freight* |
As for CIF except that the cost of insurance is covered
by the buyer. |
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CIF
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Cost, Freight and Insurance* |
Cost of goods plus insurance and freight, duty unpaid, to a named port
of destination. Sea or inland waterway transport only. |
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CIP
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Carriage and Insurance Piad To |
Costs of carriage and insurance of the goods, duty unpaid to the named
destination. Applies to all modes of transport. |
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CPT
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Carriage Paid To |
As for CIP, except the cost of insurance is carried by the buyer. |
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DAF
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Delivered at Frontier |
Costs of delivery, duty unpaid at the named point and place at the
frontier. Applies to all modes of transport. |
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DDP
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Delivered Duty Paid |
Costs of delivery, including duty, paid up to a named place in the
country of importation. Applies to all modes of transport. |
| DDU |
Delivered Duty Unpaid |
As for DDP, except that the buyer pays the import duty. |
| DEQ |
Delivery Ex Quay* |
Costs of delivery, duty paid, to the named port of destination. Sea
or inland waterway transport only. |
| DES |
Delivered Ex Ship* |
Costs of delivery on board the vessel, duty unpaid, at the named port
of destination. Sea or inland waterway transport only. |
| EXW |
Ex Works |
The goods are made available to the buyer at the exporter's premises,
suitably packed unless otherwise arranged for a known means of transport. |
| FCA |
Free Carrier |
Cost of delivery, cleared for export, into the charge of the carrier
named by the buyer at the named place or point. Allied mostly to air
and rail transport but could be used for all modes. |
| FAS |
Free Alongside Ship* |
All cost up to delivery on quay or in lighters (barges) at the named
port of shipment. Sea or inland waterway transport only. |
| FOB |
Free On board* |
All costs up to delivery over the ships rail at the named port of shipment.
Sea or inland waterway transport only. |
* These terms are for maritime transport only. The other
terms apply to all transport modes.
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Guidelines
to Using Incoterms
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- Always specify which terms are applicable ie FAS in Incoterms 2000 as opposed
to Incoterms 1990.
- When completing documents ensure that you are using the correct
format of a term. The term CFR is persistently misused/replaced with C&F
or C+F.
C+F has never exsisted.
C&F did exsist but was replaced with CFR in 1980. If C&F
is used by mistake a court of law will use the pre 1980 meaning of the
term which
is very different from the current meaning of CFR as in Incoterms 1990
and Incoterms 2000.
- Urge your trading partners to confirm their acceptance of the specified
term in writing.
- Draw up a check list of your duties and rights under the selected
term and check that every intended or completed transaction conforms to this
list,
and that nothing is omitted.
- Request your trading partner to do the same, and exchange
this information with them.
- Change or add nothing, but in any event as little as possible
to the selected term.
- In case of any inevitable change or addition, inform your
trading partner and request them to accept it in writing. Such an addition
could be 'stowed
and trimmed' to FOB.
- Compare your duties and rights under the selected Incoterm(s) with your
company's standard terms of sales (or purchase), to make sure that there
are no conflicts. If your business is run under standard conditions established
by a trade body or similar association, request that this association amend
its terms on behalf of all the membership.
- In the event of such conflict(s), amend your standard conditions, rather
than the Incoterm(s), in order to remedy the problem. If the standard conditions
are those of an association, act similarly through this association.
- Never instruct the carriers or any third party to do or omit anything on
the basis of the Incoterms which do not apply to them at all.
- Inform your bank and insurance company which Incoterm(s) have
been selected for your business, so that they can determine exactly what
your duties and
rights are with regard to a transaction in which they may have a role to
play.
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