Incoterms Shipping Terms

Incoterms

The purpose of Incoterms is to provide a set of international rules for the interpretation of the most commonly used trade terms in foreign trade. Thus, the uncertainties of different interpretations of such terms in different countries can be avoided or at least reduced to a considerable degree. The scope of Incoterms is limited to matters relating to the rights and obligations of the parties to the contract of sale with respect to the delivery of goods. Incoterms deal with a number of identified obligations imposed on the parties and the distribution of risk between the parties. In total 13 Incoterms have been defined which are grouped into four basically different categories, applicable for sea and inland waterway transport or for all modes of transport:

Applicable for sea
transport only
Applicable for all modes of
transport (including water)
Departure term EXW (Ex Works)
Shipment term, main carriage unpaid FAS (Free Alongside Ship)
FOB (Free On Board)
FCA (Free Carrier)
Shipment term, main carriage paid CFR (Cost and Freight)
CIF (Cost, Insurance and Freight)
CPT (Carriage Paid To)
CIP (Carriage and Insurance Paid to)
Delivery term DES (Delivered Ex Ship)
DEQ (Delivered Ex Quay)
DAF (Delivered At Frontier)
DDU (Delivered Duty Unpaid)
DDP (Delivered Duty Paid)

From top (EXW) to bottom (DDP) the point of transfer in the transport chain moves from the sellers premises to the buyers place. The second and third group specify the shipment conditions, with freight and insurance unpaid or paid. For the first 3 groups the risk of loss or damage during (sea) transportation are with the buyer of the goods, whereas for the fourth group all risks up to delivery are with the seller of the goods.

EXW (Ex Works) – Seller provides goods in his factory yard. Buyer is responsible for all the rest, including loading the goods onto trucks in the seller’s yards. Best to add: “loaded upon departing vehicle”.

FCA (Free Carrier) – Seller provides export licenses, customs clearances and port documents to first carrier (determined by buyer) in an agreed location within the export country. Useful for Multi Modal Transport (MMT) in land, air, or sea. Seller pays all port and customs inspection expenses. Seller’s responsibility ends with delivery to carrier. Buyer pays all expenses from point of delivery (transport, insurance, special inspections).

FAS (Free Alongside Ship) – Seller delivers goods to a loading quay, alongside a ship, in an agreed port in export country. Buyer obliged to clear goods for export after having received loading documents from seller. Buyer pays all port expenses and expenses related to required documentation. Use only for marine freight.

FOB (Free On Board) – Seller delivers customs-cleared goods with bill of lading, export license, all taxes and duties paid clean (unharmed) on board a vessel. Seller pays all expenses until goods are clean on board. Buyer determines carrier and pays the carriage (including loading expenses if part of the transport costs). Marine freight only. Best to add: “stowed and trimmed”.

CFR (Cost and Freight) – Seller pays all expenses and transport costs to port of discharge. But responsibility for damage or loss or additional expenses is buyer’s after goods loaded and stowed under deck. Seller obtains customs and port clearances, licenses, contracts with the carrier and with the insurance company regarding transport of goods to the point of loading. Buyer must obtain the import licenses, release the goods in port of discharge, issue insurance and pay for transit and inspection of goods. Marine freight only.

CIF (Cost, Insurance, Freight) – Seller arranges marine freight insurance for buyer and provides buyer with valid insurance policy in addition to obligations under CFR. Unless otherwise agreed, seller buys a limited “C” policy. Best to add: “free out”. It is important to mention the type of insurance and coverage sought by buyer.

CPT (Carriage Paid To) – Similar to CFR but when MMT involved (car, train, ship and then airplane, for instance). Instead of On Board – use First Carrier.

CIP (Carriage and Insurance Paid To) – Similar to CIF but when MMT is involved. Responsibility reverts to buyer when goods delivered to First Carrier.

DAF (Delivered At Frontier) – Seller to deliver export cleared goods at a precise point at the border of either import or export country. Buyer obliged to clear goods through customs terminal, to obtain import license and to bear all import related duties, fees and charges. Seller must inform buyer ETD (Expected Time of Delivery) and precise location of delivery. If preceded by international marine or air transport, point of delivery will follow the Main Carriage (used in train transport).

DES (Delivered Ex Ship) – Marine freight only. Seller must deliver export cleared goods to buyer on board a ship in port of discharge but has no responsibility to clear the goods for import in the destination country, to unload them and to ship them to final destination within the buyer’s country.

DEQ (Delivered Ex Quay) – Marine freight only. Seller must deliver goods buyer outside the quay after unloading them from the ship and clearing them for import through port authorities and customs. Seller pays import taxes and port expenses. Seller must provide buyer with bill of lading and gate pass. Buyer must transport goods to his yards and if he does not must pay demurrage and warehousing.

DDU (Delivered Duty Unpaid) – Seller must deliver goods to buyer in a location within the destination country but buyer must clear them for import through the port and customs authorities. Buyers must pay all taxes and expenses related to the clearance.

DDP (Delivered Duty Paid) – Seller must deliver goods directly to buyer’s location (or to any other address) after having fully cleared them for import and fully paid all taxes and expenditures related to such clearance. Best to add: “DDP-VAT unpaid” in case seller does not agree to pay the VAT.

For a full description of all obligations and risks associated with a specific term, please refer to INCOTERMS 2000 as published by the International Chamber of Commerce.

Bill of Lading (B/L)

Marine Bill of Lading (MBL) is:

  • Proof of receipt of goods in a certain condition
  • Proof of existence of transport contract
  • MBL facilitates the transfer of ownership
  • Negotiable, transferable and assignable

MBL is subject to the Hague conditions and MUST INCLUDE:

  • Name and address of sender
  • Port of loading and Port of discharge
  • Date of lading and place of issuance of bill of lading
  • Name of vessel and number of voyage
  • Identity marks of cargo
  • Description of goods – number of packing units, weight, volume
  • Condition of goods – statement of carrier (if not stated – the goods are in good condition)
  • “Clean on Board” not “Foul”

A Marine Bill of Lading must include these to be valid:

(a)   The words “bill of lading” and the words “lading” or “shipped” (which prove that goods have been loaded on board vessel)

(b)  Date of loading

(c)  Confirmation of the shipping company

(d)  Numbers of original bills of lading, if any

(e)   The words “Clean on Board”

(f)    Name of the shipper

(g)  Name of the consignee or “To Order” (of the shipper) together with endorsement of the shipper

(h)  Name of vessel

(i)     Port of loading, final destination and is re-loading required

(j)     Name of parties to be notified upon arrival to the port of discharge

(k)  Marks and numbers stamped on the packages

(l)     Abbreviated description of the goods (weight, number of units and volume / mass)

(m)           How many original copies of the MBL are there and is the presentation of all original copies required to in order to release the goods

Types of Bills of Lading (BL)

Shipped BL – Goods are on deck of ship

Received for Shipment – Prior to loading onto ship

Direct BL – From origin to destination, transshipment not allowed

Ocean Through BL – In case of transit involving a few carriers. In such a case, each carrier imposes its own conditions on each leg of the voyage and for the limited duration it handles the cargo.

Pure Through BL – First carrier must transport from port of loading to a mid-point and is responsible for damages to the goods.

Combined Transport BL – Pure BL which covers shipment by all means of transport (sea, air, land).

Forwarder BL – An agent’s BL. Issued by an international forwarder.

Freight Forwarder BL – BLs of the International Forwarders Association – FIATA

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