International Regulations/INCOTERMS
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Unit 4.3-International Regulations |
Introduction | ICC | UCP | eUCP | Rules for Collections | International Court of Arbitration | INCOTERMS | WTO | Summary | Resources | Activities | Assessment |
INCOTERMS
editThe Incoterms are internationally accepted commercial terms defining the respective roles of buyer and seller in the arrangement of transportation and other responsibilities and clarifying when the risk/liability for the merchandise transfers from seller to buyer. They do not define the transfer of title. They are used in conjunction with sales agreements, payment terms and other methods of transacting sales. It is very important for an international manager to understand the relationship between Incoterms quoted in a transaction and their relationship to the payment terms that have been agreed to for the transaction, since risks may change for a buyer and/or seller when these issues are analyzed.
For example, if the seller agrees to open account payment terms of Net 90 days invoice date and quotes Incoterms of CFR port of destination, the seller’s commercial risk has increased significantly. Why? In this scenario the seller will not be paid until 90 days after the invoice date and, per the Incoterms, will cover the transportation costs and maintain ownership of the goods while in transit to the port of destination; however, the seller will not be responsible for insuring the goods. Should the product be damaged during shipment, the seller is relying on the buyer to pay for the goods and submit the insurance claim and wait for reimbursement, which could happen if the buyer and seller have a good relationship. However, the seller could loose everything in this situation – the goods and payment.
Specific Incoterms have application to timely payment. Some examples of Incoterms follow:
| EXW (Ex Works) |
Title and risk pass to the buyer, including payment of all transportation and insurance cost from the seller's door. Used for any mode of transportation. |
| FCA (Free Carrier) |
Title and risk pass to the buyer, including transportation and insurance costs when the seller delivers goods cleared for export to the carrier. The seller is obligated to load the goods on the buyer's collecting vehicle; it is the buyer's obligation to receive the seller's arriving vehicle unloaded. |
| FAS (Free Alongside Ship) |
Title and risk pass to the buyer, including payment of all transportation and insurance costs once delivered alongside ship by the seller. Used for sea or inland waterway transportation. The export clearance obligation rests with the seller. |
| FOB (Free On Board) |
Free On Board and risk pass to the buyer, including payment of all transportation and insurance costs once delivered on board the ship by the seller. Used for sea or inland waterway transportation. |
| CFR (Cost and Freight) |
Title, risk and insurance costs pass to the buyer when delivered on board the ship by the seller who pays the transportation costs to the destination port. Used for sea or inland waterway transportation. |
| CIF (Cost, Insurance and Freight) |
Title and risk pass to the buyer when delivered on board the ship by the seller who pays transportation and insurance costs to destination port. Used for sea or inland waterway transportation. |
| CPT (Carriage Paid To) |
Title, risk and insurance costs pass to the buyer when delivered to carrier by the seller who pays transportation costs to destination. Used for any mode of transportation. |
| CIP (Carriage & Insurance Paid To) |
Title and risk pass to the buyer when delivered to carrier by the seller who pays transportation and insurance costs to destination. Used for any mode of transportation. |
| DAF (Delivered at Frontier) |
Title, risk and responsibility for import clearance pass to the buyer when delivered to the named border point by the seller. Used for any mode of transportation. |
| DES (Delivered Ex Ship) |
Title, risk, responsibility for the vessel discharge and import clearance pass to the buyer when the seller delivers goods on board the ship to destination port. Used for sea or inland waterway transportation. |
| DEQ (Delivered Ex Quay Duty Paid) |
Title and risk pass to the buyer when delivered on board the ship at the destination point by the seller who delivers goods on dock at destination point cleared for import. Used for sea or inland waterway transportation. |
| DDU (Delivered Duty Unpaid) |
Title, risk and responsibility of the import clearance pass to the buyer when the seller delivers goods to the named destination point. Used for any mode of transportation. The buyer is obligated for import clearance. The seller fulfills his obligation when goods have been made available at the named place in the country of importation. |
| DDP (Delivered Duty Paid) |
Title and risk pass to the buyer when the seller delivers goods to the named destination point cleared for import. Used for any mode of transportation |