INCO term is a worldwide-accepted commercial term that defines the respective roles of the buyer as well as of the seller in the arrangement of the transportation and other responsibilities and it also clarifies when the ownership of the merchandise takes place. These INCO terms are used in conjunction with a sales contract or other method of transacting the deal.
TERMS FOR ANY TRANSPORT MODE
EXW Ex Works:
The seller ‘delivers’ when he or she places the goods at the disposal of the buyer at the seller’s premises or another named place. The goods will not have been cleared for export and not loaded onto any collecting vehicle. Under Ex-Works, the seller has no obligation to load the goods.
FCA Free Carrier:
The seller delivers the goods, cleared for export, to the carrier nominated by the buyer at the named place. It should be noted that the chosen place of delivery has an impact on the obligations of loading and unloading the goods at that place. If delivery occurs at the seller’s premises, the seller is responsible for loading. If delivery occurs at any other place, the seller is not responsible for unloading.
CPT Carriage Paid To
The seller delivers the goods to the carrier nominated by him or her but the seller must, in addition, pay the cost of carriage necessary to deliver the goods to the named destination.
CIP Carriage And Insurance Paid To
The seller delivers the goods to the carrier nominated by them but the seller must in addition pay the cost of carriage necessary to deliver the goods to the named destination and also pay the necessary insurance. Here the seller is obliged to provide only minimum coverage, i.e. cover for loss or damage between the point of departure and the destination stipulated”.
DAT Delivered At Terminal
Delivered At Terminal: the seller is considered to have delivered when the goods, once unloaded from the arriving means of transport, are placed at the disposal of the buyer at the named terminal at the named port or place of destination. Terminal in this case includes any place, whether covered or not, such as a quay, warehouse, container yard or road, rail or air cargo terminal. Under this term, the seller must bear all costs and risks in bringing the goods to and unloading them at the terminal at the named port of destination. In addition to these obligations, the seller must also clear the goods for export under what is generally referred to as ‘Export Clearances’, where applicable. However, the seller has no obligation either to clear the goods for import or to pay any import duty or carry out any import customs formalities.
DAP Delivered At Place
The seller is considered to have delivered when the goods are placed at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination. The critical part of this new Inco term is that all parties under what circumstances must clearly specify as clearly as possible the point within the agreed place of destination as the risks to that point are the account of the seller. In this regard, it is also very important to note that since the seller under DAP is responsible the procuring the contract of carriage he or she has to make sure that he or she procures the contracts of carriage that matches and conform precisely to the buyers choice.
DDP Delivered Duty Paid
The seller delivers the goods to the buyer, cleared for import and not unloaded from any arriving means of transport at the named place of destination. Under DDP, there is maximum obligation to the seller and, on the other hand, this option allows minimum obligation on the buyer. The only responsibility of the buyer under DDP is to offload at the delivery place. General guidance as a seller is to never contract under DDP. If the seller is unable to directly or indirectly obtain import clearances DAP is recommended. Any VAT or other taxes payable upon import are for the seller’s account unless expressly agreed otherwise in the sales contract.
MARITIME-ONLY TERMS
FAS Free Alongside Ship
The seller is considered to have delivered when the goods are placed alongside the vessel at the named port of shipment. This means that the buyer has to bear all costs and risks of loss of or damage to the goods from that moment. The seller should select a point other than physically ‘alongside the ship’ it is essential that under FAS the buyer indicates a loading point at the named port of shipment and give the seller sufficient notice of the vessel’s name, loading point and, where necessary, selected delivery time within the agreed period. In the event that the buyer fails to give these details, the seller may use his discretion to select a point that best suits his purposes; but, in any case, that point should be alongside the ship. In the event that the buyer has given an indication of the loading point but later wishes to change these instructions, the seller is not obliged to cover the cost of transferring the goods to a new loading point, if the seller has acted in line with the buyer’s first instruction.
FOB Free On Board
The seller is considered to have delivered when the goods are placed on board the ship at the named port of shipment. Most will no longer use FOB/CFR/CIF for container-loaded goods. This is because, where goods in a container are sold FOB, the container is typically handed over by the seller at a container yard or warehouse, which is in practice the appropriate delivery point. Under FOB, the seller bears all the costs, risks of loss of and damage to the goods until they are delivered by being placed on board the vessel, it is recommended that for all containerized goods, buyers should opt for Inco terms such as FCA, CPT or CIP.
CFR Cost and Freight
The seller is considered to have delivered when the goods are placed on board the ship in the port of shipment. The seller must, in addition, pay the cost of carriage necessary to bring the goods to the named destination. Although under this Inco term the issue of insurance is silent, it is assumed that the buyer purchases his or her own insurance.
CIF Cost, Insurance, and Freight
The seller is considered to have delivered when the goods are placed on board the ship in the port of shipment and also pays the necessary freight and insurance (CIF). It is important to note that contracts placed CIF relieve the buyer of the task of making insurance arrangements. However, the disadvantages are many: under CIF the supplier is obliged only to buy the cheapest insurance coverage, with minimal coverage and conditions that may make a claim difficult.
Incoterms and the transfer of risk
It is necessary for an individual to decide whether to retain risk or endeavor to transfer it to the other party. The most common form of risk transfer is by means of insurance, which changes an uncertain exposure to a certain cost, i.e. premium that can be budgeted for. In normal circumstances, insurance premiums include provision for insurers’ overheads and profit plus contributions for the catastrophe element. When dealing with Inco terms, every individual, company or government department is exposed to a wide range of risks. It is inevitable, by nature of probability that financial loss will occur eventually. The Inco term you select for a particular situation should assist you in minimizing the risk exposure for your company and in the most cost effective manner available.