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What are "Incoterms" and Why Use Them?
INCOTERMS are an International set of rules for the interpretation of the most commonly used International trade terms. These terms are used to help eliminate the uncertainties in the different interpretations of such trade terms in language and different countries.
If you are new to shipping contracts you may be unaware of the different trading practices in their respective countries. A small misunderstanding could lead to disputes over who was meant to pay for the overseas freight, insurance or other costs involved in the shipment of goods.
To avoid confusion the International Chamber of Commerce published (1936) a set of International rules for standard trade terms known as Incoterms. Since 1936 regular amendments and updates (1953, 1967, 1976, 1980 and 1990) have been made to keep all practices and terms current
Below is a very brief summary of the major Incoterms terms used. For a full set of Incoterms terms, please call World Wide on +61 3 9329 2622 or email us.
Major Incoterms
Cost and freight (c. and f.): price includes f.o.b. plus sea or airfreight charges.
Cost, freight and commission (c.f. and c.): cost, freight and commission.
Cost, insurance, freight (c.i.f.): A c.i.f. contract is a contract for the sale of goods where the seller's duties are: (1) to ship at the port of shipment, within the time named in the contract, the goods of the contract description; (2) to procure on shipment a contract of affreightment under which the goods will be delivered at the destination contemplated by the contract; (3) to effect, upon the terms current in the trade, an insurance of the goods which will be
available for the benefit of the buyer; (4) to make out an invoice of the goods; (5) to tender to the buyer the bill of lading, the invoice and the policy of insurance.
Cost, insurance, freight and commission (c.i.f.c.): cost, insurance freight and commission.
Ex works: price at which the supplier will supply ex his works. It does not include any cartage or delivery.
Free alongside ship (f.a.s.): includes all charges (including wharfage and porterage) up to but not including hoisting on board.
Free into store (f.i.s.): includes the landed price plus all transport costs into the customer's warehouse.
Free on board (f.o.b.): a price quoted for goods including the costs of placing them on board ship. Where the goods have been quoted f.o.b., it is the seller's duty to deliver the goods to the ship at the port of shipment. Delivery is completed once the goods have been put aboard ship. However, it is the duty of the seller to notify the buyer of the shipment to enable him to insure, otherwise the goods are at the seller's risk.
Free on wharf (f.o.w.): goods delivered to the wharf but not payment of wharfage.
Ship's liability: starts when the cargo is on the inboard of ship's rails. It terminates as soon as cargo is over ship's rail on discharge. If cargo is damaged in transit from wharf to the ship's rail or vice versa, the ship will normally refuse liability.
Group E Departure EXW Ex-Works Group F Carriage Unpaid FCA Free Carrier FAS Free Alongside Ship FOB Free On Board Group C Main Carriage CFR Cost and Freight CIF Cost, Insurance and Freight CPT Carriage Paid To CIP Carriage and Insurance Paid To Group D Arrival DAF Delivered At Frontier DES Delivered Ex-Ship DEQ Delivered Ex-Quay DDU Delivered Duty Unpaid DDP Delivered Duty Paid
Glossary of Export Terms The following is a list of commonly used export terms in International trade.
Ad valorem: according to the value. An ad valorem stamp on deeds or documents is one fixed in proportion to the amount of rent or other element of value expressed in the deed.
Affreightment: contract to carry goods by ship. Charter-parties and bills of lading are contracts of affreightment.
Bill of lading: document which is a receipt for cargo received on board ship and is evidence of the contract between shipper and shipowner. It is also evidence of title to the goods described on it.
Bonded goods: imported goods deposited in a government warehouse until duty is paid.
Broker: agent employed (at a customary or an agreed rate of commission or remuneration) to buy or sell goods, merchandise or marketable securities, or to negotiate insurances, freight rates or other matters, for a principal; the sales or transactions being negotiated not in his own name but in that of the principal.
Bill of exchange: order in writing from one person or firm to another requiring them to pay a certain sum to a person named.
Common carrier: one who carries any type of goods, other than a carrier of special goods.
Conference: agreement by shipping companies of different ownership and nationality, that operate services between the same range of ports, to regulate the freight rates they will charge for each type of goods carried. In some cases the agreement also allocates a specified number of sailings to each company.
Conference ship: a ship operated by a signatory to a shipping conference.
Consignee: the firm or persons authorised to receive the cargo and to whom it is consigned.
Container vessel: ship designed to carry ISO (International Standards Organisation) containers, in vertical cells within the holds. The container vessel is designed for maximum speed and efficiency, with a minimum of labour necessary for loading and unloading.
Conventional vessel: ship designed with its own on-board derricks for the loading of goods onto the holds.
Convertible currency: any currency other than sterling, US dollars or Canadian dollars.
Current domestic value (c.d.v.): price at which the supplier is prepared to supply to any purchaser for home consumption in the country of export and at the date of export, similar goods in the usual wholesale quantities.
Drawback: repayment of duty on the exportation of goods previously imported.
Entrepot: place of trans-shipment.
Forty-foot unit: ISO container 40ft long by 8ft by 8ft-6in (about 6m long by 2.4m by 2.5m).
Forwarding agent: agent who handles all shipping matters for the exporter.
Freight forwarder: arranges the shipping of goods overseas.
Full container-load (FCL): a container, generally shipped under one bill of lading, which is packed by the shipper and unpacked by the consignee. Basically, this is just a container (not necessarily full) which is not being shared by more than one shipper.
Hazardous goods: explosives, inflammable liquids and gases, oxidising or poisonous substances, radioactive, corrosive or miscellaneous hazards.
Indemnity: liability of an insurer for loss under a policy.
Insured value: value of property as expressed in a policy or insurance.
Knocked-down: goods (such as vehicles) dismantled for transit.
Landed price: includes the c.i.f. price, plus the cost of unloading, storage (if necessary), customs duty and any other costs involved in clearing goods for entry into the customer's country.
Less-than-container-load (LCL): the combining of several consignments, which were too small to fill a container, into one container. There may be several consignees each with a separate bill of lading.
Letter of Credit: document authorising payment to the person named, subject to fulfilment of certain specified conditions on the part of the person authorised to receive the money (such as evidence that goods have been shipped).
Manifest: document containing the passenger list and details of all stores and cargo on board the vessel.
On consignment: goods shipped with payment made to the shipper as the goods are sold at destination. The shipper retains ownership. (Foreign exchange control regulations require payment within six months unless otherwise specifically authorised).
Open charter: where the charter-party specifies neither the kind of cargo nor the ports of destination.
Policy: contract of insurance.
Power of attorney: document which empowers one person to act for another.
Roll-on, roll-off (RO-RO) vessel: ship constructed to allow cargo to be driven directly on board with trucks, forklifts and other equipment.
Security: term used in marine insurance to define the insurers which a policy has been effected.
Shipping agent: company, retained by the shipowner or the shipping company to deal with the exporter, or freight-forwarder.
Shipping company: company which owns or charters transport ships, offering spaces on such ships for the carriage of goods.
Tare: weight of a container, box or other carrier of goods when empty.
Through Bill: contract of affreightment that covers goods throughout the period of transit, including both overland and sea transit.
Trans-shipment: transferring goods from one vessel to another or from one conveyance to another, including periods at trans-shipping (entrepot) ports or places.
Underwriter: one who agrees to compensate another for loss from an insured peril in consideration for payment of a premium.
Underwriting agent: one who acts for an underwriter either in accepting business on his behalf (such as a company underwriting agent) or in taking care of his financial affairs in relation to underwriting (such as a Lloyd's underwriting agent).
Value for duty: value at which goods would pay duty - if ad valorem. Goods have v.f.d. even when duty is not payable.
Warehouse: building or structure used for the storage of goods.
Warehousing entry: document required by customs authorities when goods are placed in a bonded warehouse.
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