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A key essence for success in a new market is to identify the ‘Right Partner’. We appreciate the huge importance of this aspect and are willing to invest the necessary time and effort to get it right. There is NO substitute for "Grunt Work" and it is essential to meet the prospective partner, understand their technical capabilities, visit their manufacturing unit and assess the management team. With the partners who add to this blog we hope to achieve that. Mark Kennedy Same World Trading

Wednesday, 16 June 2010

Understand Incoterms for exporting and importing

Mark Kennedy
Same World Trading Ltd

Incoterms are standard trade definitions most commonly used in international sales contracts. Devised and published by the International Chamber of Commerce, they clearly divide the rights and obligations of the buyer and seller in relation to the delivery of the goods.

There are 13 Incoterms - or International Commercial Terms - and in order to be sure you are using the correct one it is recommended that you consult the full ICC texts. It is recommended that investment is made in purchasing a copy of the official rules for the interpretation of trade terms (INCOTERMS 2000) from the International Chambers of Commerce or the Institute of Export. Unfortunately, there are many unauthorised summaries and approximate versions available on the internet that are not legally binding. Using these can cause confusion and prove costly.

Types of Incoterms

Incoterms have been grouped into four categories, applicable for sea and inland waterway transport or for all modes of transport. The point of risk and cost transfer in the transport chain moves from the seller's premises to the buyer's place.

Below are the 13 Incoterms - for full details of the risk and cost obligations refer to the Incoterms 2000 wall chart.

1. Departure term
Applicable for all modes of transport, including water:

• EXW (Ex Works) (...named place)

2. Shipment term, main carriage unpaid
Applicable for sea transport only:

• FAS (Free Alongside Ship) (...named port of shipment)
• FOB (Free On Board) (...named port of shipment) Only use when the goods pass the ship's rail otherwise use the term FCA.

Applicable for all modes of transport, including water:

• FCA (Free Carrier) (...named place)

3. Shipment term, main carriage paid
Applicable for sea transport only:

• CFR (Cost and Freight) (...named port of destination) Only use when the goods pass over the ship's rail otherwise use the term CPT.

• CIF (Cost, Insurance and Freight) (...named port of destination) Only use when the goods pass over the ship's rail otherwise use the term CIP.

Applicable for all modes of transport, including water:

• CPT (Carriage Paid To) (...named port of destination)
• CIP (Carriage and Insurance Paid to) (...named port of destination)

4. Delivery term
Applicable for sea transport only:

• DES (Delivered Ex Ship) (...named port of destination)
• DEQ (Delivered Ex Quay) (...named port of destination)

Applicable for all modes of transport, including water:

• DAF (Delivered At Frontier) (...named place)
• DDU (Delivered Duty Unpaid) (...named place of destination)
• DDP (Delivered Duty Paid) (...named place of destination)

Choosing the right terms

There are a number of factors to consider when choosing the right Incoterms for your export/import contract:

• Relationship with buyer/seller
• Economic and political climate of the import/export market
• Mode of transport
• Carriage of goods
• Costs
• Risks


• Prevents misunderstandings and disputes, especially when the buyer's and seller's countries have differing trading practices
• Reflects current worldwide trading practices
• Suitable for every mode of transport
• Authorised translations available in 31 languages

Action Checklist:

• Visit the Incoterms 2000 website for more information
• Choose the right Incoterms for your import/export contract
• Ensure all trading parties understand the terms

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