International Commercial Terms (INCOTERMS)

The INCOTERMS (International Commercial Terms) is a universally recognized set of definitions of international trade terms, such as FOB, CFR and CIF, developed by the International Chamber of Commerce (ICC). It defines the trade contract responsibilities and liabilities between buyer and seller. It is invaluable and a cost-saving tool. The exporter and the importer need not undergo a lengthy negotiation about the conditions of each transaction. Once they have agreed on a commercial term like FOB, they can sell and buy at FOB without discussing who will be responsible for the freight, cargo insurance, and other costs and risks.

The international commercial terms are grouped into E, F, C and D, designated by the first letter of the term (acronym), as follows:

In international trade, it would be best for exporters to refrain, wherever possible, from dealing in trade terms that would  hold the seller responsible for the import customs clearance and/or payment of import customs duties and taxes and/or other costs and risks at the buyer’s end, for example the trade terms DDP (Delivered Duty Paid). Quite often, the charges and expenses at the buyer’s end may cost more to the seller than anticipated. To overcome losses, hire a reliable customs broker or freight forwarder in the importing country to handle the import routines.

Similarly, it would be best for importers not to deal in EXW (Ex Works), which would hold the buyer responsible for the export customs clearance, payment of export customs charges and taxes, and other costs and risks at the seller’s end.

EXW (Ex Works + name of place)

EX means from. Works means factory, mill or warehouse, which is the seller’s premise. EXW applies to goods available only at the seller’s premises. Buyer is responsible for loading the goods on truck or container at the seller’s premises, and for the subsequent costs and risks. In practice, it is not uncommon that the seller loads the goods on truck or container at the seller’s premises without charging loading fee.

In the quotation, indicate the named place (seller’s premises) after the acronym EXW, for example EXW Phnom Penh or EXW Sihanoukville.

The term EXW is commonly used between the manufacturer (seller) and export-trader (buyer), and the export-trader resells on other trade terms to the foreign buyers. Some manufacturers may use the term Ex Factory, which means the same as Ex Works.

FCA: (FCA + the named point of departure)

The delivery of goods on truck, rail car or container at the specified point (depot) of departure, which is usually the seller’s premises, or a named railroad station or a named cargo terminal or into the custody of the carrier, at seller’s expense. The point (depot) at origin may or may not be a customs clearance center. Buyer is responsible for the main carriage/freight, cargo insurance and other costs and risks. In the air shipment, technically speaking, goods placed in the custody of an air carrier are considered as delivery on board the plane. In practice, many importers and exporters still use the term FOB in the air shipment. Some manufacturers may use the former terms FOT (Free On Truck) and FOR (Free On Rail) in selling to export-traders.

FAS: (FAS + the named port of origin)

Goods are placed in the dock shed or at the side of the ship, on the dock or lighter, within reach of its loading equipment so that they can be loaded aboard the ship, at seller’s expense. Buyer is responsible for the loading fee, main carriage/freight, cargo insurance, and other costs and risks. In the export quotation, indicate the port of origin (loading) after the acronym FAS, for example: FAS Phnom Penhand FAS Sihanoukville. The FAS term is popular in the break-bulk shipments and with the importing countries using their own vessels.

FOB: (FOB + the named port of origin)

The delivery of goods on board the vessel at the named port of origin (loading), at seller’s expense. Buyer is responsible for the main carriage/freight, cargo insurance and other costs and risks. In the export quotation, indicate the port of origin (loading) after the acronym FOB, for example: FOB Phnom Penh and FOB Sihanoukville. Under the rules of the INCOTERMS, the term FOB is used for ocean freight only. However, in practice, many importers and exporters still use the term FOB in the air freight.

In North America, the term FOB has other applications. Many buyers and sellers in Canada and the U.S.A. dealing on the open account and consignment basis are accustomed to using the shipping terms FOB Origin and FOB Destination.

FOB Origin means the buyer is responsible for the freight and other costs and risks. FOB Destination means the seller is responsible for the freight and other costs and risks until the goods are delivered to the buyer’s premises, which may include the import customs clearance and payment of import customs duties and taxes at the buyer’s country, depending on the agreement between the buyer and seller.

In international trade, avoid using the shipping terms FOB Origin and FOB Destination, which are not part of the INCOTERMS (International Commercial Terms).

CFR: (CFR+ the named port of destination)

The delivery of goods to the named port of destination (discharge) at the seller’s expense. Buyer is responsible for the cargo insurance and other costs and risks. The term CFR was formerly written as C&F. Many importers and exporters worldwide still use the term C&F. In the export quotation, indicate the port of destination (discharge) after the acronym CFR, for example CFR Sihanoukville.

CIF: (CIF + the named port of destination)

The cargo insurance and delivery of goods to the named port of destination (discharge) at the seller’s expense. Buyer is responsible for the import customs clearance and other costs and risks. In the export quotation, indicate the port of destination (discharge) after the acronym CIF, for example CIF Singapore.

CPT: (CPT + the named place of destination)

The delivery of goods to the named place of destination (discharge) at seller’s expense. Buyer assumes the cargo insurance, import customs clearance, payment of customs duties and taxes, and other costs and risks. In the export quotation, indicate the place of destination (discharge) after the acronym CPT, for example CPT Los Angeles.

CIP: (CIP + the named place of destination)

The delivery of goods and the cargo insurance to the named place of destination (discharge) at seller’s expense. Buyer assumes the import customs clearance, payment of customs duties and taxes, and other costs and risks. In the export quotation, indicate the place of destination (discharge) after the acronym CIP, for example CIP Paris.

DAF: (DAF + the named point at frontier)

The delivery of goods to the specified point at the frontier at seller’s expense. Buyer is responsible for the import customs clearance, payment of customs duties and taxes, and other costs and risks. In the export quotation, indicate the point at frontier (discharge) after the acronym DAF, for example DAF Tanjung Pelepas.

DES: (DES + the named port of destination)

The delivery of goods on board the vessel at the named port of destination (discharge), at seller’s expense. Buyer assumes the unloading fee, import customs clearance, payment of customs duties and taxes, cargo insurance, and other costs and risks. In the export quotation, indicate the port of destination (discharge) after the acronym DES, for example DES Long Beach.

DEQ: (DEQ + the named port of destination)

The delivery of goods to the quay (the port) at destination at seller’s expense. Seller is responsible for the import customs clearance and payment of customs duties and taxes at the buyer’s end. Buyer assumes the cargo insurance and other costs and risks. In the export quotation, indicate the port of destination (discharge) after the acronym DEQ, for example DEQ Le Havre.

DDU: (DDU + the named point of destination)

The delivery of goods and the cargo insurance to the final point at destination, which is often the project site or buyer’s premises, at seller’s expense. Buyer assumes the import customs clearance and payment of customs duties and taxes. The seller may opt not to insure the goods at his/her own risks. In the export quotation, indicate the point of destination (discharge) after the acronym DDU, for exampleDDU Phnom Penh.

DDP: (DDP + the named point of destination)

The seller is responsible for most of the expenses, which include the cargo insurance, import customs clearance, and payment of customs duties and taxes at the buyer’s end, and the delivery of goods to the final point at destination, which is often the project site or buyer’s premises. The seller may opt not to insure the goods at his/her own risks. In the export quotation, indicate the point of destination (discharge) after the acronym DDP, for example DDP Phnom Penh.