US - Incoterms

5.2 Incoterms

International Commercial Terms, known as "Incoterms", are internationally accepted terms defining the responsibilities of exporters and importers in the arrangement of shipments and the transfer of liability involved at various stages of a transaction (Virginia Economic Development Partnership , 2010). As of January

2011, 11 Incoterms exist consisting of two main groups - Sea or Inland Waterway Transport and All Modes of Transport. Under the 2010 Incoterms, buyers and sellers are being urged to contract precisely where delivery is made and what charges are covered in order to avoid double-billing of terminal  handling charges at the port of discharge (Virginia Economic Development Partnership, 2010).

The 2010 Incoterms are listed below in order of increasing risk/liability to the exporter5:

Rules for Sea & Inland Waterway Transport:

5 Largely borrowed from the Virginia Economic Development Partnership:

http://www.exportvirginia.org/fast_facts/Current/FFIssues_INCO_Terms.pdf.

FAS - Free Alongside Ship: Risk passes to buyer, including payment of all transportation and insurance costs, once delivered alongside the ship (realistically at named port terminal) by the seller.  The export clearance  obligation rests with the seller.

FOB - Free On Board: Risk passes to buyer, including payment of all transportation and insurance  costs, once delivered on board the ship by the seller. This is a step further than FAS.

CFR - Cost and Freight: Seller delivers goods and risk passes to buyer when aboard the vessel. Seller arranges and pays cost and freight to the named destination port. This is a step further than FOB.

CIF - Cost, Insurance and Freight: Risk passes to the buyer when delivered on board the ship. Seller arranges and pays cost, freight and insurance to destination port. This adds insurance costs to CFR.

Rules for Any Mode or Modes of Transportation

EXW - Ex Works: Seller delivers (without loading) the goods at disposal of  buyer at seller's premises. Long held as the most preferable  term for exporters who are fairly new in the export business represents the minimum liability to the seller. On these routed transactions, the buyer has limited obligation to provide export information to the seller.

FCA - Free Carrier: Seller delivers the goods to the carrier and may be responsible for clearing the goods for export (filing the EEI). FCA is more realistic than EXW because it includes loading at pickup, which is commonly expected.

CPT - Carriage Paid To: Seller delivers goods to the carrier at an agreed place, shifting risk to the buyer, but seller must pay cost of carriage to the named place of destination.

CIP - Carriage and Insurance Paid To: Seller delivers goods to the carrier at an agreed place, shifting risk to the buyer. Seller pays carriage and insurance to  the named place of destination.

DAT - Delivered at Terminal: Seller bears cost, risk and responsibility until goods are unloaded (delivered) at named quay, warehouse, yard, or terminal at destination.  Demurrage  or detention charges may apply to seller. Seller clears  goods for export, not import. DAT replaces DEQ, DES.

DAP - Delivered at Place: Seller bears cost, risk and responsibility for goods until made available to buyer at named place of destination. Seller clears goods for export, not import.

DDP - Delivered Duty Paid: Seller bears cost, risk and responsibility for cleared goods at named place of destination at buyers' disposal. Buyer is responsible for unloading. Seller is responsible for import clearance, duties and taxes so buyer is not "importer of record".

Additional Information on Incoterms is available at the International Chamber of Commerce website:http://www.iccwbo.org/incoterms/