By Clifford F. Lynch
DC Velocity, October, 2011
As we wrote last spring ("Making sure nothing’s lost in
translation," FastLane, May 2010), for those new to the foreign trade game,
one of the top concerns is likely to be the delivery arrangements—in
particular, who’s responsible for costs like freight, insurance, customs
charges, and damage in transit. To clarify matters, the International Chamber of
Commerce (ICC) has published a list of International Commercial Terms, or
Incoterms, which are internationally recognized and clearly define both the
buyer’s and seller’s obligations in common transactions. The intent is to
cut down on the uncertainty arising from differing interpretations of terms of
sale from one country to another.
Since that column appeared, the ICC has published a revised set of terms,
known as Incoterms 2010. In addition to cutting the number of terms to 11 from
13, the chamber has also reclassified them. The older terms (Incoterms 2000)
were divided into four groups, based on where responsibility transferred from
one party to the other. The new terms are divided into two groups, based on
whether they apply to all modes of transportation or are specific to ocean and
inland waterway transport.
Although this might sound confusing, the alterations are relatively minor. In
fact, nine of the terms remain unchanged. What follows is a short summary of the
Incoterms 2010, with a few notes on the changes:
Ex-Works means the buyer assumes total responsibility for the shipment.
Delivery is accomplished when the product is handed over to the buyer’s
representative at the plant or DC. The buyer is responsible for freight costs,
insurance, export and import clearance, and all customs charges.
FCA (Free Carrier) provides that the seller fulfills his responsibility
when he delivers the product to the carrier.
CPT (Carriage Paid To) provides that the seller pays transportation costs
and export clearance charges, but the buyer pays for insurance.
CIP (Carriage and Insurance Paid To) a term used primarily for multimodal
moves, is essentially the same as CPT, except the seller must also purchase
cargo insurance in the buyer’s name.
DDP (Delivered Duty Paid) means the seller is responsible for all risks
and charges up to the consignee’s door. This is the maximum obligation that
can be assumed by a seller.
DAT (Delivered at Terminal) (new). Delivery is accomplished when goods
are unloaded and placed at the disposal of the buyer at a named terminal.
DAP (Delivered at Place) (new). Delivery is accomplished when goods
arrive and are ready for unloading at the destination.
(Note: These last two terms replace the 2000 Incoterms "Delivered at
Frontier," "Delivered Ex Ship," "Delivered Ex Quay,"
and "Delivered Duty Unpaid.")
Incoterms for ocean and inland waterway transport
FOB (Free on Board) means that the seller is responsible for getting the
goods to a port. The buyer bears the cost and responsibility from that point on.
FAS (Free Alongside Ship) requires the seller to deliver the product
alongside a given vessel at a port.
CFR (Cost and Freight) deals with the cost of the merchandise as well as
the freight costs. The seller is responsible for the product and the
transportation costs to the destination port.
CIF (Cost, Insurance, and Freight) provides that the seller pays for
insurance in addition to the product and transportation costs.
Information on the new terms can be found on a number of websites, but the
UPS site contains a particularly helpful summary. It can be downloaded at www.ups-scs.com/tools/incoterms.pdf.