Incoterms
Dr. A.K. Sengupta
Former Dean, Indian Institute of Foreign Trade
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Category Applicable for sea Applicable for all modes of
transport only transport (including water)
E terms: EXW (Ex works)
Departure terms
F terms: FAS (Free alongside ship) FCA (Free carrier)
Shipment terms, main FOB (Free on board)
carriage unpaid
C terms: CFR (Cost and freight) CPT (Carriage paid to)
Shipment terms, main CIF (Cost, insurance, and CIP (Carriage and insurance
carriage paid freight) paid to)
D terms: DES (Delivered ex ship) DAF (Delivered at frontier)
Delivery terms DEQ (Delivered ex quay) DDU (Delivered duty unpaid
DDP (Delivered duty paid)
Source: Based on Joshi, Rakesh Mohan, International Marketing, New Delhi, Oxford University Press,
2005, p. 383
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INCOTERMS
In international transaction a set of terms used:
To describe the rights and responsibilities of the
buyer and seller with regard to
Sale and transport
•Uniform interpretation of these commercial terms
(INCOTERMS) defining the cost, risks, and obligations of
buyers and sellers have been developed by International
Chamber of Commerce (ICC) in Paris
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Incoterms 2000 include a set of 13 terms as under:
EXW – (Ex Works) named place
The seller’s obligation to deliver goods is complete when he
places the goods at the disposal of the buyer at his own premises
or another place such as factory, warehouse etc. Here the goods
are not cleared for exports
FCA – (Free Carrier) named place
Here the seller’s obligation to deliver the goods is complete when
he delivers to the carrier nominated by the buyer at the named
place cleared for export
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FAS – (Free Alongside Ship) named port of shipment
The seller delivers the goods by placing them alongside the vessel
at the named port of shipment. The buyer bears all costs and
risks of loss or damage to the goods from that moment
FOB – (Free on Board) named port of shipment
Under this term, the seller fulfills his obligation of delivery when
the goods pass the ship rail at the named port of shipment. From
that point onwards the buyer bears all costs and risks. The seller
clears the goods for export
CFR (Cost and Freight) named port of destination
In CFR, the obligation of delivery is fulfilled, when the goods pass,
just as in FOB, the ships rail in the port of shipment. The only
addition is that the seller also pays freight necessary to bring
5 the
CIF, - (Cost, Insurance and Freight) named port of destination
Here also the delivery point is, the goods passing the ship’s rail in
the port of shipment. The seller, however pays the cost and
freight necessary to bring the goods to the port of destination and
also pays the insurance premium. The seller obtains insurance
only for the minimum cover. If the buyer wish to have a greater
cover he would either need to agree with the seller a make his
own extra insurance arrangements.
CIP (Carriage and insurance paid) named place of destination
Seller delivers the goods to a carrier it nominates and also pays
the cost of bringing the goods to the named destination. The
seller also obtains insurance against the buyer’s risk of loss or
damage during carriage and clears the goods for export
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CPT (Carriage paid) named place of destination
Seller delivers goods to carrier it nominates and pays cost of
bringing the goods to the named destination. The seller also
clears the goods for export
DAF (Delivered at Frontier) named place
Any mode of transport to a land frontier. The seller delivers
when goods are placed at the buyer’s disposal on the arriving
means of transport, (not unloaded) cleared for export but not
cleared for import before the customs border of the destination
country
DES (Delivered ex ship) named port of destination
Maritime and inland waterway only; the seller delivers when
goods are at the buyer’s disposal on board the ship not cleared
for import. The buyer pays discharging costs.
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DEQ (Delivered quay) named port of destination
Maritime and inland waterway only; the seller delivers when
the goods are placed at the buyer’s disposal, not cleared for
import, on the dock (quay) at the named port of destination.
The seller pays discharging costs, but the buyer pays for
import clearance
DDU (Delivered Duty Unpaid) named place of destination
Any mode of transport the seller delivers the goods to the
buyer, it is not cleared for import and not unloaded from the
arriving means of transport at the named destination, but the
buyer is responsible for all import clearance formalities and
cost
8
DDP (Delivered duty paid) named place of destination
Any mode of transport; the seller delivers goods to the buyer,
cleared for import (including import licence, duties, and taxes)
but not unloaded from the means of transport
Ex-works (EXW) involves lowest obligation while the DDP
involves highest obligation for a seller
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•The price quotation under various incoterms should include
the expenses as mentioned. For instance, XYZ International,
a Jaipur-based export firm, has to make price quotations for
1000 pieces of greeting cards made from hand-made paper.
The firm decides to offer a unit price of US$5 per piece that
works out to a total price of US$5000. The firm should include
the following expenses while making a price quotation
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Incoterm Expenses to be included Addition Total price to be
al cost quoted
(in US$) (in US$)
EXW Ex-works Jaipur 200 5000
Export packing, marking shipping marks
FCA Free on carrier at Jaipur station 150 5350
Carriage and insurance for delivery to railway station by
road transport including insurance
FAS Free alongside ship at Kandla. Rail transport to port 400 5750
(including insurance) and getting goods on the quay
alongside ship
FOB Free on board Kandla. Dock dues, loading goods on 120 5870
board ship. Preparing shipping documents
CFR Cost and freight. Sea freight to Singapore (nearest port to 230 6100
Singapore)
CIF Cost and freight. Sea freight plus marine insurance (port 100 6200
to port)
DES Delivered ex ship at Singapore. Landing charges at 80 6280
Singapore port
DDP Delivery duty paid at Customer’s warehouse in Singapore 680 7000
•Import duties for 1000 pieces of greeting cards 40
•Transportation 11
