Terms and Conditions of Sale (Incoterms)
The terms and conditions of sale (INCOTERMS) define, in international goods transactions, the conditions under which the products must be exported. The rules used for this purpose are defined in INCOTERMS – International Commercial Terms, according to the first version of January 2000, published by the International Chamber of Commerce – ICC (in English). These contractual formulas secure rights and obligations of both the exporter and importer, establishing the precise meaning of the negotiated price between the two parties. A foreign trade operation based on INCOTERMS reduces the possibility of controversial interpretations and damage to one of the parties involved. The importance of INCOTERMS is the accurate determination of the time of transfer of obligations, that is, the moment in which the exporter is considered to be free of legal responsibility for the exported product. INCOTERMS define rules only for exporters and importers have no effect in relation to other parts, such as carriers, insurers, brokers, etc.
- EXW – Ex Works: the product and the invoice must be available to the importer in the exporter’s premises. All expenses and any damages from the delivery of the goods, including the dispatch of goods abroad, are attributable to the importer. When prompted, the exporter shall provide the importer assistance in obtaining documents for the order of the product. This mode can be used in connection with any form of transportation.
- FCA – Free Carrier: The exporter delivers the goods, cleared for export, to the custody of the carrier at the place indicated by the importer, ceasing there all the exporting responsibilities. This condition can be used in any type of transport, including multimodal.
- FAS – Free Along Ship: the exporter’s obligations to cease upon loading the goods, cleared for export, at the pier, free along the ship’s side. Thereafter, the importer assumes all risks and shall fully pay for the merchandise placement expenses within the ship. The term is used for sea or inland waterway transport.
- FOB – Free on Board: The exporter must deliver the goods, cleared aboard the ship indicated by the importer at the port of shipment. This mode is valid for sea or inland waterway. All expenses, up to the moment the product is placed on board the carrier vehicle, are the responsibility of the exporter. The importer fit the costs and risks of loss or damage of the product from the time that this transposes the ship’s rail.
- CFR – Cost and Freight: The exporter must deliver the goods at the destination port chosen by the importer. Transport costs are therefore borne by the exporter. The importer shall bear the costs of insurance and unloading of goods. The use of this term requires the exporter to untangle the goods for export and use only the maritime and inland waterway.
- CIF – Cost, Insurance and Freight: modality equivalent to CFR, with the difference that insurance costs are borne by the exporter. The exporter must deliver the goods on board the ship in the port of loading, freight and insurance prepaid. The responsibility of the exporter ceases when the product crosses the ship’s rail at the port of destination. This mode can be used only for sea or inland waterway transport.
- CPT – Carriage Paid to …: as the CFR, this condition stipulates that the exporter shall pay the shipment of goods and its international freight to the place of destination. Thus, the risk of loss or damage to the goods and any cost increases are transferred from the exporter to the importer when the goods are delivered to the custody of the carrier. This INCOTERM may be used in connection with any means of transport.
- CIP – Carriage and Insurance Paid to …: adopts principle similar to CPT. The exporter, plus pay the shipping costs of the goods and freight to the place of destination, also bears the costs of the goods transport insurance to the named place of destination. The CIP can be used with any mode of transport, including multimodal.
- DAF – Delivered At Frontier: The exporter must deliver the goods at the point and place designated at the border, but before the boundary line with the country of destination. This term is mainly used in cases of road or rail transport.
- DES – Delivered Ex Ship: modality used only for sea or inland waterway transport. The exporter is required to place the goods at the destination, on board the ship not cleared yet for imports, and assume all risks and costs up to that point abroad.
- DEQ – Delivered Ex Quay: The exporter must place the goods, not cleared for import, the importer at the designated destination of the docks. This term is used for sea and inland waterway transport, or multimodal.
- DDU – Delivered Duty Unpaid: The exporter must place the goods to the importer on site and point designated abroad. Assumes all costs and risks to bring the goods to the destination specified, except for expenses with payment of customs duties, taxes and other import charges. This term may be used with any mode of transportation.
- DDP – Delivered Duty Paid: the exporter takes commitment to deliver the goods, cleared for import at the place designated by the importer, paying all expenses, including taxes and other import charges. It is not the exporter’s responsibility, however, landing the goods. The exporter is also responsible for internal freight landing location to the location designated by the importer. This term may be used with any mode of transport. This is the INCOTERM establishing the highest level of commitment to the exporter.
ADDITIONAL COMMENTS ON INCOTERMS
- Since 1990, the exporter may replace the printed document of proof of delivery of the product by EDI messages (Electronic Data Interchange or Electronic Data Interchange), provided that the parties agree to use this medium.
- Given the periodic changes suffered in INCOTERMS, and to avoid trade disputes, the exporter and the importer must state expressly and clearly in the contract, the use of INCOTERMS 2000.
Even when it is not liable to pay the freight, the shipper is responsible for the transaction. It should therefore be aware of the following points:
- vehicle available with a capacity to transport the goods in accordance with the conditions agreed with the importer;
- period forecast to be spent between the departure and the arrival of the goods;
- availability of space on the vessel;
- information about the shipping company contracted;
- price of shipping.
Additionally, it is mandatory to identify those responsible for the costs related to shipping, stowage inside the ship and unloading of goods. It will be up to the owner to clarify exporter is spending on loading, unloading and stowage are included in the price of shipping.
The following are the sea freight contracting modalities:
- Liner Terms or Berth Terms: the owner is responsible for expenses related to shipping, stevedoring and landing. It is for the exporter put free merchandise with the ship. This mode is also known by the acronym FFA (Free Alongside From – Free Alongside Ship Next to);
- FIO (Free In and Out -Book Input and Output Board): it is up to the owner only the transport of goods. The cost of shipping, stevedoring and landing borne by the exporter. The acronym WIRE (Free In Out and stowed – Free Entry, Exit and Storage) designates variant FIO mode;
- FIOST (Free In Out Stowed and Trimmed – Book of Input, Output, Storage and Distribution Charge): This is another variant FIO mode, used mainly for transporting bulk;
- FI (Free In – Check Free On Board): The exporter is responsible for the payment of expenses related to loading and stowage. It is for the owner to liability for payment of the costs of the landing. The FIS rules (Free In and stowed – Entry and Storage Free), FILO (Free In Liner Out – Entry Free and Responsible Output) and FISLO (Free In stowed Liner Out – Free Entry and storage, and Head of Output ) are variants of the FI mode;
- FO (Free Out- Logbook output): the exporter is only responsible for the payment of the charges for landing. The loading and stowage costs borne by the shipowner. The LIFO method (Liner In Free Out) is identical to the FO (Free Out).