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Export Documentation I The IncoTerms


“The Incoterms”

International Transactions involves traders from diverse nations difficult for them to trade together. International transactions involve certain contracts and agreements that determine obligations of them. There is a need to implement specific terms so that these could provide ease to import-export transactions. In order to solve this problem International Chamber of Commerce (ICC) Paris developed “INCOTERMS” or “International Contract Terms”.

What are Incoterms?

Ans. Incoterms are those specific terms that are defined in contract or agreement between two international parties that determines their rights and obligations along with the responsibility of the person who will bear carriage and Insurance cost.

Different type of Incoterms:-

These terms have been revised several times since they have been introduced to incorporate new commercial practices. Latest incoterms were issued in 1990 some of them are as follows:-

  1. Ex-works (Ex-w): – This term represents minimum obligation of the seller. According to this, seller fulfils his obligation when he produces and made goods available at his premises. Buyer is responsible to bear all risk and cost involved to bring that product from seller’s premises to any other desired destination.
  2. Free Carrier (FCA): – According to this, seller’s obligation is limited to the extent when he delivered the goods to the carrier named by the buyer at the desired place or point which is so desired by the buyer.
  3. Free on Board (FOB): – This term is used only in case of sea or inland water transport. Here, seller fulfils his obligation when the goods have passed over ships rail at the named port of shipment. Buyer has to bear the cost and risk of bringing the goods from that point.
  4. Cost and Freight (CFR): – Here, seller has to bear the cost and freight necessary to bring the goods to the named port of destination. However, any loss or damage occurred to the goods during transport shall be of buyer. This term is used only in sea or inland water transport.
  5. Cost Insurance and freight (CIF): – This is just similar to CFR but with an addition that seller has also to procure a marine insurance policy for the buyer in order to minimize his risk of loss or damage to goods during carriage.
  6. Carriage Paid to (CPT): – This is just similar to CFR but with an exception that it can be used in every mode of transport.
  7. Carriage and Insurance paid to (CIP): – This is just similar to CPT but with an exception that it can be used in every mode of transport.

Incoterms defines rights and obligations of every party. So each party must know precisely what he is supposed to do and what he can expects from the other party. Thus, scope of misunderstanding would necessarily become less.



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