Incoterms related to international trade practices

International Commercial Terms

International Commercial Terms (Inco Terms) are terms used in international trading contracts, defined by International Chamber of Commerce (ICC) to ensure clarity of any trade agreement between two partner traders throughout different countries. The standardized set of commercial terms contain 11 Incoterms with 3 of them updated to more recent versions in the year 2010.

Inco Terms are used to tell traders and other businesses the rights and duties of each other regarding delivery of the goods, explanations of the transfer of risk, allocation of associated costs and other terms and conditions associated with an international sales contract.

Inco terms are commonly used in sales of goods, both in bulk and retail, across the globe. International freight forwarders use the terms when issuing documents to their customers. Inco Terms are designed to provide a worldwide commercial standard that all traders can rely on.

Inco Terms are divided into four categories, which are the following:

EXW – Ex Works

EXW is an acronym for Ex Works or sometimes referred to as Ex Factory. This term means that the seller hands the goods over to the buyer at the sellers premises and places the goods at buyers disposal, with no further obligation for the seller. The buyer mustpick up and arrange for goods to be transported and typicallythe seller is not required to load goods onto the truck or otherwise arrange for goods to be shipped. FCA and FOB may be used as alternatives.

FCA – Free Carrier

FCA is an acronym for Free Carrier. This term means that the seller hands over the goods to the first carrier nominated by the buyer, at the sellers premises. The seller has fulfilled its delivery obligations once goods are handed over to the carrier.

FAS – Free Alongside Ship

FAS is an acronym for Free Alongside Ship. This term means that the buyer delivers and pays for the goods when they are placed alongside the buyers mode of transport at specified location. This can now include the transportation of goods within the buyer’s country or across international borders, by road, rail or sea.

FOB – Free On Board

FOB is an acronym for Free On Board. This term means that the seller makes the goods available to the buyer on board the vessel at the port nominated by the buyer or the seller has completed their delivery obligations. The seller is responsible for ensuring the goods are loaded onto the ship correctly, and the buyer is responsible for the costs and risks associated with the shipment. This can now include the transportation of goods within the buyer’s country or across international borders, by road, rail or sea

CFR – Cost and Freight

CFR is an acronym for Cost and Freight. This term means that the seller delivers the goods to the nominated port of destination, and the buyer pays for the cost of the goods, including transportation and insurance. It is the buyers responsibility to clear customs and handle other export formalities.

CIF – Cost, Insurance, and Freight

CIF is an acronym for Cost, Insurance, and Freight. This term means that the seller delivers the goods to the nominated port of destination. The seller must pay for the cost of the goods and for the cost of transporting the goods to the nominated port of destination, as well as for the cost of insuring the goods for their transit. It is the buyers responsibility to clear customs and handle other export formalities.

CPT – Carriage Paid To

CPT is an acronym for Carriage Paid To. This term means that the seller pays for the goods to be transported to the named place of destination. The buyer assumes the risk of goods once goods are handed over to the carrier.

CIP – Carriage and Insurance Paid To

CIP is an acronym for Carriage and Insurance Paid To. This term means that the seller pays for the goods to be transported and insured to the named place of destination. The buyer assumes the risk of goods once goods are handed over to the carrier.

DAT – Delivered At Terminal

DAT is an acronym for Delivered At Terminal. This term means that the seller delivers the goods to the terminal at the nominated port or place of destination. All costs incurred in transporting goods to this destination are for the seller’s account including transportation, all unloading and delivery to the terminal. The buyer assumes ownership of the goods when goods have been unloaded from the arriving means of transport.

DAP – Delivered At Place

DAP is an acronym for Delivered At Place. This term means that the seller delivers the goods to the specified destination of the buyer and is responsible for bearing all costs associated with transportation, including duties, taxes, and insurance up to the delivery of the goods. The risk passes on to the buyer at the point of delivery.

DDP – Delivered Duty Paid

DDP is an acronym for Delivered Duty Paid. This term means that the seller is responsible for delivering the goods to the buyer and all risks related to customs clearance and payment of duties. Once goods are received by the buyer, all risks in terms of delivery and transportation are passed onto the buyer.

Inco Terms are an important element in international and domestic trading, providing a standard set of terms to guide traders and reduce the risk of misunderstandings in contracts. As such, Inco Terms are recognised and accepted by governments, businesses and international organisations.

InternationalTradeTerminology

International trade is businessbetween countries. Trade between two trading partners is governed by a series of international conventions, treaties and other agreements. These conventions, treaties and other agreements are intended to harmonize trade, prevent protectionism and provide a framework for harmonious trade. By following these conventions, the countries involved in international trade can minimize disputes and maximize productivity.

International trade conventions, treaties and other agreements usually contain a set of trade terminology that is specific and accepted worldwide. A few examples of commonly used international trade terminology are:

-Trade Agreement: A bilateral or multilateral agreement between two or more countries that outlines their respective rights and obligations in the context of international trade.

-Tariff: A tax or fee imposed by a country on imported goods that must be paid by the importer when the goods enter that country.

-Quota: A limit or restriction on the amount of goods that can be imported from or into a country.

-Incoterms: A set of international trade terms that define the responsibilities of the buyer and seller when conducting international transactions, such as delivery, risk and payment.

-Export Credit: A loan or other financial assistance from a government to help a company export goods.

-Harmonized System (HS Code): A standardized system of international classification for goods.

-Export Promotion: Various measures taken by a country to encourage exports, such as tax incentives, grants and export subsidies.

-Autonomous Tariff: A tariff imposed by one country on another countrys imports that exceeds an agreed-upon multilateral tariff.

-Custom Duty: A fee imposed by a country on imported goods.

These are just a few of the terms used in international trade terminology. With the rapid globalization of the world economy, these terms are becoming more widely accepted and accepted in international trading. As the trade terms become increasingly commonplace, they become understood across different countries and cultures, creating an environment of harmonious international trade.