Shipping

WHAT ARE INCOTERMS®?

INCOTERMS are a set of three-letter standard trade terms most commonly used in international contracts for the sale of goods.

It is essential that you are aware of your terms of trade prior to shipment. The choice of the Incoterm to be used is an integral part of a commercial transaction.

It has to be done in function with the organizational capacities of the company in question, the type of transportation used.

The Incoterms® selected must also be well-adapted to the type of goods that will be shipped and the type of transportation that will be used.

EX (EX WORKS)

Named place Incoterms® 2010

Carriage to be arranged by the buyer

Risk transfer from the seller to the buyer when the goods are at the disposal of the purchaser

Cost of assignment from the vendor to the buyer when the goods are at the disposal of the buyer

FCA (FREE CARRIER)

Free Carrier FCA named place Incoterms® 2010

Carriage has to arranged by the buyer or either by the seller on the behalf or the buyer

Risk transfer from the vendor to the buyer when the goods have been delivered to the carrier at the named place

Cost transfer from the seller to the buyer when the goods have been delivered to the carrier at the named place

FAS (FREE ALONGSIDE SHIP)

Free Alongside Ship FAS named port of shipment Incoterms® 2010

Carriage to be arranged by the buyer

Risk transfer from the seller to the buyer when the goods have been placed alongside the ship

Cost transfer from the vendor to the buyer when the goods have been placed alongside the ship

FOB (FREE ON BOARD)

Free On Board FOB named port of shipment Incoterms® 2010

Carriage to be arranged by the purchaser

Risk transfer from the seller to the buyer when the goods pass the ship’s rail

Cost transfer from the vendor to the buyer when the goods have been placed alongside the ship

CFR (COST & FREIGHT)

Cost and Freight CFR named port of destination Incoterms® 2010

Carriage and insurance have to be arranged by the seller

Risk transfer from the vendor to the buyer when the goods pass the ship’s rail

Cost transfer at the port of destination buyer, paying such fees as are not for the sellers account under the carriage contract

CIF (COST INSURANCE & FREIGHT)

Cost Insurance and Freight CIF named port of destination Incoterms® 2010

Carriage and insurance have to be arranged by the seller

Risk transfer from the seller to the buyer when the goods pass the ship’s rail

Cost transfer at the port of destination buyer, paying such costs as are not for the sellers account under the carriage contract

CPT (CARRIAGE PAID TO)

Carriage Paid To CPT named place Incoterms® 2010

carriage and insurance have to be arranged by the seller

Risk transfer from the seller to the buyer when the goods pass the ship’s rail

Cost transfer at the port of destination buyer , paying such costs as are not for the sellers account under the carriage contract

CIP (CARRIAGE & INSURANCE PAID)

Carriage and Insurance Paid CIP to named place Incoterms® 2010

Carriage and insurance have to be arranged by the seller

Risk transfer from the seller to the buyer when the goods pass the ship’s rail

Cost transfer at the port of destination buyer, paying such costs as are not for the sellers account under the carriage contract

DES (Delivered ex-ship)

Carriage to be arranged by the seller

Risk transfer from the seller to the buyer when the goods are placed at the disposal of the buyer on the board of the ship

Cost transfer from the seller to the buyer when the goods are placed at the disposal of the buyer on the board of the ship

DEQ (Delivered EX quay)

Carriage to be arranged by the seller

Risk transfer from the seller to the buyer when the goods are placed at the disposal of the buyer on the board of the ship

Cost transfer from the seller to the buyer when the goods are placed at the disposal of the buyer on board of the ship

DDU (delivered duty unpaid)

Carriage to be arranged by the seller

Risk transfer from the seller to the buyer when the goods are placed at the disposal of the buyer on the board of the ship

Cost transfer from the seller to the buyer when the goods are placed at the disposal of the buyer on the board of the ship

DDP – Delivered Duty Paid (… named place of destination)

Delivered duty paid» means that the seller delivers the goods to the buyer, cleared for import, and not unloaded from any arriving means of transport at the named place of destination. The seller has to bear all the costs and risks involved in bringing the goods thereto including, where applicable, any «duty» (which term includes the responsibility for and the risk of the carrying out of customs formalities and the payment of formalities, customs duties, taxes and other charges) for import in the country of destination.

Whilst the EXW term represents the minimum obligation for the seller, DDP represents the maximum obligation. This term should not be used if the seller is unable directly or indirectly to obtain the import licence.

However, if the parties wish to exclude from the seller’s obligations some of the costs payable upon import of the goods (such as value-added tax: VAT), this should be made clear by adding explicit wording to this effect in the contract of sale.

If the parties wish the buyer to bear all risks and costs of the import, the DDU term should be used. This term may be used irrespective of the mode of transport but when delivery is to take place in the port of destination on board the vessel or on the quay (wharf), the DES or DEQ terms should be used.

incoterms-costs

WHICH LAW ENSURES THE RESPECT OF CONTRACTS?

The contracting parties are placed in front of three possibilities:

To keep the law of the exporting country

That would be very often the wish of the seller who would prefer to apply his own law considering that it is the one that he knows well.

However, it is not always the best solution. As a matter of fact, some laws, such as the French and Belgian laws, protect much more the buyer

To keep the law of the importing country

This law can be more interesting for the exporter since it is less constraining.

However, it is important to know it and master it well because it could be very dangerous to be subject to regulations that are totally or partially unknown

To keep the law of a third country

This choice allows neutralizing the legal nationalism. It is often used in commercial interests for compromising or for convenient reasons

(in the case where the court of competent jurisdiction belongs to this third country)