Trade Terms

Trade Terms Offering good trade terms is important for making products competitive in the international marketplace. The terms of trade offered also affect the profit obtained in international trade, as the terms offered apportion the responsibility for meeting the various transportation costs and payment of any import duties. In any sales agreement, it is important that a common understanding exist regarding the delivery terms. The terms in international business transactions often sound similar to those used in domestic business, but they frequently have very different meanings. Additionally, the INCOTERMS deal only with the responsibility for meeting costs and do not indicate any change in possession of title, unlike US terms. Confusion over terms of sale can result in a lost sale or a loss on a sale. For this reason, the exporter must know the terms before preparing a quotation or a pro forma invoice. INCOTERMS (International Commerce Terms) Incoterms are the internationally accepted standard definitions for terms of sale as set forth by the International Chamber of Commerce (ICC) and are used in quoting prices. They create a common basis for understanding, and can be used to determine the underlying intent of the parties in a transaction. The following is a list of the most commonly used INCOTERMS, listed in orderfrom the maximum obligation for the buyer (EXW) to the maximum obligation for the seller (DDP). This information is also available in graphical form. EXW (ex works) at a named point of origin (e.g., ex factory, ex mill, ex warehouse). Under this term, the price quoted applies only at the point of origin and the seller agrees to place the goods at the disposal of the buyer at the specified place on the date or within the period fixed. All other charges, including placement of the goods on the transport, are for the account of the buyer. FCA (free carrier) to a named place. This term replaces the former "FOB named inland port" to designate the seller's responsibility for the cost of loading goods at the named shipping point. It may be used for multimodal transport, container stations, and any mode of transport, including air. The seller is responsible for loading goods into the means of transportation; the buyer is responsible for all subsequent expenses. If a port of exportation is named, the costs of transporting the goods to the named port are included in the price. FAS (free alongside ship) at a named U.S. port of export. Under this term, the seller quotes a price for the goods that includes charges for delivery of the goods alongside a vessel at the port. The seller handles the cost of unloading and wharfage; loading, ocean transportation, and insurance are left to the buyer. FOB (free on board) at a named port of export. The seller quotes the buyer a price that covers all costs up to and including delivery of goods aboard an overseas vessel. CFR (cost and freight) to a named overseas port of import. Under this term, the seller quotes a price for the goods that includes the cost of transportation to the named point of debarkation. The cost of insurance is left to the buyer's account. (Typically used for ocean shipments only.) CIF (cost, insurance, freight) to a named overseas port of import. Under this term, the seller quotes a price for the goods (including insurance), all transportation, and miscellaneous charges to the point of debarkation from the vessel. (Typically used for ocean shipments only.) CPT (carriage paid to) and CIP (carriage and insurance paid to) a named place of destination. Used in place of CFR and CIF, respectively, for shipment by modes other than water. DDU (delivered duty unpaid) means only the transportation customs duty and taxes are paid by the consignee. DDP (delivered duty paid) means the seller delivers the goods, with import duties paid, including inland transportation from import point to the buyers's premises.