International Commercial Terms INCOTERMS

Prof S P Garg
( Former Dy General Manager,

Bank of Baroda)
Jaipuria Institute of Management ,
Jaipur
 International Commercial Terms – (INCO-
TERMS-2000)
 the terms of sale in international business
often sound similar to those commonly used

in domestic contracts, they often have
different meanings.
 Confusion over these terms result in a lost
sale or a financial loss on a sale.

 By the 1920s, commercial traders had
developed a set of trade terms to describe
their rights and liabilities with regard to the
sale and transport of goods.
 These trade terms consisted of short
abbreviations for lengthy contract provisions.

 no uniform interpretation of them in all
countries,
 the International Chamber of Commerce (ICC)
, Paris developed INCOTERMS (International
Commercial TERMS), a set of uniform rules
for the interpretation of international
commercial terms and endorsed by United
Nations Commission on International Trade
Law(UNCITRAL)
 Defines the costs, risks, and obligations of
buyers and sellers in international

transactions.
 First published in 1936, these rules have
been periodically revised to account for
changing modes of transport and document
delivery.
 The current version is Inco-terms 2000.
 International Chamber of Commerce (ICC) has
launched new version of INCOTERMS® 2010

in September 2010 which will come into force
from January 2011
 Incoterms 2010 offers increased legal
certainty in sales transactions between and
within countries
 will help traders, bankers, law firms and all
others involved in international trade avoid

misunderstanding by clarity
 There are 13 Incoterms to choose from
during a transaction
 E terms: EXW: the seller only makes the goods
available to the buyer at the seller’s own
premises
 F terms : FCA,FAS, FOB: The seller is required
to deliver the goods to a carrier appointed by

the buyer
 C terms: CFR,CIF,CPT,CIP: The seller has to
contract for carriage,but without assuming
the risk of loss or damage to the goods or
additional costs due to events occuring after
shipment or dispatch
 D Terms : DAF,DES,DEQ,DDU,DDP:The seller
has to bear allcosts and risks needed to bring

the goods to the place of destination
 A new classification system divides the 11
Incoterms® rules into two distinct groups:
 Rules for any mode of transport: EXW
FCA CPT CIP DAT DAP DDP

 Rules for waterway transport:
 FAS FOB CFR CIF
 two new terms have been created:
 Delivered at Terminal (DAT) and
 Delivered At Place (DAP).
 EXW – Ex Works (named place)
 Seller makes the goods available at his
premises.
 Buyer is responsible for all charges
 FCA : Free Carrier: Delivery to railway station
by road transport
 FAS : Free alongside ship: Rail transport to
port and getting goods along side port
 FOB – Free on Board (named loading port)
 Seller must load the goods on board the ship
nominated by the buyer, cost and risk being

divided at ship’s rail.
 Maritime transport only.
 FOB does not include the transportation of
the goods – Certain clients would want to

arrange using their own forwarder.
 CIF – Cost, Insurance and Freight (named
destination port)
 Seller must pay the costs and freight to bring
the goods to the port of destination.- Risk is

transferred to the buyer once the goods have
crossed the ship’s rail.
 Seller must also pay for insurance for the
buyer.
 Maritime transport only.
 DEQ :Delivery ex Quay: landing at destination
 DDU – Delivered Duty Unpaid (named destination
place)
 Seller delivers the goods to the buyer to the
named place of destination in the contract of
sale. Seller does not need to pay Import duties
and taxes.
 The buyer is responsible for the costs and risks
for the unloading, duty and any subsequent
delivery beyond the place of destination.
 DDP – Delivered Duty Paid (named destination
place)
 Seller pays for all transportation costs and
bears all risk until the goods have been
delivered and pays the duty.
 Seller may also need to pay Value Added
Tax or Sales tax for the buyer.
 Prices of goods vary due to the different
terms used in the transaction- DDU and
DDP pricing is higher than FOB prices due
to the transportation included etc.
EXERCISES
An importer in Singapore asks for quotation
for 5000 kg of almonds You are an exporter
in Mumbai .You have to take a decision on
the amount to be quoted assuming the unit
price at $ 4 per kg with a total cost of %
20,000.
How your quotation would be effected by
Various Incoterms:
 FCA: $200,
 FAS: $ 250
 FOB : $150
 C&F/CFR: $ 750
 CIF : $ 750+ $ 200
 DEQ: $100
 DDP: $650
For Suggestions/Feedback/assistance
spgarg@jimj.ac.in
Mob : 093092 92080

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Prof S P Garg

( Former Dy General Manager,

often sound similar to those commonly used

sale or a financial loss on a sale.

abbreviations for lengthy contract provisions.

buyers and sellers in international

launched new version of INCOTERMS® 2010

others involved in international trade avoid

to deliver the goods to a carrier appointed by

has to bear allcosts and risks needed to bring

FCA CPT CIP DAT DAP DDP

nominated by the buyer, cost and risk being

the goods – Certain clients would want to

the goods to the port of destination.- Risk is

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