Inco Terms

Purpose and Grouping

Objectives
After going through this presentation you will be able
to:
Explain the purpose of Inco Terms
Describe the Inco Terms

Varying Requirements in International Trade

International trade transactions take place between
two or more parties situated in different countries.
Trading partners and other interested parties like
transport operators and banks work under different
sets of commercial, social, cultural, and climatic
conditions.

Need for Uniformity

Trade practices and understanding of trade terms differ
across countries. In big countries like ours, trade
practices differ even within the country.
In such circumstances, it becomes
necessary to have a trading platform
in which all parties to a transaction
understand various aspects of the
trade in the same context and with
the same meaning.
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http://internationalstrategies.files.wordpress.com/2011/09/cutcaster-photo100676267-business-couple-on-world-map-background-with-internet-flagbutto1.jpg

Language as a Tool of Trade

Language is one of the most important
tools of international trade.
It is also a complex component of
international trade.

Even small changes in terminology can have a major

impact on all aspects of a business agreement, as
interpretation of the same term may vary across
parties.
Image Source: http://sheezaredhead.files.wordpress.com/2011/01/commonlanguage.jpg

Usage of Uniform Trade Terms

Differences in usage of language and perceptions give
rise to:
1. Differences in meaning of trade terms
2. Understanding their implications
Therefore, there was a
necessity to have a
uniform system of trade
terms that are
understood in the same
context worldwide.
Image Source:
http://www.pasifikatrading.co.nz/Images/TermsOfTrade.jpg

Usage of Uniform Trade Terms (Contd.)

Inco Terms published by International Chamber of
Commerce (ICC) meet the requirement of having a
standardized set of trade terms that are understood
in the same context worldwide.
ICC introduced International Commercial Terms (Inco
Terms) in 1936. These terms are modified from time
to time to meet emerging situations and
requirements.

Image Source: http://www.maritimagroup.com/forwarding/imagenes/foto-incoterms.gif

Terms in Movement of Goods

Inco Terms deal with purchase and shipping of goods.
Each term has a definite meaning and is accepted and
used worldwide. Each term has the following
associations:
It signifies the point at
which delivery of goods
actually takes place
during movement from
the sellers place to the
buyers place.

It specifies costs, control,

and liability of the buyer
and the seller.

Essentials for Delivery

Arrangement for insuring the goods, since noninsuring of goods may result in loss of time and
resources, including money
The point at which delivery is deemed to have taken
place, to decide the liability of trading partners
Clear legal possession of goods

Inco Terms and Bankers

Use of Inco Terms is widespread and almost every
trade transaction involves their usage. Bankers should
have a clear knowledge of these terms and their usage
in trade transactions because:
Banks handle documents
and transactions
containing these terms
on a daily basis.

Banks bear the

responsibility to
scrutinize and decide on
the compliance of the
accepted trade terms in
their capacity as agents
for buyers and sellers.

Inco Terms and Bankers (Contd.)

Understanding the Inco Terms enable efficient working
in handling trade finance transactions.

Whenever ICC publishes a new or modified version

of Inco Terms, it is imperative to get updated with
the changes they bring about.

Grouping of the Terms

For easy understanding, the terms are classified into E,
F, C, and D groups, named after the first letter of the
respective Inco Terms.
Group E

Group F

Group C

Group D

These terms are

used in
transactions in
which the sellers
responsibilities
are fulfilled when
goods are ready
for despatch from
their factory or
facility.

These terms deal

with shipments in
which freight is
not paid by the
seller.

These terms deal

with shipments in
which the seller
pays for shipping
the goods.

These terms cover

shipments in
which the shipper
or seller's
responsibility
ends when the
goods arrive at
the specified
point.

E Terms

EXW: Ex Works

SELLER
BUYER

"EXW" stands for "Ex Works". Its features are:

The seller delivers the goods at the named place.
Costs and risks to the seller are upto that point.
The seller has minimum obligation.
The risk to the seller is that the buyer may refuse to accept the goods.
The risk to the buyer is that insurance is valid from the EXW point.

F Terms
FCA

FAS

FCA: Free Carrier

FOB

SELLER
BUYER

"FCA" stands for "Free Carrier". Its features are:

The seller delivers the goods to the carrier.
Costs and risks to the seller are up to that point.
The seller has to clear the goods for export.
The seller has no obligation to clear the goods for import.

F Terms
FCA

FAS

FAS: Free Alongside Ship

FOB

SELLER
BUYER

"FAS" stands for "Free Alongside Ship". Its features are:

The seller delivers the goods alongside a barge or quay at the named port.
Costs and risks to the seller are up to that point.
The seller has to clear the goods for export.
The seller has no obligation to clear the goods for import.
It is applicable only for water sea or inland transport.

F Terms
FCA

FAS

FOB: Free On Board

FOB

SELLER
BUYER

"FOB" stands for "Free On Board". Its features are:

The seller delivers the goods to the carrier at the named port.
Costs and risks to the seller are upto that point.
The seller has to clear the goods for export.
The seller has no obligation to clear the goods for import.

C Terms
CIF

CFR

CIF: Cost, Insurance and Freight

CPT

CIP

SELLER

BUYER

"CIF" stands for "Cost, Insurance and Freight". Its features are:
The seller delivers the goods on board the vessel.
The seller has to pay for cost and freight.
The seller has to buy a minimum contract for insurance.
The risk passes to the buyer at the port of shipment.
It is applicable only for sea or inland waterways.

C Terms
CIF

CFR

CFR/C&F: Cost and Freight

CPT

CIP

SELLER
BUYER

"CFR" or "C&F" stands for "Cost and Freight". Its features are:
The seller delivers the goods on board the vessel.
The seller has to pay for cost and freight up to the destination.
The risk passes to the buyer at the port of shipment.
The seller has to clear the goods for export.

C Terms
CIF

CFR

CPT: Carriage Paid To

CPT

CIP

SELLER
BUYER

"CPT" stands for "Carriage Paid To". Its features are:

The seller delivers the goods to the carrier.
The seller has to pay for cost and freight up to the destination.
The risk passes to the buyer at different places.
The seller has to clear the goods for export.

C Terms
CIF

CFR

CIP: Carriage and Insurance Paid To

CPT

CIP

BUYER

"CIP" stands for "Carriage and Insurance Paid To". Its features are:
The seller delivers the goods to the carrier.
The seller has to pay for cost and freight upto the destination.
The seller has to buy a minimum contract for insurance.
The risk passes to the buyer at the port of shipment.
The seller has to clear the goods for export.
It can be used for any mode of transport.

D Terms
DAT

DAP

DAT: Delivered at Terminal

DDP

SELLER
BUYER

DAT
"DAT" stands for "Delivered at Terminal". Its features are:
The seller delivers the goods at the destination port and performs
unloading.
The seller has to pay for cost and freight upto that point.
The seller has to clear the goods for export.
The seller has no obligation to clear the goods for import.

D Terms
DAT

DAP

DAP: Delivered At Place

DDP

SELLER
BUYER

"DAP" stands for "Delivered at Place". Its features are:

The seller delivers the goods, ready for unloading at the destination port.
The seller has to pay for cost and freight upto that point.
The seller has to clear the goods for export.
The seller has no obligation to clear the goods for import.

D Terms
DAT

DAP

DDP: Delivered Duty Paid

DDP

SELLER
BUYER

"DDP" stands for "Delivered Duty Paid". Its features are:

The seller delivers the goods, ready for unloading at the destination port.
The seller has to pay for cost and freight upto that point.
The seller has to clear the goods for export.
The seller has to clear goods for import, pay import duty, and clear Customs
formalities.
The seller has maximum obligation.

Summary
In this presentation you learnt:
The purpose of Inco Terms
The Inco Terms