Home > Community > Trade Guide > The language of trade deals: understanding Incoterms

The language of trade deals: understanding Incoterms

Published: 04 Aug 2009 22:35:08 PST

The prevailing set of commercial terms is called Incoterms 2000 .

Incoterms are standard trade definitions commonly used in international sales contracts. Devised and published by the International Chamber of Commerce, they establish the contractual obligations of the seller and the buyer under the price quotation and sales agreement. They distinguish when the responsibility or risk of the shipment transfers from the supplier to the buyer and what obligations each party is responsible for.

The table below lists the most widely used terms.

Multimodal transport	Air	Ocean	Rail
EXW FCA CPJ CIP DAF DDU DDP	FCA	FAS FOB CFR CIF DES DEQ	FCA

Below are definitions most commonly used:

Term	Definition	Risk	Cost
EXW Ex Works	Buyer arranges for pick up of goods at the seller's location. Seller is responsible for packing, labeling, and preparing goods for shipment on a specified date or time frame.	Buyer assumes all risk.	Buyer pays all transportation costs.
FCA Free Carrier	Seller is responsible for costs until the buyer's named freight carrier takes charge.	Seller and buyer	Split evenly
FAS Free Alongside Ship (over water only)	Buyer arranges for ocean transport. Seller is responsible for packing, labeling, preparing goods for shipment and delivering the goods to the dock.	Seller: until the goods reach the dock. Buyer: from dock to destination.	Buyer pays all ocean transport costs. Selleris responsible for costs associated with transporting the goods to the dock.
FOB Free On Board (over water only)	Seller arranges for ocean transport of the goods, preparing goods for shipment, and loading the goods onto the vessel.	Buyer: once the items are on board.	Seller pays wharfage (charges to load the goods onto the ship) and freight forwarder fees.
CFR Cost and Freight (over water only)	Seller has the same responsibilities as when shipping FOB, but shipping costs are prepaid by the seller.	Seller assumes risk until the shipment reaches the overseas dock.	Seller pays costs of freight fees up to destination.
CIF Cost, Insurance, and Freight (over water only)	Seller has the same responsibilities as when shipping CFR with the addition of including a marine insurance policy.	Seller assumes risk until the shipment reaches the overseas dock.	Seller pays insurance and freight forwarder fees.