As in any sales agreement, having a common understanding of the terms of sale for both the seller and buyer are crucial because they avoid confusion and can prevent a lost sale. Many international business transaction terms may appear to sound the same as domestic terms, however they often have very different meanings.
Therefore, to effectively succeed internationally it is important that you familiarize yourself with and use the international Buy-Sell terminology also referred to as “Incoterms 2000” or International Commercial Terms, developed in 1936 by the International Chamber of Commerce (ICC). The ICC adopted 13 IncoTerms to make it universally easier for international traders in different countries to understand one another when it comes to defining their respective responsibilities, risks and costs associated in the delivery of goods when conducting a Buy-Sell transaction.
Simple misunderstandings between you and your foreign buyers can often be prevented by using Incoterms when quoting a price. Using these terms in a price quotation are meaningful to your prospective buyer because they are able to determine their total cost for an order as well as help them to determine the cost of shipping close to or at their wanted destination.
Using U.S. dollars when quoting a price can also be helpful as it can eliminate risks associated with exchange rate fluctuations and currency conversion problems.
Commonly Used Terms (IncoTerms 2000):
1. “EXW” – Ex Works (from a named place/point of origin): The Seller delivers when he/she places the goods at the disposal of the Buyer at the specified place, such as seller’s premises or another named place (i.e. works, factory, warehouse, etc.) within a fixed time period. The quoted price applies only at the point of origin. Any additional obligations, risks, and costs beyond the named point of origin are the Buyer’s.
2. “FCA” – Free Carrier (from a named place in the country of origin of the shipment): The Seller is responsible for delivering the goods to the carrier nominated by the Buyer at the named shipping point. It is the Seller’s responsibility to clear the goods for export. This term can be applied for any mode of transport.
3. “FAS” – Free Alongside Ship (named port of shipment): The Seller’s quotation for the goods includes charges for delivery of the goods that are placed alongside the vessel at the named port of shipment. The Seller is responsible to clear the goods for export and handles the cost of wharfage. The Buyer is responsible for the loading, ocean transportation and insurance costs.
4. “FOB” – Free On Board (named port of export in the country of origin of the shipment): The Seller quotes the Buyer a price that includes all costs up to and including the loading of goods aboard a vessel. The Seller is responsible for clearing the goods for export and delivers when the goods pass the ship’s rail at the named port of shipment. The Buyer bears all costs and risks of loss of or damage to the goods from that point. This term is used only for ocean shipments.
5. “CFR” – Cost and Freight (a named overseas port of destination): The Seller quotes a price for the goods that includes the cost of transportation and delivers when the goods pass the ship’s rail at the named port of shipment. The Seller must pay cost and freight to named port of destination. The Buyer bears all costs and risks of loss of or damage to the goods. This term is used only for ocean shipments.
6. “CIF” – Cost, Insurance, and Freight (named overseas port of destination): The Seller delivers when the goods pass the ship’s rail at the named port of shipment. The Seller must pay cost, insurance, and freight to named port of destination. The Buyer bears all costs and risks of loss of or damage to the goods. This term is used only for ocean shipments.
7. “CPT” – Carriage Paid To (named place of destination): The Seller delivers when the goods are delivered to the carrier nominated by Seller, but he must pay the cost of carriage to bring the goods to the named destination. The Buyer bears all risks and any other costs occurring after the goods have been so delivered. This term can be used in place of CFR and CIF for all modes of transportation, including multiple different modes of transport.
8. “CIP” – Carriage and Insurance Paid To (named place of destination): The Seller delivers when the goods are delivered to the carrier nominated by Seller, but he must pay the cost of carriage to bring the goods to the named destination. The Seller must also pay insurance against the Buyer’s risk of loss of or damage to the goods during carriage. The Buyer bears all risks and any other costs occurring after the goods have been so delivered. This term can be used in place of CFR and CIF for all modes of transportation, including multiple different modes of transport.
9. “DAF” – Delivered at Frontier (named place): The Seller delivers when the goods are placed at the disposal of Buyer on the arriving means of transport not unloaded, cleared for export, but not cleared for import at the named point and place at the frontier, but before the customs border of the adjoining country.
10. “DES” – Delivered Ex Ship (named port of destination): The Seller delivers when the goods are placed at the disposal of Buyer on board the ship not cleared for import at the named port of destination.
11. “DEQ” – Delivered Ex Quay (named port of destination): The Seller delivers when the goods are placed at the disposal of Buyer not cleared for import on the quay (wharf) at the named port of destination.
12. “DDU” – Delivered Duty Unpaid (named place of destination): The goods are delivered when the Seller delivers the goods, not cleared for import, and not unloaded from any arriving means of transport at the named place of destination. The Buyer is responsible for paying any “duty” for import in the country of destination.
13. “DDP” – Delivered Duty Paid (named place of destination): The goods are delivered when the Seller delivers the goods, not cleared for import, and not unloaded from any arriving means of transport at the named place of destination. The Seller is responsible for paying any “duty” for import in the country of destination.
Commonly Used Terms When Chartering a Vessel:
1. Free Out: The charterer is responsible for the cost of unloading goods from the vessel.
2. Free In: The charterer of a vessel is responsible for the cost of loading goods onto the vessel.
3. Free In and Out: The charterer of the vessel is responsible for the cost of loading and unloading goods from the vessel.
Examples of Price Quotes:
– Price: $18.00 USD Ea. Ex Works Los Angeles, CA USA
– Price: $20.00 USD Ea. FOB Port of Long Beach, CA USA (Ocean Freight)
– Price: $21.50 USD Ea. CIF Dubai, UAE (Ocean Freight)
